Front Burner - Front Burner Presents | The Naked Emperor E1: The Hype

Episode Date: March 24, 2023

Sam Bankman-Fried wasn't like other crypto moguls: he drove a Toyota Corolla, he was an advocate for government regulation, he said he would give billions away to charity. That is, until he lost it all in what has been called “one of history’s greatest-ever destructions of wealth.” In episode 1 of Front Burner’s first spin off podcast series — The Naked Emperor — host Jacob Silverman, co-author of a forthcoming book about crypto and fraud, takes a closer look at the hype around SBF and FTX, and how it only grew, even as other crypto companies crashed around them. How powerful was Sam Bankman-Fried? And how did he initially manage to hang on, to thrive even, as other giants tumbled towards bankruptcy? For more episodes of The Naked Emperor, check out its podcast feed: https://link.chtbl.com/uXdCyMR8

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi everybody, Jamie here. So for the next four weeks, we're going to be airing a brand new mini series that we made. I'm really, really excited about this. It's called The Naked Emperor, and it tells a story about the rise and truly spectacular fall of Sam Bankman Freed and his crypto exchange, FTX. What happened with Sam and FTX is really one of the most stunning financial collapses

in recent history. Jacob Silverman, the host of the series, is a tech journalist and author, and he and our producer Imogen Burchard, they really do such a good job of pulling it all together. You don't need to know about crypto or even really care about it to get a lot out of the show. It's about so much more than crypto. New episodes release every Monday, so after you listen here, you can head over to the Naked Emperor feed and episode two is already there waiting for you. There's a link in this episode's description or you can search the Naked Emperor. On Monday in that feed, you'll get episode three. It's really, really good.

All right, that's it. I hope you enjoy it and we'll talk to you next week. All right, that's it. I hope you enjoy it. And we'll talk to you next week. There's going to be a time and a place for me to sort of think about myself and my own future, but I don't think this is it. Like right now, I mean, look, I've had a bad month. This has not been any fun for me, but that's not what matters here. In late November of last year, a 30-year-old man made his first public appearance since the collapse of his business empire. His arm visibly shakes as he addresses, via video, the elite crowd at the New York Times-hosted event. And if I had to guess what they find so funny here,

it's just the understatement of calling it a bad month. It was unprecedented. Weeks earlier, Sam Bankman Freed's companies, worth billions, had gone bankrupt. His personal fortune was wiped out, basically overnight, in what Bloomberg called one of history's greatest ever destructions of wealth. And the worst was still to come for Sam. This morning, we unsealed an eight-count indictment charging Samuel Bankman Freed, FTX's founder, with a series of interrelated fraud schemes that contributed to FTX's collapse.

By mid-December, he would be arrested in the Bahamas and charged by the U.S. Attorney for the Southern District of New York. It's so hard to compare these things, but I think it's fair to say that by anyone's life, this is one of the biggest financial frauds in American history. The next day,

the guy who had come in to take over the wreckage of the company, a guy best known for taking over after the bankruptcies of Enron and Nortel, would go before the U.S. Congress and call it a blatant rip-off. This is just taking money from

customers and using it for your own purpose. But this isn't sophisticated whatsoever. This is just plain old embezzlement. Old school. Old school. There you go. A court will have to decide that because Sam is denying it. Either way, there were millions of these customers who held funds on FTX.

Now, they don't know where their money is. Investigators are left combing through a company that had been one of the biggest cryptocurrency exchanges in the world. Sold as safe and legit by NBA star Steph Curry and Shark Tank celeb Kevin O'Leary. by NBA star Steph Curry and Shark Tank celeb Kevin O'Leary, invested in by giants like BlackRock and the Ontario Teachers' Pension Plan, leaving many to wonder, how could this happen? He says that it's not fraud, that it was just an honest mistake. It's fraud. To me, it's fraud.

