Front Burner - Front Burner Presents | The Naked Emperor E4: It Takes a Village

Episode Date: April 10, 2023

Sam Bankman-Fried couldn’t have marketed FTX to the masses on his own. He had help – from the institutional investors who brought in the big bucks, to the celebrity endorsers who told the public that FTX was “a safe and easy way to get into crypto.” One FTX brand ambassador was Kevin O’Leary, from the reality show Shark Tank. Host Jacob Silverman questions O’Leary about his due diligence before accepting the multimillion dollar endorsement deal. We also hear from everyday investors and hopeful beneficiaries of SBF’s charitable largesse and learn how their hopes were dashed on the rocks of alleged fraud. Zooming out, we learn that a lot of people may be responsible for what happened to FTX and that the losses, especially in a big alleged financial fraud scheme, can reverberate widely. Fourteen years into the crypto experiment, we survey the damage and the successes, and ask what we can learn from the disaster that Sam Bankman-Fried left in his wake. For more episodes of The Naked Emperor, check out its podcast feed: https://link.chtbl.com/uXdCyMR8 For transcripts of this series, please visit: https://www.cbc.ca/radio/frontburner/transcripts

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 I hope that you are having a really nice end to your long weekend. Today we've got the fourth and final episode of our Naked Emperor miniseries. Jamie here. So I hope that you are having a really nice end to your long weekend. Today, we've got the fourth and final episode of our Naked Emperor miniseries. As you probably know by now, it's about Sam Bankman Freed and the spectacular failure of his crypto exchange FTX.

There's this really fantastic chunk of the episode where host Jacob Silverman interviews Kevin O'Leary. O'Leary is, of course, most famous for Shark Tank and Dragon's Den, but he also took millions of dollars to be a brand ambassador for FTX, and Jacob has some really tough questions for him. If this is the first chance you've had to listen to an episode of The Naked Emperor, you might just want to head over to its dedicated feed and binge the whole thing. You can just search The Naked Emperor, you might just want to head over to its dedicated feed and binge the whole thing. You can just search The Naked Emperor wherever you get your podcasts. All right, enjoy, and I will talk to you tomorrow. I was angry in the moment. At this point,

it's kind of a fait accompli, and I've kind of written everything to zero. But I was angry not only at SBF, as they call them, but at all these people that convinced millions of customers to put their money in there. Sam Bankman-Fried couldn't market FTX to the masses on his own. He got a lot of help. They were the big institutional investors who brought with them money, connections, and friendly media coverage. You're talking about the pension fund. I'm talking about Sequoia. I'm talking about CNBC. And flashy star spokespeople who endorsed the brand. I'm talking about Kevin O'Leary. I'm talking about that NFL guy. Sorry, I don't watch football.

Tom Brady. These are a lot of people. These are a lot of institutions. These are a lot of companies. Kevin O'Leary straddles both these worlds of finance and fame. He's a celebrity investor, a businessman best known for playing a businessman on TV. A little campy, a little mean, he delivers blunt judgments on the reality show Shark Tank. O'Leary was paid $18 million to be a brand ambassador for FTX. He says he kept most of it on the platform, and so he lost out, like everyone else. But before the collapse, O'Leary seemed dazzled by SBF, saying things that are almost comically wrong in hindsight.

I'm going to guess, and it's a personal opinion, the last guy to blow up is going to be Sam Bankman-Fried, because he doesn't get himself caught in over-levered positions. They're very, very good in terms of managing their own business. Chris took this kind of praise to heart.

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. Now, he can't help but feel a bit duped. I feel tricked by FTX and everybody that I trusted. Again, all the experts. I can forgive the kids, the non-expert experts on YouTube. That's fine. Had it only been those people, I could have said again,

okay, well, you trusted a bunch of content creators on YouTube. That's not smart. That's not what I trusted. I trusted actual people who do investing as a limit. If all these people came out and said, no, no, no, we did our due diligence. There's a conflict of interest between these two. It's shady. Anything. Nothing like that was said. It was the opposite. This guy's a genius. He's saving crypto. It was the opposite. This guy's a genius. He's saving crypto.

