Consider This from NPR - Does Sam Bankman-Fried's Fraud Trial Spell the End of Crypto?

Episode Date: October 1, 2023

Not too long ago, crypto was being trumpeted as the next big thing. Celebrities were getting in on it, including Kim Kardashian, Matt Damon and Tom Brady.Now the former face of crypto, Sam Bankman-Fried, who ran the FTX exchange, is going on trial. He's accused of orchestrating one of the largest frauds in history. As his case gets underway it's as if the whole crypto industry is on trial.NPR's David Gura speaks with Bloomberg reporter Zeke Faux who wrote the book "Number Go Up: Inside Crypto's Wild Rise and Staggering Fall," and Sheelah Kolhatkar, a staff writer for The New Yorker who has a new article out on Bankman-Fried and his parents.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This message comes from Indiana University. Indiana University performs breakthrough research every year, making discoveries that improve human health, combat climate change, and move society forward. More at iu.edu forward. Not too long ago, crypto was being trumpeted as the next big thing. Our terms were starting to hear more and more cryptocurrency, Bitcoin and NFTs. This is Miami, the city that wants to lure tech from Silicon Valley and finance from New York, all by embracing crypto. Celebrities were getting in on it, including Kim Kardashian, Matt Damon and Tom Brady. FTX is the safest and easiest way to buy and sell crypto. It's the best way to get in the game.

At the start of 2022, FTX ran what was one of the largest cryptocurrency exchanges in the world. The company was valued at $32 billion. That was just three years after it was founded by Sam Bankman Freed, who's better known by his initials, SBF. He was the king of crypto, basically. Zeke Fox is a former colleague of mine and investigative reporter for Bloomberg. He'd get called into Washington to testify before Congress about how he thought the industry should be regulated. Bank CEOs were dying to get his attention because they were hoping that FTX would go public and it'd be a big deal for them. And venture capitalists would give him as much money as he would take.

Until the whole thing fell apart. FTX collapsed spectacularly in November 2022. Customers and investors lost billions of dollars. And a month later, Sam Bankman-Fried was arrested. He's accused of orchestrating one of the largest financial frauds in history. I've been covering the run-up to his trial, which will start with jury selection on Tuesday. But since FTX imploded, SBF has maintained his innocence. Here's what he said shortly after his crypto empire crumbled.

I didn't ever try to commit fraud on anyone. I was excited about the prospects of FTX a month ago. I saw it as a thriving, growing business. I was shocked by what happened. Consider this. Sam Bankman-Fried goes on trial, along with the entire crypto industry, in a way. We'll chart the rise and fall of its most recognizable personality. From NPR, I'm David Gurra. It's Sunday, October 1st.

This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time mid-market exchange rate with no hidden fees. Download the WISE app today or visit wise.com. T's and C's apply. This message comes from Indiana University. Indiana University is committed to moving the world forward, working to tackle some of society's biggest challenges. IU makes bold investments in the future of bioscience and cybersecurity, cultivates visionary work in the future of bioscience and cybersecurity, cultivates visionary work in the arts and humanities, and prepares students to become global citizens by teaching more languages than any other university in the country.

Indiana University. Nine campuses. One purpose. Creating tomorrow today. More at iu.edu. It's Consider This from NPR. FTX made it very easy to buy and sell cryptocurrencies like Bitcoin. I remember someone telling me early on that the company ran what was essentially the New York Stock Exchange for crypto.

People all over the world used FTX's app to trade digital assets, and they spent billions of actual dollars. What Sam is accused of is allowing his hedge fund to take that money that people sent in and gambling that money away, spending it on this real estate shopping spree in the Bahamas, using it for political donations. There's $8 billion missing, and he's accused of basically embezzling it. That's Bloomberg reporter Zeke Fox again, who's written a new book called Number Go Up, Inside Crypto's Wild Rise and Staggering Fall. Zeke's covered crypto in a really clear-eyed way. And in this book, Sam Bankman-Fried is a central character. Zeke interviewed him a couple times in person, once during FTX's heyday at the company's headquarters in the Bahamas, and then again after everything fell apart.

