Front Burner - Front Burner Presents | The Naked Emperor | The Trial of Sam Bankman-Fried

Episode Date: October 2, 2023

Today we bring you a bonus episode of The Naked Emperor, our spinoff miniseries about the rise and fall of the crypto exchange FTX. As Sam Bankman-Fried’s criminal trial kicks off in New York, host Jacob Silverman is back to bring you up to speed on the latest. What’s happened at the courthouse in the lead-up to the trial? And what’s expected in the weeks to come? Joining Jacob is Zeke Faux, an investigative reporter at Bloomberg, and the author of “Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall.”

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. Hey everyone, today we're going to play you a bonus episode of our spin-off mini-series, The Naked Emperor, about the rise and fall of the crypto exchange FTX. Tomorrow, Sam Bankman Freed's criminal trial kicks off. Maybe you've heard that he's actually in jail now after his bail was revoked.

So host Jacob Silverman is back to bring you up to speed on what's been happening in the case lately and look ahead at what's to come. Hi, Jacob Silverman here. Tomorrow, Sam Bankman Freed's trial starts in New York. He's facing serious charges of fraud and conspiracy that have the potential to put him behind bars for life. It's been less than a year since the collapse of FTX, and a lot has happened since the last episode of The Naked Emperor. So today, I'm going to play you a recent conversation I had with Zeke Fox. He's an investigative reporter at Bloomberg and the author of a new book called Number Go Up, Inside Crypto's Wild Rise and Staggering Fall. I'll fill you in on some of what I've seen and heard at the courthouse in the lead up to the trial. And we'll talk

through what's been going on and what to watch for in the weeks to come. Well, hi, Zeke Fox. Hey, Jacob Silverman. How are you doing? Good. How are you? Good, good. Thanks for joining me. I'm excited to talk to you. You and I talked a bit about some of the pretrial hearings of the summer and Sam Aikman Free getting sent back to jail. He had been out on bond, living on house arrest in his parents' house.

I was there in court. He seemed pretty shaken, even though he probably should have expected that this could happen. But what did you think when you heard that he was being sent back to jail? I mean, you had visited him in the Bahamas. You saw the $30 million penthouse. You know how he lived, both at times modestly, but also surrounded by luxury. What did you think when you heard he was going to be sleeping in a Brooklyn jail cell? So this is something that I thought about a lot when I was with Sam.

Like, I flew down there in November before he got arrested, but after things had collapsed. And Sam, he talked a lot about utilitarianism. This is the philosophy that drove him. And he thought that everything he did had to be judged by its likely impact on the world. What would do the most good for the most people? And in that calculation, most good for the most people. And in that calculation, he would say that he didn't count any more than anyone else. And that he essentially didn't care if he would end up destitute. Like he had to just take whatever risks he thought were necessary. And but I'm when I was down there, I'm just thinking that it's one thing to say that. but it's another thing to be here thinking about likely spending decades in prison. And now that I'm sure you saw some of his writings

have been leaked to the New York Times, you know, he's writing essentially diary entries about how it feels to be the most hated person in the world. And I think that no matter how much you thought that you didn't care what happened to you and you just had to take the risks that you thought were necessary, it must be pretty horrible to be facing that. emperor. Sam was already getting in a bit of trouble. He was out on bail, but the judge had barred him from using apps like Signal after they'd realized he'd reached out to a former employee. But it didn't really seem to stop there. He was constantly going up to the line and arguably crossing it. So what else did he do to wind up where he is now? I mean, it's kind of funny, like on his way up, he never cared about the rules. And it's almost like the more he disrespected

the powers that be, the more that they loved him. Whether it's wearing a t-shirt and not combing your hair for important meeting, playing video games while you try to raise money from venture capitalists. But now that he's in the federal court system, the judge does not feel the same way and didn't think it was cute when he was using a VPN to watch the Super Bowl or sending messages to likely witnesses at the trial. The thing that really that pushed the judge over the edge was that he had leaked his colleague, Caroline Ellison, colleague and ex-girlfriend Caroline Ellison's diaries to the New York Times. And in these diary entries, she described being overwhelmed with her responsibilities at Alameda. And what did you think of those diary entries? They were kind of mundane.

They were, you know, they were mundane and sort of all too human and common, I felt like. You know what I mean? I didn't feel like they were necessarily showing a lot of insight into his company. Just to remind folks, Caroline Ellison was not only Sam's ex-girlfriend and colleague, she was the CEO of Alameda Research, his hedge fund. But, you know, there were some very human moments, I thought, where I, a bit unexpectedly, and probably not what Sam expected, but I felt some sympathy for her. We have one line, for example, she was talking about how her excitement about Alameda was significantly decreased, and that life at the

hedge fund felt too associated with you. This is addressing Sam in a way that was painful. So, it felt like it backfired on Sam. It almost evoked some sympathy and showed, and obviously it helped send him back to prison. Yeah, I mean, the government made the case that by leaking these diary entries, he was sending a message to other witnesses that he might leak their private communications or embarrass them. And that it was an effort to also discredit Caroline since she would be likely one of the key witnesses against him at the trial. So as part of the back and forth about the diary leak, it came out that while he was on house arrest at his parents house, Sam had he had more than 1000 phone calls with with reporters. Did he did he call you? He did. I did text with him earlier in the year, but we never really connected. This is something actually I wanted to ask you about.