A lot of SBF's boosters have clammed up in the wake of the bankruptcies. But Kevin O'Leary is still talking. And I had some questions I wanted answered. Just give me a second. I'll make the audio a little better. Hang on one sec. Okay. Great, thank you. Well, I know you have a lot going on, and obviously you've been doing some interviews,

and you're a busy man, so I'd love to just dive in. I'm Jacob Silverman. This is The Naked Emperor. Episode 4, It Takes a village. When Kevin and I spoke, I wanted to put to him some of what Chris had been asking. About what kind of vetting he did before investing in and endorsing Sam Bankman Freed. And what responsibility he feels to his fans, now that

it's turned out to be a disaster. Just for clarity, you're about to hear O'Leary refer to the due diligence Bain did for Tiger. That's a reference to the research that the consulting firm Bain & Company did into FTX on behalf of the investment firm Tiger Global. Both are considered top firms in their fields. Neither replied to our request for comment. What kind of research or due diligence did you do on your part into FTX and Sandbank Manfred? Well, in the deal community and venture, we rely on each other. We don't want to do the same thing over and over again. So we made the assumption that the diligence done by Bain for Tiger was good. I also understood that his parents were compliant lawyers from Sanford. That gave me some comfort as well. I met many of

his management team. I thought they were good as well. And the mandate they were asking me to do made a lot of sense to me. And so I was comfortable to make the investment and become a paid spokesperson and declared that to everybody that I ever talked to. I mean, when I'm paid by a company, I tell them that. I endorsed what they were doing. I endorsed what crypto was becoming, particularly around payment systems, digital payment systems. And I still believe it's going to be the 12th sector, the S&P, after all of these shenanigans are over, because there's more shoes to drop as a result of this. And we can talk about that. But unregulated exchanges are a thing of the past. I think

FTX has proven that. Others have proven it. There's still lots of bankruptcies to come. But it doesn't take away from the fact that this is really good software code. That's what crypto is. And the software didn't do anything illegal. It's the people that were manipulating that did or allegedly did. Right. So it sounds like to some extent you did rely on some of your peers and other investors who were similarly enthused and were doing some research into what FTX was all about. Yes, I would say that's true for all of us. I mean, look, I'm not going to sugar coat it. We all look like fools today. It's very embarrassing for these giant behemoth financial

institutions and all of the paid spokespeople. This is a mistake. It was a bad investment, but it doesn't change anything for me. I mean, it just doesn't. I've had good investments and I've had bad ones. And luckily, I've kept my ratio high over the years, 25 years I've been doing this. This is an unfortunate one, but it doesn't change my enthusiasm for crypto or change what I do today or tomorrow or anything else. There are reasons companies go out of business. Usually it's not fraud. But in this case, that's alleged. And let's see what happens. But in this case, that's alleged. And let's see what happens. Right. I just returned to the point of due diligence because you did say on a YouTube show over the summer that you did a lot of due diligence before you accepted that position. Well, I have to disclose I'm a paid spokesperson for FTX.

So I have a lot of respect for the management there. I did a lot of due diligence before I accepted that position because I wanted to have a compliant... Is that true? Did you not do anything on your end? Oh, no. We looked at the platform. I was most concerned. Could I actually... The diligence that I spent a lot of time on was, could I actually invest in this platform and also put capital to work in the context of managing that capital, because if I can't link it to my compliance department or my auditors or regulators, I can't do it at all. I mean, I have to be able to mark to market the positions and say, here's what I have at the end of every trading day. And that was where I spent a lot of time. And remember, all of this money was not,

none of this was my LPs or any of my partners. I didn't feel comfortable enough at any time, even though I had countless requests for the equity of FTX US particularly. The people came to me that I partnered with before other investors and said, look, Kevin, can you get us in on that deal? I said, guys, I'm just not comfortable doing that. This is so nascent. It's a venture investment and you're trading it as if it's an institutional one. I can't do that. So I never took anybody else's money. These losses are all my own. And for that, I'm thankful. So I only have to account to my own operating company that I own