And how did no one see it? I understand why I didn't see it. But why didn't the people that we trust see it? I'm Jacob Silverman, and this is The Naked Emperor. Episode 1, The Hype. Most of my encounters with Sam Bankman Freed, or SBF, have taken place on Twitter. In the spring of 2022, he started responding to some of my tweets, first publicly, then in private. It was a bit unusual to hear from a billionaire CEO in Twitter

DMs, especially when I was open about my skepticism of the crypto industry. SBF was far more casual and solicitous with journalists than most executives, even by his industry's freewheeling standards. He gave out his personal phone number and tweeted as much as any influencer. One day, SBF DMed me, essentially offering to be my guide to crypto.

The message read, Always offering to be my guide to crypto. The message read, always happy to chat about stuff, smiley face. Could be helpful for pointing you to places that will, in the end, vindicate what you say, slash help you avoid things that won't age as well. I was dubious. There seemed to be a warning there. Some of my criticisms were valid, but others wouldn't age as well. At least, he was implying, if I didn't listen to him. exchanged brief messages with SBF. We met in person when my colleague Ben McKenzie interviewed him for a forthcoming book about crypto and fraud. My producer says I'm obligated to tell you that, yes, that's the same Ben McKenzie who played Ryan on the OC. SBF seemed awkward but not introverted. He was prone to long, wonkish stemwinders that didn't answer the question in front of him. An industry hype man who sold himself as the one to make crypto safe for the

masses, he was clearly cunning. He had to be in order to become so wealthy and politically influential so quickly. By messaging with me, SBF was either being very savvy, keeping an eye on a journalist who might report on him, or he was being very stupid by risking saying something revealing. Maybe it didn't matter. I was one of many people in SPF's Rolodex. And just because I didn't buy the myth built up around him, didn't mean that it wasn't very real. In just the past five years, Sam Bankman Freed went from buying his first Bitcoin to becoming a multi-billionaire. The FTX founder is now worth an estimated $11 billion. I think a lot of people probably only heard of Sam Bankman Freed for the first time when everything was falling apart.

And to get just how stunning a downfall it was, you have to understand the truly spectacular heights from which he plummeted. FTX has seen explosive growth since 2019 when the company was founded. $32 billion valuation. Your company is now worth more than Twitter and some of the biggest banks in the world. For a while there in the pandemic, in 2021, early 2022, the hype around crypto was just crazy. The price of a token based on a dog meme went up by 36,000%. token based on a dog meme went up by 36,000%. On late night TV, Paris Hilton and Jimmy Fallon lazily touted monkey JPEGs as somehow cool and desirable. How did you pick? Because you can pick your ape.

Yes, I was going through a lot of them and I was like, I want something that kind of reminds me of me. But this one, it does. Every new shitcoin or NFT collection or celebrity endorsement seemed more ridiculous than the last. None of it seemed very useful. And yet the value of this stuff just kept going up. I went to the world's biggest Bitcoin conference in Miami, where tech billionaire, intelligence contractor

and leading Republican donor Peter Thiel held up $100 bills. It's really weird. What is this? I mean, it's probably not very good as toilet paper. It's not good as wallpaper. It's sort of this crappy fiat money. Crumpled them up and clumsily threw them away. Throw it out at people. So much money was pouring in that the industry reached a valuation of around $3 trillion. And Sam Bankman Freed rode that hype to the very top. You were at a billion dollars a little more than a year ago.

And as a result of this raise today, your valuation is? It's 32 billion internationally and eight in the US. How old is your company? About two and a half years. He became filthy rich. His popular crypto exchange FTX was valued at 32 billion dollars. His personal wealth was valued at $16 billion. Forbes magazine put him on their cover and called him the richest 20-something in the world.

And with the money came credibility. Rather than attend that crypto conference I was at in Miami, he put on his own in the Bahamas. It was much more exclusive, invite only. But I found this sizzle reel from the event on YouTube with a lot of techno strobe lights and footage of Steve Aoki DJing. Welcome to the Bahamas. Where you can see just a glimpse of former British Prime Minister Tony Blair speaking. Understand this technology revolution and harness it for the public good. Along with former U.S. President Bill Clinton. I'm convinced that we've got a lot of money, energy and talent behind crypto.