I mean, that's a huge number. And 100 were with the New York Times, David Yaffe Bellany, who wrote that Caroline Ellison story. I think about 400 with Michael Lewis, who we've heard goes over to the Bankman Freed's home and has dinner with the parents and things like that. So it's just very interesting to learn this and to see it played out. What do you make of his relationship with the press? So on his way up, he was super accessible. He talked to you, he talked with me, and he sort of talked with, I feel like, almost anyone who called.

Yeah, it's amazing. Yeah, but it felt like it worked really well for him because he had this great story to tell as the boy genius of crypto, the guy who made his first $20 million with his weird Bitcoin arbitrage trick. And even though he had this kind of odd personality, it read as authentic. And so I feel like he was so successful with it on the way up. Why not give it a try now? Why not talk to the press while you're on house arrest in hopes that something more favorable about you will come out? And because, frankly, it can't get any worse. Like the government's accusations against him are really serious. His best friends and colleagues are going to testify against him. Why not give it a try to create a slightly more sympathetic image?

Certainly. And I read it a similar way that this is a man who's always working the wires when he was on his way up. I've told people, at least my impression is that Sam was maybe awkward, but not shy. He talked to a lot of people. He was social and out there. And that worked for him, as you said, on his way up. But, you know, I think he never really thought that they're actually going to put him back in jail. But as you said, there was a bit of a why not factor. Yeah. You've told me you were there at the moment in the at the hearing where he found out that this that he was getting put back into jail. Can you can you describe it? It sounds like it was a pretty dramatic scene.

Yeah, I think a lot of people in court, as the hearing was going on about an hour in, realized, okay, this could actually happen, because the judge, even in a previous hearing, had said something to the effect of, this is very serious, and I want you to take it seriously to Sam. And Sam nodded his head. So people thought that, you know, there was a real chance of this, and I think there was that expectation building during the hearing, but I can't claim total knowledge of what he was thinking, but there was, I think, a look of shock from Sam. He seemed drawn and pale, and, you know, the judge announced it very simply, I'm remanding bail. And right then, he went into custody as two very large U.S. Marshals came up to him and said, take off your tie,

empty your pockets. And then when they said, take off your shoelaces, that almost seemed to be another little moment there where he kind of looked down and realized what was going on. His parents were there. His mother was crying. She was warned by a U.S. Marshal to stay back from the divider there, though I don't think she was really going to cross it or anything, but, you know, she was very stricken. So it was this moment of real drama, and also I think, you know, there's been a strange sort of almost denial, I think, emanating from Sam's side and him and his parents, and, you know, if any moment shows you that this is real, it's that. Yeah, I mean, i mean it just must be like really sobering to face

this prospect and then to go see what it's going to be like where you're going to be you may end up spending the next several decades have you heard anything about uh what what's happening to him in jail or how he might be coping in there? So through his lawyers, he continues to complain about the... This was also his main complaint about the Bahamas jail, is internet access. This is a guy who loves to be on the internet.

He told a reporter who visited him while he was on house arrest that when he was in the Bahamas in jail, in order to cope with the lack of internet access, he pretended that he did have internet, but with a lag time of one day. So he would like give his lawyer things to Google, and then he would wait until the next day the lawyer came with the printouts. So now in MDC in Brooklyn, which has a reputation of being even among federal prisons, like a pretty unpleasant place to stay, he has millions and millions of documents to read. And he said that he's generally only able to access them on air gapped laptops, like laptops that can't connect to the internet, though some of them do need to

be downloaded and the speed is very slow. And honestly, it seems like a reasonable complaint. It's going to be hard to prepare for your trial if you're just sitting there looking at the loading screen while you're trying to look at, you know, FTX's trading records or something. Well, what really strikes me also, besides obviously the grim conditions, is that he does seem to think that whatever defense he might have kind of lies in these documents. They keep talking about there are millions of documents that we've heard that perhaps he's going to say

he had bad legal advice, but he seems to want to be very involved in his own defense and that some answer is in there. Yeah, and I was struck by that too, and I feel like this overlooks one of the main challenges that he's facing, which is that he has three of his top people who have pleaded guilty and agreed to cooperate against him. They're going to say, we did the crime, he was there, he helped us or he told us to. And I mean, just right there, That's like a very strong case by

criminal case standards. So we've had a lot of protests from his side about the conditions or his internet access, things like that. Yeah. Also, they have not asked for a delay. They want the trial to go as scheduled starting October 3rd. And this is, it's pretty unusual for a federal case. I mean, the Theranos trial, by comparison, happened, you know, years after the fraud was discovered. I think Sam would, if he had asked for a delay, would have had a pretty good chance of getting one, given the huge volume of material that he has to review.