100% of. You mentioned that you only lost your own money or money that was promised to you by FTX, but we've spoken to FTX customers, ordinary people who use the platform, and some of them say it was your endorsement of the company, your confidence in the company that led them to FTX and gave them confidence to trade on it themselves. And now they've lost everything they had on the platform. Do you feel any responsibility towards these fans or for leading them astray?

Well, I'm not sure that you can make that claim. I mean, look, obviously all of us as spokespersons, I never felt comfortable doing commercials and endorsing it that way. I was more interested in getting the platform compliant for institutions. And to the extent anybody has lost money on it, I'm very sorry. But I think what's happened here has been pretty transparent. Nobody sees fraud coming. Nobody endorses fraud. Nobody wants fraud, if it is fraud, as is alleged. And I wouldn't want to do that anytime. And I obviously think it's a horrible

thing. And we'll see what happens. And litigation will ensue. And that's the nature of what's happening here. But to assume that any paid spokesperson, and I can't speak for any of the others, but for me, I don't endorse fraud or allege fraud at all. Of course not. I endorse entrepreneurship, and I have for 30 years. The truth is, when you're out there in social media and you're a public investor and a spokesperson, you've got to have tough skin. It's hard to do what I do. And if I worried about every tweet and allegation and suggestion that comes at me, I wouldn't be able to do this. And so to me, a lot of that is untruthful and very noisy. I prefer to deal in transparency

and fact, and that's what I do. It does sound like that a loss for you, especially with your venture portfolio, is a lot different than a loss for an everyday trader. We talked to an FTX user in Quebec, and he told us that he looked up to you and trusted you to know what you were talking about. And now he feels tricked by SBF and by people he trusted. What would you say to someone like that? certainly crypto is, you have to take the upside and the downside. That's what happens. And so you could make the same claim about trading Bank of Nova Scotia when it goes down 10% when it doesn't deliver. That's the way it is. Now, to say that there's no recoupment, I don't know that yet. There's been many cases. We go back to Madoff, which I think made back 75 cents on the dollar by the time it was over. I don't want my name used to support illicit or alleged fraud activity, obviously, the economy. And it does have negative consequences. But it doesn't change those sectors. And this won't change that sector either.

And this individual and others, if they elect, maybe they won't want to play in crypto anymore. I don't know that, to be a fact. But it depends what this asset class does over the long term. And that's what I think we should think about. I, along with many other people last year, had losses in stocks and bonds and private equity and venture capital for various reasons. And I don't like losses ever. I know they're part of being an investor. 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, particularly in a volatile asset class. The thing about crypto over the last, you know, I admire you for doing the reflective work you're doing on this because you're going to become part of the ethos on this,

is that when you're not regulated, the temptation to do things like issue tokens that are worthless and trade them for billions of dollars of valuation is very, very high. And so I would never put my money in crypto in any of those unregulated exchanges. And I withdrew all of it.

The only place I consider safe right now, remarkably, and where all my crypto assets are being stored is under the order of the Ontario Securities Commission, where the regulator regulates which tokens are allowed to be held. The proof of asset reserves is audited. There's no commingling of accounts. And so I don't consider any other jurisdictions safe yet, including that of the United States, until they get this stuff in order the way the Canadians did. I do have to push back a little bit on your doubting that FTX was sold as safe. A safe and easy way to get into crypto was the tagline in some of their commercials. It's a safe and easy way to get into crypto.

I remember Tom Brady saying that in one of the commercials. FTX is the safest and easiest way to buy and sell crypto. It's the best way to get in the game. Yeah, I'm not Tom Brady. I wish I could play football, but I wouldn't say that. I've been working in financial services my whole life. I don't say that. Now, you know, you're asking me what I say. I don't say that.