And when you have something that's obviously serious, you want to do right by it in the regulatory space. obviously serious, you want to do right by it in the regulatory space. On stage with the suited elder statesman was Sam Bankman-Fried, wearing a rumpled FTX t-shirt, shorts, and New Balances. This was part of his shtick. He dressed like a college student who just rolled out of bed for breakfast. He slept on a beanbag chair and lived with his buddies. So I live in, nine colleagues and I bought a large apartment together near our office that we live in.

He played video games while talking to investors and journalists. I was playing game of storybook brawl. I took second place out of eight. Could have been worse. And they ate it up. In a glowing profile since removed from Sequoia Capital's website, Sam is described as playing League of Legends throughout a meeting with the famous venture capital firm's partners. Their reaction? Quote, we were incredibly impressed. quote, we were incredibly impressed. Sequoia would go on to invest $150 million in FTX, and they weren't SBS only prestigious backers. There was Temasek, Tiger Global, SoftBank,

some of the world's biggest venture capital and sovereign wealth funds invested in FTX. Like I mentioned earlier, even the Ontario Teachers Pension Plan invested $95 million. These names might not mean much to people outside the financial world, but these are what are called blue chip investors. They're recognized. They're respected. Deep pockets. Even as SBF was getting rich off the crypto boom, a big part of his success was how he set himself apart from that often volatile world. He cultivated a public image that was different from the crypto bro stereotype. Okay, the guy you see next to me is the most generous billionaire in the world. And I found him. Hi, my name is Sam, and this is my story. Sam has crazy hair.

Sam is vegan. Sam sleeps five hours a night. Beyond the shabby outfits and unkempt hair, he was portrayed as living a relatively modest lifestyle for a billionaire. Hold on, where's your car? It's that one there. That's like what, a Toyota? Yeah, it's a Corolla.

Why don't you buy a Lamborghini, man? I didn't have any particular need for one. He talked a lot about his charitable giving. He identified as an effective altruist, which basically means, well, here's how Sam explained it on CNBC in September. Which is basically a movement looking at, if you want to have positive impact on the world, how do you maximize that? Or at least do the best that you can. Think about it about it not in terms of like, do at least one unit of good, but instead of like,

how many units of good can you do, given what resources you have at your disposal? For me, in particular, what it has meant is making as much as I can so I can donate as much as I can to what hopefully are some of the world's most efficient and effective charities. Effective altruism had become the ethos of choice for philanthropy-minded Silicon Valley moguls. It suggested you could optimize charitable giving, and that making money could be a good thing unto itself. The effective altruism thing was part of Sam's whole billionaire origin story. He told it many times.

It goes like this. Back when he was just an undergrad at MIT studying physics, he met with prominent, effective altruists who made him think, maybe he could make a lot of money in order to give it away. For sort of the first time in my life, I had real discussions about, of all the things I could do with my career, what's the best. And there are a lot of great things that you can do. And I don't know the answer, but it certainly put on the roadmap, like, well, you know, one thing that

you can always try and do is try and make and give away money. And, you know, anything else has to sort of beat that. A young billionaire making money for the sole purpose of donating it to good causes? It made for a great yarn. One that he was happy to tell to anyone who would listen. He would float the idea of giving away truly astronomical sums. The hope is to scale into the like hundreds of millions to billions over the next couple years and certainly to the billions per year, you know, over the next five to 10 years. And obviously, a lot of this depends on exactly how well the company goes. But I think like I would be pretty

disappointed if it never got to, you know, if it never reached the point of a billion a year. Sam's money went not just to charity, but to politicians too. He told podcaster Jacob Goldstein that he planned to donate north of $100 million in the 2024 election cycle. So if that's a floor, what's the ceiling? Like, a billion? Might you give a billion? Yeah, I think that's a decent, like, thing to look at as a sort of, like,

I mean, I would hate to say, like, hard ceiling, because who knows what's going to happen between now and then. But as, like, at least sort of a soft ceiling, I would say, yeah. That is an absurd number. He soon walked it back, saying to Politico, that was a dumb quote. saying to Politico, that was a dumb quote. But he did give about $40 million in political donations in the 2022 election cycle, making him one of the biggest donors in last year's U.S. midterms. It was covered at the time like he was mostly giving to Democrats,

but I'd noticed that his co-CEO at an FTX subsidiary was giving plenty to Republicans, too. SBF insisted this was primarily about pandemic prevention, as he told Chuck Todd on Meet the Press. We did not, as a country or as a world, frankly, have a coherent response to COVID. And we missed in both directions. It was careening wildly around.

