The trial of Sam Bankman-Fried

Sascha: [00:00:02] Welcome to The Dive, the podcast that asks Who said business news needs to be all business. All in crypto king Sam Bankman-fried, once king of the crypto world, is now in the midst of one of the biggest fraud trials in American history that's taking place right now in a New York courtroom. So what's this trial about? Rewind back to late 2022, the FTX's crypto trading operation and the closely related Alameda Research both collapsed in spectacular fashion. SBF, the founder of both of these companies, is now charged with crimes relating to the disappearance of billions, billions of dollars of users' money. Because here's the thing. The people using the exchange, they thought their money was being kept there while it switched, you know, between dollars and bitcoin or doge worth Ethereum. But in actual fact, they certainly didn't think that they were investing in or even lending to the company. But what is being alleged is that their funds were being transferred to Alameda and then lost. SBF insists on his innocence, publishing a statement that says, I didn't steal funds and I certainly didn't stash billions away. It's an epic tale. It's Wednesday, the 24th of October. And today I want to know what on earth is going on with the San Bankman-fried trial. To talk about this today, I'm joined by Tracey Plowman. She's here from the Crypto Curious podcast. Tracey, welcome to the Dive. 

Tracey: [00:01:34] Thanks for having me, Sash. Glad to be here. 

Sascha: [00:01:37] I'm really excited to dig into this one today. I've got to admit, I remember when it all blew up last year. 

Audio Clip: [00:01:43] FTX founder Sam Bankman-Fried, arrested in the Bahamas, set to face a judge this morning after U.S. prosecutors filed criminal charges in connection with a multibillion dollar collapse of his crypto company. From crypto king to criminal suspect Sam Bankman-fried. A stunning fall has just gotten worse for him this morning. Federal authorities in New York are expected to unseal the indictment that led to his arrest Monday in the Bahamas. 

Sascha: [00:02:06] But I've kind of been just reading headlines and haven't really delved into it recently, so I know you're the person to turn to for this. I think for anyone who has avoided this completely, it's worth kind of understanding who Sam Bankman-fried was a year ago and how big his identity was in the crypto community, in the finance community before he was charged. Can you take me back, you know, roughly a year ago and paint a picture of what was happening then? 

Tracey: [00:02:35] Absolutely. So before this big collapse, Sam Bankman-fried or SBF, as he was more widely known, was pretty much a mythical godlike creature for the crypto world. He was spending his days saving other companies who were in trouble. He was lobbying for crypto rights and reform on Capitol Hill, and he was very much a white knight, so to speak. He was a little bit of an enigma as well because he wore the same clothes everywhere. He had this weird afro, and he was a bit of a nerd. So he was this billionaire we didn't know a lot about, but he was seen as a bit of a crypto white knight, so to speak. And then, of course, this happened and everything changed. 

Sascha: [00:03:22] So let's get into exactly what this is in a second. But I think the point you made then of the fact that he was a bit of an enigma, so there wasn't really much known about him except for the stuff that he kind of wanted people to know, which was when he kind of be public and save companies or come out and say stuff that was really heroic of him for the crypto community. Let's turn back the clock to November 2022. What happened and then subsequently, what was SBF charged with? 

Tracey: [00:03:52] Okay, so there was a big collapse with FTX Exchange. The FTX exchange was the third largest crypto exchange in play. And this was a big shock to all of us out there using this exchange. And I was one of those. And this all comes down to Sam and his house of cards, including Alameda Research. Now, there was a lot of co-mingling of funds that led to this. I wish you would have heard about and a lot of this comes down to a liquidity issue. 

Sascha: [00:04:26] So, yeah, that was a liquidity issue. And that was when kind of all the magnifying glasses started to focus on the company, right? 

Tracey: [00:04:34] Yes. So it was revealed that Alameda Research, which is a trading firm specialising in crypto, which was also run by Sam, held a very big position, 5 billion, in fact, in another native token. That was part of it. So when this was out in the public eye, it caused a little bit of a bank run. So everyone ran and. Took their money out of food. They didn't survive. Basically, that's what happened. So within five days, all funds were drained out of food. That's when they realised where were the use of funds here. And that's when it all came to light, that the use of funds were gone and they were being used inappropriately. 

Sascha: [00:05:21] And so obviously that took quite a few weeks, even a few months for it all to kind of come to light. What was Sam then charged with? 

Tracey: [00:05:31] It was actually pretty quick, Sascha. He was charged within ten days. Yeah. So Sam was actually charged with wire fraud, two counts of conspiracy to commit fraud and one count of money laundering. This all comes about from allegedly taking these customer funds. It all happen pretty quickly. And he was arrested in the Bahamas and extradited to the US within three weeks of this taking place. 

Sascha: [00:06:00] So, Trace, of course, he gets charged. Late last year. The judicial system takes a little while. This trial is only just kicked off in the last month or two. The six week trial, I understand it will come to a conclusion in a couple of weeks, but what have we learnt so far? I understand there's been a few juicy stories that have come to light. Can you take me through them? 