I don't consider any investment 100% safe. There is no perfect 100% safety in any asset class anywhere, anytime, anywhere on earth. Sure. But if perhaps you didn't say it yourself, then certainly the company that you were attached to was saying that it was a safe way to get into crypto. Well, obviously, I would prefer they didn't do that, but I don't control their messaging. I'm one of many paid spokespeople. I think that's obvious. That's probably not a good statement to make. On the other hand, you look at many other financial services companies, whether they be regional banks, global banks, money center banks, there's lots of comparisons to that. People want to make it simple and easy. And that's partly what

banking should be, I mean, if you think about it, but it's what I say that I can only account to myself and what I say, I can control what I can control. And that's what I say and what I do and what I write and what I put out. My strategy is to be transparent, tell the truth and take the heat when that happens. Because of one guiding principle I learned when I was a young teen, my mother said to me when I was, I think, 13, never, ever do anything except tell the truth, because you'll never have to remember what you said. Given that a lot of everyday people suffered some real financial hardship, would you consider returning any of the 1818 million you were paid

to help in the process of making FTX customers whole? Interesting question, but, I mean, kind of irrelevant. I don't have it anymore. I'm like everybody else in this, a victim. I don't have that cash. I don't know where it is or if I'll ever get it back. And I'm sorry for that. Kevin O'Leary might have a method to his investing.

And he might expect to occasionally back the wrong horse. But it's clear that he had bought into a classic Silicon Valley trope, the myth and the cult of the genius founder. O'Leary is far from the only one who fell for it. It's a whole cultural phenomenon, especially in tech, where styling yourself as a precocious founder with a brilliant idea is a good way to get in front of some very rich people. These young, nerdy entrepreneurs are supposed to have the keys to the universe. Some are elevated to stardom. Some are allowed to operate by their own rules. Like Elizabeth Holmes with Theranos, Sam Bankman-Fried convinced a lot of people, especially some old, rich, and powerful people, that he understood something they didn't.

Blockchain and crypto were the future. This much was taken as a given. But SBF promised he had the secret sauce to scale the project and make them all fabulously rich. That writer at Sequoia Capital said that Sam was going to be the first ever trillionaire. It was a delirious prediction. That's how greed manifests. The royal advisors tell the emperor that his clothes look great.

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 Cops. FTX was one of the biggest crypto exchanges in the world.

And so a lot of people were caught up in the blast radius of the collapse. We talked to one guy who told us he lost $2.1 million. I don't think a lot of people get it because, yeah, I put it, it was money which was meant for my son's education and a house. And I didn't think that I took it for granted and I wasn't like showing off about it or anything. He's part of a proposed class action lawsuit against SBF and a number of celebrities who endorsed FTX, including O'Leary. Oh, I don't comment on ongoing litigation.

I mean, you know, class action suits are common, particularly in the U.S. It's not just FTX users who got hurt. There's a domino effect in this incestuous industry where everyone seems to owe everyone. Shortly after FTX went belly up, another crypto company called BlockFi did too. It had significant exposure to FTX. We talked to one BlockFi user who lost not just his own money, but some of his family's as well. He'd invested on their behalf.

Now he had to face them and admit that it was gone. I feel like I'm not alive and it's all like a dream. It's a tough situation. Look past the hype and flash around crypto, the crazy price swings and unbridled enthusiasm, and you'll find that it's everyday people like this who are left holding the bag. I've seen this throughout my time reporting on crypto. The collapse of a major exchange may be a setback for billionaire investors, but they'll move on to other ventures. So-called retail traders suffer the real losses.

traitors suffer the real losses. When we're talking about allegations of fraud, it's important to remember that fraud is a social crime. Its effects radiate beyond the initial victim. People have to tell spouses, families, friends. It's all gone. Or maybe worse. I screwed up. I feel responsible. And I need help.