And we still haven't learned the lesson. And this has got to be a thing that government is involved in, that government is working proactively on. He claimed that he wasn't just buying influence on crypto regulation, despite what skeptics like me might think. People aren't taking out my word, and I understand that. And I think what it says, and do the research, you know, look at the policies that I'm supporting, the candidates that I'm supporting, you know, and many of these people, I have no idea what their position is on crypto. But regulation was a big interest of his. This made SBF unusual in crypto, where companies reveled in sidestepping the rules and scrapping with the government agencies trying to rein them in.

sidestepping the rules, and scrapping with the government agencies trying to rein them in. Crypto's libertarian underpinnings meant that government was the enemy, not a potential collaborator. But not for SBF. Here he is, actually wearing a suit for once, testifying before the House Agriculture Committee in May 2022, asking for regulation. Digital asset marketplaces need federal oversight. They need that oversight to protect consumers, to protect against systemic risk, to bring liquidity back onshore, to ensure U.S. competitiveness globally.

In that Chuck Todd interview, he described it as almost a selfless act. I think it would be irresponsible of me not to engage with Capitol Hill, with regulators. And the things that I've been arguing for are more regulation for the industry. I think that's what's right for the country. I don't know if that's what's right for a company, but it's what needs to happen. That's a rosy view of it. Sam was trying to boost the role of more friendly regulators. That's how he ended up talking crypto in front of an agriculture committee. It's in charge of the Commodities

Future Trading Commission, or the CFTC, because futures trading used to be about commodities like grain or corn, hedging against a possible bad harvest, for example. Now, Sam wanted the CFTC to regulate the trading of Dogecoin. One proposed piece of legislation, circulating through Congress, was commonly referred to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50%.

That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. I want to talk about one more way Sam Bankman-Fried stood apart from his crypto peers. And that's the way that he advertised. SPF went big, buying the naming rights to wear the Miami Heat play. Bankman-Fried tells me he hopes the soon-to-be FTX Arena encourages people to try crypto out. One piece of this is that we're really trying to, you know, get our name out there.

When he made a deal with Major League Baseball, he put the FTX logo not on players' uniforms, but on the sleeve of every umpire, linking FTX with the people who ensure fairness in the game, baseball's regulators. The message being sent with the enormous advertising budget was that FTX is safe and easy. And they got big celebrities to deliver it.

Seven-time Super Bowl champion quarterback Tom Brady. FTX is the safest and easiest way to buy and sell crypto. It's the best way to get in the game. NBA superstar Steph Curry. No, I'm not an expert and I don't need to be. With FTX, I have everything I need to buy, sell, and trade crypto safely. Comedian Larry David was paid to endorse the company, too. Well, kind of.

One of the worst ideas I've ever heard. This commercial's premise was that Larry David didn't recognize the brilliance of various technological inventions throughout history, like dishwashers. You might as well put the dishes in the shower. And toilets. You expect this court to do its business inside? We're not animals.

We go outside like humans. So, of course, he didn't get the brilliance of FTX either. Like I was saying, it's FTX. It's a safe and easy way to get into crypto. Eh, I don't think so. And I'm never wrong about this stuff. Never. That one actually didn't age too badly.

A key brand ambassador for FTX was current day Shark Tank shark, former Dragon's Den dragon, Kevin O'Leary. I don't endorse products or services that I don't actually use. I eat my own cooking. I think that's important. O'Leary became an investor and spokesperson in summer 2021. He sang Sam's praises. He was even impressed by Sam's Stanford Law professor parents. And big advocate for Sam because he has two parents that are compliance lawyers.

If there's ever a place I could be that I'm not going to get in trouble, it's going to be at FTX. They're great people, but he gets the job. It was quite the change of heart considering just two years earlier, O'Leary was totally dismissive of crypto. You haven't changed my mind at all. It's still garbage. And I'm not going to take real money and put it into this thing. It's never going to happen. I mean, imagine real money, taking real dollars that I'm making in cash, 2.1% on and putting it into crypto crap.