Tracey: [00:06:21] Yeah. Look, we've all been waiting for this because the crypto community really feels that he needed his comeuppance. And what we didn't mention there was Alameda Research, which was the sister company that really brought this big fall about his ex-girlfriend Caroline Elson, and she was the CEO of that company. And we knew that there would be some toing and froing here because it kind of came out very early on that he was blaming her, she was blaming him, and it was a big, sordid ex-lover kind of story. 

Audio Clip: [00:06:53] Caroline is a very important witness For the state because she was privy to a lot of the inside information that the state wants to show that Mr. Bankman-fried Falsified and that he was aware of what was happening.

Tracey: [00:07:05] So we were really looking forward to Caroline taking the stand, as well as his co-founder. But if I was going to go into a few things straight away, just the sheer amount of money that this man was spending, it was unbelievable. We're talking millions and millions that we now know were customers funds on things like Super Bowl ads, naming rights for stadiums. People might remember that really amazing ad with Larry David at the Super Bowl.

Audio Clip: [00:07:35] Like I was saying, it's FTX. It's a safe and easy way to get into crypto. I don't think so. And I'm never wrong about this stuff. Never. 

Tracey: [00:07:48] You know, that was $10 million for what was actually, you know, 5 minutes of Larry's time. He spent $30 million on private jets, 80 million on politicians. It came out that he actually was planning to try and pay Donald Trump not to run for president in 2024. Wow. Would you believe it? 

Sascha: [00:08:11] I mean, politics aside, whatever side of the fence you're on, that's a pretty interesting way to be spending your money. I think I heard Wren say that he paid Tom Brady a couple of million to just come to the Bahamas. 55 million. Wow 

Audio Clip: [00:08:29] What's up? I'm getting into crypto with FTX. You're in for providing your 360 degree access to the crypto market with ability to trade everything from us to Defi believe I'm in but still hate you. Understood. Take it best, the family. Is he in? Yep. Did he say he hates you? He did, even on the phone, that guy sounds handsome.

Sascha: [00:08:47] And just do things under the guise of being an ambassador and the brand. Yeah. That still seems like there's no qualitative study on the return of investment with that kind of spending. 

Tracey: [00:08:58] Absolutely not. He's just in a different realm to what we know and understand with money. Like I think people that were getting to know him and in his sphere thought that he might become the world's first trillionaire. I think that was where he was projected to go. So money was nothing to him. Before this all went down, he was sitting at dinner tables with the likes of politicians and Kendall Jenner and and all these amazing people who he thought he could bring into his sphere. But again, it was the same guy with these sneakers and shoes on. And he was just an odd, odd cat.

Sascha: [00:09:32] But at the risk of sounding naive, Trace, he could have been projected to be the next trillionaire. But if you're spending money and the math doesn't add up and you're spending it at that rate and you're just spending customers funds, it doesn't make you a genius. It just makes you someone who's unemployed to do basic algebra, right?

Tracey: [00:09:52] It would seem that way. And funnily enough, in the last few weeks of trials, there were a lot of people that the prosecution had talking about those sums in particular, and and that was part of his downfall, looking at how he cooked the books. Basically, there was, you know, certain spreadsheets he would show certain investors and certain he would show others. And that was part of why things aren't looking too good for him at the moment. So again, and another thing that we found out, too, was we're talking in billions here and there's some really sordid stories coming out about Chinese investors. And he'd lost at one point, I think it was 2 billion to a Chinese exchange, and he was trying to get that back and he was using bribery. And at one point he was paying prostitutes to set up certain, you know, funds to wire money through here. It literally will be a movie one day. And this is all come out in court. Really weird and interesting stories. It did bring things back and it was a little bit sombre then to listening to Caroline's testimony. She was the CEO of Alameda, but it really did show that Sam was in control and he did have his hands in everything. 

Sascha: [00:11:02] There's more to come of my conversation with Tracey, including what this means for the crypto community. And that's in just a minute. 

Audio Clip: [00:11:13] We turn now to the trial of Sam Bankman-fried. His ex-girlfriend says Bankman-fried believed basic rules like don't lie, don't steal, didn't apply to him. I did not know that there is any improper use of customer funds. 

Sascha: [00:11:28] Welcome back to The Dve. I'm joined by Tracey Plowman, who is one third of our sister podcast here at Equity Mates, Crypto curious, Tracey, we've got bribery. We've got, you know, his ex-girlfriend turning on him and basically saying he knew what was going on. We've got excessive spending. I know we don't really deal in predictions, but you as someone who's been really watching this trial, what does the outcome look like at this stage?

Tracey: [00:11:53] Well, look, I mean, I don't I don't again, I'm no legal expert, but if I listen to the legal experts who are watching this unfold and what they think, then they're saying Sam's in deep trouble. And I was reading an article just last night, actually, that was put out by The Washington Post, and they're saying that the prosecution's been really heavy in their witness strategy. And this one seems to be not working very well for Sam's defence team because they've been really struggling to go hard in their questioning side of things. People have also seemed to point out that when the defence are asking questions, they seem to be thinking they're going to get one answer and getting the other answer back. So there's been a lot of talk that Sam maybe is not being truthful with his own team, but again, it's not looking good from what these legal experts are saying. And we're wondering now whether he'll even take the stand himself because it may not be a good look for him. 