We got Zeke into our studios to talk about SBF and crypto. And the first thing I asked him is what made SBF so appealing to would-be investors, so appealing that they happily gave him hundreds of millions of dollars to grow his company. He had this way of being kind of disrespectful in a way that just made everyone love him more. No matter the occasion, he'd wear khaki shorts, an FTX t-shirt, never combed his hair. And he actually played video games during important meetings, which you'd think might be kind of a turnoff. But when Sequoia, the venture capital firm, found out that Sam had been playing League of Legends while pitching them,

their reaction was just like, oh my God, we love this guy. How do we give him hundreds of millions of more dollars? This became like a shtick of his. You write about it in the book. He's giving a speech, a major speech to an audience in New York. You're there with him and you watch this happen. He opens up a video game and he starts playing. Yeah.

I mean, it's just bizarre. Not only is he giving this speech to the Economic Club of New York, like pretty important group, he is playing video games while he does it. And he knows that I'm sitting there writing a profile of him that I'm going to describe him doing this. Like the kind of cool nerd who didn't care about the traditional power brokers and couldn't be bothered to dress up or to even give someone his full attention was working for him. And for a while, it totally did. Zeke, it sounds like he was kind of curmudgeonly. You describe him kind of like tuning out and playing video games. Yet you also got swept up in the mystique surrounding him. I flew past the bright red flags you write.

What were some of the other red flags and how did you end up missing them? The biggest one was just that FTX was in the Bahamas. They'd moved there to avoid U.S. regulation. So this guy that we were all hyping as the future of finance was basically running like a semi-legal offshore casino for crypto where you could make all sorts of crazy bets on random coins and for a time there people were ignoring that and just treating sam like he was the next mark zuckerberg of the of the financial world and when he would say things like, oh, I'm going to buy Goldman

Sachs, people treated it like it was kind of plausible. Now, the other big red flag that everyone knew about, which we should have all paid more attention to, was that Sam ran this crypto exchange FTX, but he also ran a hedge fund called Alameda that was one of the biggest traders at the exchange. This is sort of like if the executives of an online poker website also entered its biggest tournaments. There'd be a huge temptation for these guys to cheat by looking at the other players' cards. So it was known that Alameda traded on FTX. It's a big conflict of interest that never would have been allowed on Wall Street. And Sam would always say, Alameda plays by the same rules as

everyone else on FTX. They're not cheating. They're not granted any special privileges. But we've now found out that was totally not true. So Sam Begman-Fried's a guy who is kind of a schlubby dresser, but he's moving in this circle of stars and celebrities and world leaders. He has a conference in the Bahamas. President Clinton is there. He makes an ad with Larry David. Steph Curry is involved in this whole enterprise. So is Tom Brady.

What was his relationship like with celebrity and the celebrity status that the success of this company kind of bestowed on him. So Sam always acted like he was above it all. He didn't care about celebrities, but he seemed to be really excited whenever he got to spend time with them. And I think that he saw that having an ad with Tom Brady or being pictured with former President Bill Clinton gave him this air of legitimacy. And everyone was looking for someone in the crypto world who could be sort of the trustworthy figure. And even if it doesn't directly make sense, having these celebrities around him, I think

did give Sam an air of trustworthiness. There's a tendency to talk about the big fish in this world. Sam Bankman Freed was once a billionaire, so were all of the people who surrounded him in the executive ranks at his companies. But a lot of regular folks lost money here, and we don't talk about them a lot. When you look at what happened to FTX, how big an impact did that have on people who aren't billionaires and don't have penthouses in the Bahamas, who took a gamble on this new asset based perhaps on an ad that they saw during the Super Bowl? I spoke with lots of people who got sucked in by that kind of marketing, maybe started small,

but then ended up sending hundreds of thousands of dollars of their savings to one of these crypto apps. And for them, the collapse had a real impact. I talked to people who were now unable to buy homes that they've been saving for or would have to seek new lines of work. Yeah, it was not all like fun and silliness. People lost real money, and their lives were changed by, you know, the collapse of these platforms like FTX and of all the coins that went along with it.