This thing was huge. Like, we're talking billions of dollars, ambassadors left, right, and center, from actors to sports people to creators on YouTube. Still appearing on CNBC in interviews, talking about how he's investing in this and what FTX is doing in Congress. And, like, all this weighs on your mind, right?

And you're like, oh, okay. That's Chris Kuchkarian in Quebec. He says that he'd been interested in crypto for almost 10 years. He works in tech. It was a little fun project in IT type of thing. It wasn't anything serious where money was the goal. It wasn't like, oh, this is going to change my life type of thing. He started taking a closer look in 2017, 2018, when the first boom happened. Still... One of the problems with crypto as a whole, and in Canada, since I am in Canada, was accessibility and how do you get these things. The on-route wasn't there, wasn't simple. I knew people that were buying crypto, like pulling out cash, going to meet a guy in an alley, giving them $500 to buy them one Bitcoin type of thing. I didn't go that route.

I don't trust other people in that sense. But I have a friend who still owns one whole Bitcoin. Then he never sold, still is holding on to it. But that's how he got it. He paid $500 cash in an alley somewhere. That's what he told me anyway. But by the time the next boom came around in the pandemic, there were easy-to-use exchanges, mainstream endorsements, and there was FOMO, a fear of missing out. So obviously there's the FOMO aspect where I saw some people that just randomly threw 500 bucks in or a thousand dollars and then suddenly had $250,000. And that

kind of FOMO was, I resisted it a long time. I only started committing when it looked like there was people that I look up to in the sense of investments. Kevin O'Leary, I can tell you that name came up. I remember originally he had said it's all garbage. And then now he's one of the backers of the FTX. You know, not everybody can just stare at the pot of gold in front of you and see people putting their hands in it and then just keep staring at it and say, nope, not for me.

Chris starts putting more serious money into crypto. I started investing a hell of a lot more. Sorry for the language. I put rules in where I would automatically buy $50 every week, regardless, both in Ethereum and Bitcoin. When they would drop, I would go nuts and buy a chunk more, like 200 bucks at a shot. And then obviously that over a year, two years, became thousands of dollars. And because he keeps hearing about FTX...

FTX seems so global. It seems so huge. And all these people are putting their name and money behind it. He checks it out, finds he likes the interface, the low fees. So I moved my money to FTX. Then I started buying on FTX with a credit card. And Chris becomes one of the millions of FTX users worldwide. users worldwide. I tried to warn you guys. I tried to tell you in my last video, crypto is going to blow up.

It happened. Welcome to the crypto crash of 2022. We are living through history. Epic times. The mania that brought SBF to the top couldn't last forever. It was a bubble driven by low interest rates, tons of cheap venture capital, and a lot of hype and irrational enthusiasm.

On some exchanges, 70% or more of trading activity was what's known as wash trading, fake trades between accounts controlled by a single entity, done in order to drive volume and move prices. By the time the 2022 Super Bowl aired with six crypto ads, including Larry David's for FTX, the cracks were already starting to form. Prices had peaked months earlier. Many who bought in were too late. They'd end up losing money to either plummeting prices or abrupt bankruptcies.

This has been a tough, tough market for a lot of people, particularly last week. Last week was a very painful week for many small investors, retail investors, as well as institutional. The truth was that by mid 2022, consumer crypto was dying, or at least the version we knew anyway. As crypto crashes around him, Sam seems to be thriving. Sam Bankman Freed is really becoming the industry's lifeline during a crisis lately. The CEO of FTX is behind hundreds of millions of dollars in emergency loans in the past week or so.

He tells Bloomberg's David Rubenstein that the crash doesn't make him super nervous. So it didn't give you any gray hair, I can see, so. Oh, a little bit. But, you know, I pluck those out to keep up appearances. And he begins bailing out various crypto businesses on the verge of collapse, earning himself some flattering comparisons. They call him the JP Morgan of crypto, right? Yeah, the Michael Jordan of crypto, if you will.