Sascha: [00:12:50] Yeah, and I'm not a legal expert either, but my understanding from talking to friends who are barristers is that the legal process is very meticulously planned. And you do prepare your witnesses and you do prepare your defence or prosecution. And so the fact that they're being surprised at this stage of a trial is pretty shocking. Right? 

Tracey: [00:13:10] Exactly. Which is why it's not looking good. And perhaps if Sam's not being truthful behind closed doors with his defence team, maybe they don't want to put him up on the stand because who knows what he's going to say. I think he's just bought into his own bullshit session. Maybe, but I wouldn't put him up there because he knows what he'll say. 

Sascha: [00:13:29] Yeah, look, we kind of talked around it and I know that there's so much detail that we haven't had time to get into today. I know that if anyone's really curious and wants to do a deep dive, go and listen to crypto curious. You guys have been covering it, I know over the last few weeks, but what I really love to do, Trice, is talk to you about how there's been this pivot in the crypto community because clearly, you know, we talked about it at the top of this. You rewind a year, he was really seen as this enigmatic. Why not in the crypto community when FTX got into trouble, obviously that was a bit of a run on FTX. You were in there. There would have been a lot of confusion and a lot of sense of like, Are we on trial? Because he's on trial now as things are starting to be revealed and kind of the extent of his dealings is being laid bare, could you walk me through how the crypto community at large has felt about this trial and what it's going to mean if he does end up convicted? 

Tracey: [00:14:25] Yeah, look, you're right. Early on it was said that maybe crypto was on stand next to Sam Bankman-fried and that was for better or worse, and crypto had really played a pivotal role in his rise and fall. But we were all hurt just as much as anyone else, but we were a little bit cut because was Sam really a fair representative of this entire space? We didn't think so. You know, it's true that maybe he was the figurehead of some of these dodgy dudes that are in our industry. We get that. But remember that this was a centralised exchange that primarily grew by buying political positions. And it's not exactly the vision of Satoshi Nakamoto and what he set out for Bitcoin. 

Sascha: [00:15:12] Which is the decentralised model. 

Tracey: [00:15:15] Exactly, which is the decentralised model, kind of taking away all these intermediaries. And that's what I really want to point out. This was a centralised exchange and Sam came from traditional finance where I think he really saw that he could take advantage of this industry that is still maturing and didn't have the right rules and legislations in place which was really needed. So I think what we can take away from this and what we have taken away from this as an industry is really highlighted what we needed. And since then there have been a lot of really great steps forward. The MICA in the UK, they've really moved forward in their legislation in the UK, in Europe, they've taken great steps forward to put things in place so we can move forward with crypto there. And here in Australia. Just last week at the IFR Crypto Summit in Sydney, they have announced some really great new legislation. The Federal Government will require crypto exchanges to hold an IF sale or a financial services licence issued by a crypto regulator here. And that will really kind of bolster the confidence that people have in the crypto sector. So I think we've gone from having this really horrible thing that's happened to making it a positive for our industry.

Sascha: [00:16:31] So for people who are still curious about crypto and want to get involved and they're obviously hearing you talk about this fact that it was a centralised exchange when decentralised is obviously the model that's at the foundation of the crypto community, but it was the third biggest exchange. What would you suggest to someone who wants to kind of learn and make sure that they don't get caught up in something like this in the future? 

Tracey: [00:16:56] I think there's nothing against centralised exchanges. I think there's loads of great centralised exchanges out there. We were just caught with a very bad actor that was at the head of this particular centralised exchange. And I, like I said, I had money on FTX too and I do hold money on a couple of centralised exchanges, but what I do is spread my money out as a safety mechanism. You need to have the risk measures in place, so you need to understand different ways to mitigate risk and always be learning, always be educating yourself. We again have an episode on the crypto curious in our early episodes about risk. Different things you can do to de-risk your situation, and there's lots of different ways to safeguard the way you hold your crypto as well. Everything in this space is about education because it is still a very, very early space. So the best thing that you can do is to learn and to ask questions. 

Sascha: [00:17:52] Well, Trace, I think that's the best place to wrap up. Education is the key. And, you know, there's no better place to go online than crypto. Curious, which is your podcast, comes out every Wednesday afternoon. If you want to find it, go to equitymates.com or search crypto curious and any of your podcast players. Trace, thanks so much for spending some time and helping me get up to speed a little bit more with this trial.

Tracey: [00:18:13] No problem. It's great spending time with you, Sascha. Let's hope, let's hope he gets what he deserves. 

Sascha: [00:18:19] And we're going to leave it there for today. A huge thank you to Trace for joining me. It's always a pleasure having her on the show. And a big thank you to you for listening to us. And as always, I know I ask you every week, but I'm going to ask you again, the easiest, the fastest and the most effective way to help the dive is to give us a five star review. If you could just do that in your podcast player right now while you're on your commute, maybe before you get to the office, it makes all the difference. I'm going to be back in your feeds on Friday. We're going to be talking about the emerging video game industry right here in Australia. Until then.