In the case of FTX, it wasn't just traders and investors who lost out. Organizations with little connection to crypto have been caught up in the legal and financial maelstrom. Sam was a prolific donor and investor himself with wide-ranging interests. He used his wealth to position himself as a major philanthropist, wielding his philosophy of effective altruism as a public relations vehicle. The FTX Foundation and the FTX Future Fund gave out grants and donations.

Now, those donations are tainted and could even be clawed back. Right. First of all, thank you very much for the opportunity to have this conversation with me. So, my name is Kafuko Zegaraya. I am the director for One Day Africa, which is the African chapter of One Day Sooner, an international nonprofit organization focused on public health, medical research, and clinical research advocacy. if you allow me. Personally, I am vaccinated now, but I did not get my first dose until 2022. And I didn't even get it from Zambia. I'm privileged enough that I traveled at the time and the country where I went to

was kind enough to have vaccines available. So that's where I took my first dose, outside of the country. But I had been waiting and trying to get vaccinated. So you can imagine the sort of restricted or just general lack of access to vaccines that most of Africa experienced, while countries, no offense to Canada, but while countries like Canada was holding, you know, stockpiles of vaccines. So the grant that the Future Fund Foundation gave to One Day Sooner

was $350,000. Most of that money was actually earmarked for the work that we're doing in Africa. Specifically, we're looking at work around supporting our equitable vaccine distribution efforts and improving global vaccine access. And so what has happened now is that that money cannot be spent. And we are waiting to obviously be given instructions regarding how this bankruptcy process is going to unfold. But there is a very, very, very, very good chance that there's going to be clawback, which basically means that that money is likely to just go back. But right now, it's just sitting there and we can't spend it.

As I indicated, that grant was specifically earmarked to support all this work in africa and now without it i don't know um i don't know you know it it felt it felt like hope was taken away from us or from me, you know, because at one point this was given to really, really make a difference in this work that we're doing. And then not long after that, this went away. Now, the person at the heart of this issue, the person at the heart of this scandal, clearly knew what he was doing. So, to allow for people to build hope, to allow for people to continue in their hope that things can get better.

And all the time, knowing that this could explode at any point and these are actual lives of people that would be impacted, these are actually human beings that would be affected, I think that amounts to a sense of betrayal for me. As charities await word of what to do with the tarnished donations, the new leadership at FTX is seeking the voluntary repayment of Sam's political contributions. Cheyenne Ligon at Coindesk found that more than a third of Congress received direct contributions from SPF and other FTX executives. They're now expected to return that money.

Creditors and customers are waiting to find out what they can recoup. Not everyone agrees on the way forward. Lawyers and distressed debt traders are descending with the appetite of locusts. An epic corporate collapse is an opportunity to feast on the carcass. But it's still not clear how big the hole might actually be or where all the money even went. Look, at the end of the day, we're not going to be able to recover all the losses here. Money was spent that

we'll never get back. Our job is just to find the assets and try to get customers their money back as quickly as possible. The new CEO, John Ray, told the Wall Street Journal that he was even looking into the possibility of restarting the exchange to see if that would get more value for customers. Sam Bateman-Fried has just pleaded not guilty, as he was expected to. We've also got a potential trial date. That's set for October 2nd. It's expected to last about four weeks.

SBF is scheduled to go on trial October 2023. He is pleading not guilty. He says that he did not run Alameda, that Alameda lost money because of a market crash they were not adequately hedged against, and that he did not steal funds. He also maintains that FTX has more in assets than the bankruptcy team says.

His public communications since the bankruptcy, the interviews, the tweets, the sub-stack, it's all left a lot of people baffled. I struggle myself to explain it, except to say that I think he may genuinely believe his mistakes were innocent ones. And while the odds for a defendant in a federal case aren't good, he only has to create doubt in one juror's mind. I reached out to Sam to tell him about this podcast and to ask him if he'd do an interview for it. I tried him on Signal first. That's how we usually used to communicate.