Yeah, Zeke, I think you and I would both agree this is going to be a pivotal signal moment in the story of crypto. You've spent years covering cryptocurrency. Do you see this as the end of a chapter or do you think that we are approaching the end of the story of crypto? So in my time researching crypto, I spent two years trying to essentially answer the question of what is this all good for? Why are all these coins going up and up? And what I found is that there's not much there. And the one thing that it was good for was gambling. And now, with the collapse of FTX, Sam Bankman-Fried has discredited even that use. So I just can't imagine that after all this, we're going to see the crypto bubble inflate again. That was Zeke Fox.

He's an investigative reporter for Bloomberg. I also talked with Sheila Kulhatkar. She's a staff writer for The New Yorker who got something no other reporter has been able to get. And that's an opportunity to talk with Sam Bankman-Fried's parents on the record about SBF's arrest, what the last 10, 11 months have been like, and also about their resolve as their son's case goes to trial.

I'm a parent myself. I certainly felt for the terrible anguish they must be experiencing. I know there's controversy about them and whether they had a role in what happened at the company. Leaving all that aside, just on a purely human level as parents, they are destroyed by this. I think they revered Sam and had certainly convinced themselves that he could not do anything wrong. One of the most startling moments I had while I was reporting the New Yorker piece is when I asked Sam's mother, Barbara Freed, who's a renowned legal scholar. I said to her, well, listen, there must have been a moment when this indictment was filed, when you read the charges and you had to go to him and ask him, Sam, did you do any of these things?

And she said, no, she never even had to ask. She knew he would never do the things the government was accusing him of doing. And I found that to be truly remarkable because the fact that she was so sure from the outset, did not even need to confront him and let him convince her that he hadn't committed these transgressions, I thought was very telling just about the level of devotion she has to her son. With that level of devotion and what sounds like the wall that she's put up, did she tell you that she's entertained? What the consequences of this might be? Sam Begman-Fried living at home with them for seven, eight months, more recently has been in jail.

There is the prospect here that he spends the rest of his life in prison. I had the impression that, you know, that a guilty verdict would really destroy her. I did notice towards the end of my reporting this story that she did start to talk a little bit about the appeal and certain arguments that might, you know, be important for an appeal. So that did, you know, that did give me a hint that both she and Joe, Sam's dad, are starting to prepare themselves for the possibility that this, you know, this will not go as they had hoped. For people who haven't invested in crypto, haven't dabbled in this world, don't know Sam Bankman-Fried, don't know what FTX is, why is this story, why is this alleged fraud so important and such a big deal? This is an old story to some extent. This is a story about, you know, an ostensible

genius, happened to be very young, lauded by the press, you know, worshipped by Silicon Valley, who was allowed to go out and behave in ultimately a reckless way with other people's money while people turned and looked the other way. And, you know, lo and behold, things were not as they seemed. Something was seriously wrong and it resulted in a terrible amount of pain and destruction and financial losses. And this arc, this narrative arc is something we see over and over again, particularly in sort of hot new tech companies, where you often have these young men who are just empowered to go out and behave recklessly while they try and grow their companies. And then, of course, we figure out afterwards that they were cutting corners or fraud occurred.

And, you know, there's all sorts of pain and recrimination. And you don't have to care about crypto to care about the outcome and the question of whether justice is served in this case. That was Sheila Kuhatkar, a staff writer for The New Yorker. We reached out to Sam Bankman-Fried's spokesman for comment, and he declined our request. It's Consider This from NPR. I'm David Gurra.