The J.P. Morgan of crypto. The next Warren Buffett. Crypto's white knight. He extends lines of credit worth hundreds of millions to peers and insists he has more to deploy if need be. He tells CNBC he's doing it for the good of the industry. It's not going to be good for anyone long term. If we have real pain, if we have like real blowouts,

and it's not fair to customers, and it's not going to be good for regulation, it's not going to be good for anything. And so from a longer term perspective, it's just that was what was important for the ecosystem is what was important for customers. And it was what was important for people to be able to operate in the ecosystem without being terrified that unknown unknowns were going to blow them up somehow. But the ecosystem was already compromised. All these actors are so tied up in each other's business. It makes sense, of course, that he would try to provide some stability.

If people see crypto companies tanking all over the place, why would they feel safe putting their money into this world? But he's also picking survivors. For every company he chooses to save, others are left to die. And Sam comes out on top. Or that was the plan. Seeing all these people talk about him, seeing media platform putting him on, seeing him in front of the US Congress, you'll get the sense of like, this is a good guy. This guy is doing good things.

He seems like he's clearly successful. I mean, he's a multi-billionaire. All these people trust him. The bailing entire companies out left, right and center and center, it was like, well, okay, well, clearly they can't fail. Those are very bad last words of mine. At the height of the mania, I remember telling people that not just FTX, but this entire industry seemed unsustainable. They said I was just salty about missing out, or that $3 trillion in market cap couldn't be wrong.

This was the next internet. I took a lot of heat online. And sometimes I did feel like I was crazy. A guy with a cardboard sign warning about the apocalypse on a street corner. Maybe there was some fundamental thing I didn't get, but there was so much I was seeing that just didn't make sense. Even as the industry began to crack, SBF was still standing and somehow able to bail out

troubled companies. Where was the money coming from? Why was FTX doing so well when most of its peers weren't? It seemed like everyone was indebted to everyone. But Sam wasn't just immune to what people in the industry called contagion. He was stopping it. When SBF DMed me back in the spring, he said that some of my critiques of crypto were correct. Not all, but some. And that he would tell me when he thought I was wrong.

He told me that one potentially sketchy crypto company, with which he did a lot of business, was poorly run. A mess, but not a scam. The difference between what's just a mess and what's a scam turns out to be at the heart of this story. What's the product of negligence, of being reckless and bad at your job? And what's a crime? Because if you want to convict someone of fraud, you have to prove intent. Coming up on The Naked Emperor.

Hey guys, good news. Bunch of 25-year-olds. We don't really know what a Bitcoin is, but we're trading it. You're just like, well, I'm in the Ponzi business and it's pretty good. There was never the smart people and the quote-unquote dumb people,

the smart money and the dumb money. You know, everyone has collapsed. Thinking of your fans here, did it ever give you pause that a crypto market that you said yourself is very volatile was being sold as safe by some of these big industry players like FTX? I mean, should people have been more and more? I'm not sure it was sold as safe. I don't think anybody can say that. You've been listening to The Naked Emperor, a FrontBurner miniseries from CBC Podcasts and CBC News.

The show was written by me, Jacob Silverman, with producer Imogen Burchard, associate producer Yvette Sin, sound design by Julia Whitman and Yvette Sin, Sarah Clayton is our digital coordinating producer. Executive producers are Cecil Fernandez, Chris Oak, and Nick McCabe-Locos. In order of appearance, audio from

The New York Times YouTube channel, the U.S. Attorney's Office for the Southern District of New York's Facebook page, Andrew Sorkin and Kate Rooney on CNBC's YouTube channel. The YouTube channels of The Tonight Show on NBC, Bitcoin Magazine, Salt, The David Rubenstein Show on Bloomberg, The Pushkin Podcast, What's Your Problem? The YouTube channels of Nas Daily, The FTX Podcast, and The 80,000 Hours Podcast. The YouTube channels of NBC News, NBC6 South Florida, Yahoo Finance, Kevin O'Leary, TechLead, Coindesk, and Matt Levine on the Bloomberg podcast, OddLots. For more CBC Podcasts, go to cbc.ca slash podcasts.