But shortly after, the judge temporarily barred him from using the app. Prosecutors alleged he'd reached out to a former FTX employee, and they raised concerns that he could tamper with potential witnesses. I DMed him on Twitter, where I suspected he could still be lurking. No response. I sent a detailed list of 30 separate questions to his spokesperson and to one of his lawyers. The spokesman thanked me for reaching out, but declined to answer. I even signed up for a game Sam used to play called Storybook Brawl. It's owned by FTX, and I had a faint hope of bumping into him there, only to realize there was no in-game chat function.

A lot could happen between now and when Sam appears in the dock. Others could be implicated. More crypto companies could fall. Sam Bankman-Fried says he's concerned for his family now, this after an alleged security incident at their home. SBF may be in danger. A lot of people lost a lot of money, and they blame him.

In late January, a car crashed into a barricade outside Sam's parents' house. A few men reportedly told a security guard, you won't be able to keep us out. Then they sped off. The only constant in crypto is volatility. The computer scientist

Nicholas Weaver likes to joke that the crypto industry is speed running 500 years of financial history. It's frenetic and messy. We seem to get a black swan event, a company failing, a federal indictment, all too frequently. But this is different. If Sam can go down, anyone can. Maybe that's refreshing in an era of corporate impunity. He seemed above the fray,

on his own glide path to moguldom. He had pop cultural presence and close relationships with those in power. He wanted access to mainstream finance. He quietly bought a stake in an obscure but federally licensed U.S. bank, and he was trying to shape policy that would help him expand his business in the U.S. He talked about FTX becoming a do-everything financial bazaar, where you could buy a banana or a Bitcoin derivative. He said that he might one day acquire Goldman Sachs. He paid $135 million for the naming rights to the arena where the Miami Heat play. The deal was supposed to be for 19 years. It lasted less than two.

We're more than 14 years into the crypto experiment. The people who are supposed to be economically liberated were not liberated. The big banks seem as unassailable as ever. And a generation of potential crypto converts has been left disillusioned. I don't like being categorical or absolute about things. Something might change my mind. But at the moment, I had hit my threshold in terms of investing any capital that I work for in real life into it. And I don't see myself putting anything else in it.

The economy is not going well either. The next 12 months are the question mark. So I don't see how I can justify putting anything else in crypto right now. I mean, if I had loose capital that I wanted to just throw in the garbage, maybe, but I don't. Crypto developed partly in reaction to the 2008 financial crisis. In the years since, we didn't change much, politically or economically. We basically just ran it back again.

Replaced credit default swaps with yield farming meme coins and Lehman Brothers with FTX. This time, we were lucky the crash wasn't worse. Sometimes we learn from our corporate and economic disasters, but we don't necessarily act on them sufficiently. They make for good films, but not good policy. They're already making the crypto movies. This generation's The big short or margin call It will be a shame if we don't make something more useful out of it

This has been The Naked Emperor, a FrontBurner miniseries from CBC Podcasts and CBC News. The show was written by me, Jacob Silverman, with producer Imogen Burchard. Our associate producer is Yvette Sin. Sound design by Julia Whitman and Yvette Sin. Sarah Clayton is our digital coordinating producer. Our podcast art was designed by Tara Paquette.

Our cross-promo producer is Amanda Cox. Our video producer is Evan Agard. Special thanks to Rafferty Baker, Shannon Higgins, and Mackenzie Cameron. In order of appearance, audio from the Meet Kevin YouTube channel, the World's Best Ads YouTube channel, the Super Bowl Commercials YouTube channel, C-SPAN, the YouTube channel of NBC News, CNBC, and the YouTube channel of CBS Miami.

Executive producers are Cecil Fernandez, Chris Oak, and Nick McCabe-Locos. For more CBC Podcasts, go to cbc.ca slash podcasts.