But they seem to think that moving fast is to their advantage. Is there also concern there, there's been talk that, you know, maybe the money that he gave his parents, about $10 million, it's believed, might be clawed back? I mean, and we're seeing that a little bit now with his parents being sued. Oh, that's an interesting theory. Like, let's have this trial while we can still pay the lawyers. Yeah, essentially. I was thinking it was more like they're calling the government's bluff, and it's unusual for the prosecutors to have to prepare for such a complex trial so quickly.

And maybe they're hoping that they would catch them off guard by saying, no, let's move, let's have the trial in October. And the government would not be able to make as ironclad a case as they would have been able to otherwise. I mean, they have a lot of stuff to read, too. So he hasn't actually asked for the trial to be delayed. He's just raised some of these objections, and it's on track to start Tuesday. We've seen a little bit about what kind of evidence might be produced,

but it's been less than a year. There are a lot of documents, as you talked about. What do you think we're going to hear and see at the trials? Is there something in particular that you're looking forward to or want to know an answer to? So the part that interests me the most, of course there could be some shocking evidence of Sam's innocence, which would be a big surprise and would be very interesting. But what I'm most curious to see is that Caroline Ellison,

Nishad Singh, who was a top product guy at FTX, and Gary Wang, Sam's programming genius, they're going to be testifying against him. And these are people that he's known for a decade. They moved to Hong Kong together. They moved to the Bahamas together. They rose to the top of the crypto world, the financial world in just like a few short years. And they likely have not seen each other since the collapse. Now they're going to be facing off in court, testifying against Sam. I think it's just like a very dramatic human moment.

And I'm curious to see how—it's probably one thing to plead guilty in private or to say things to prosecutors in private. But I imagine it'll be pretty difficult to be up there on the stand right in front of Sam saying, yes, like, we committed fraud and you told me to do this. Yeah, it's not a huge room, really, the courtroom. And they'll be 15 feet away maybe from Sam while they testify. It is rather striking. I think that human element, that drama is what people will be looking for. Plus, this is a guy who just can't stop writing. Even on House Arrest, he's producing reams of diaries.

So I imagine during FTX's rise, he was writing a lot. The government would have Slack messages, maybe text messages. They're going to have so much material to work with. I think it's just going to be very interesting to see what comes out of it. 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. 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 help you and your partner create a financial vision together. To

listen to this podcast, just search for Money for Couples. Let's go back a bit and talk about your meeting with Sam shortly after the company collapsed. You wrote about this in your new book, Number Go Up. Can you set the scene for us? What did it look like in this Bahamian penthouse when you showed up? So the first thing that struck me were the shoes. It was November 2022. FTX had just collapsed. There were a lot of questions about what happened, but it really looked terrible for Sam. And he agreed to see me. He's holed up at this penthouse. We go up together in the elevator. The door opens, and I just see dozens and dozens of pairs of shoes,

like sneakers, high heels, flip-flops. And then I realized, oh, these are the belongings of all the people that worked at FTX. And as soon as this company collapsed, they fled this island. And they didn't pack. They were just like, let me get out of here before I get arrested or something. And I heard that many of them, you know, they were crying. These are like young people. A lot of them, it's their first job.

So many of them returned home to their parents' houses. So many of them returned home to their parents' houses. So I had gone there because, not because I thought, oh, Sam is going to let me in on some secret. But I just felt like I was kind of curious how he could possibly explain this. There was $8 billion missing. How could he talk his way out of this one? and he leads me down the marble hallway to what must have been the most modest room in the apartment and I can still see decorations from Halloween.

They must have had some sort of Halloween party. They had little like bat streamers. There were boxes of Legos on the floor. I mean, it really looked like a very, very fancy college dorm. The dishes hadn't been done in the marble kitchen. Legos on the floor. Laundry piled in the laundry room. And I hadn't been sure what to expect.

I was like, will he be despondent? Will he be manic? Sam was just exactly the same as the first time I met him. And for 11 hours, he went on and on in this overly analytical way and tried to make the case to me that while he may have made a big mistake, he had not knowingly committed fraud. So you two met for 11 hours? There was a very awkward dinner break.

But he had this way, he would talk in circles. He was trying to make this case that it was just a mistake, but it hinged on him not realizing that $8 billion was gone. And similar to what it seems like his defense will be at the trial, he's going straight into like spreadsheets, details. And I'm sitting there being like, you are very smart. You are very dedicated to getting rich. Wouldn't you have noticed that this $8 billion was missing or had been spent? And his explanation for how he had missed that was just, it was so convoluted. Yeah, he does seem to get into this wonkish, discursive mode, even when he was,

you know, facing the collapse of his whole company. And rather than just addressing the question, hey, did you authorize $8 billion to be diverted to all this other stuff, which is really the main question, he gets into data and trades and margins. Yeah. But one thing that is true, Sam, almost to his own detriment, is he will answer questions. Like a lot of CEOs will just return to talking points and ignore sort of what you say and not really try to answer whatever you asked. But when I was there, one of the main things I wanted to ask about was that I had heard that in the summer of 2022, he had met with Caroline, Neshad, and Gary. And they discussed that there was a shortfall at Alameda. The hedge fund was essentially broke. And that they decided, rather than admit that, they would allow the hedge fund to dip into the customer funds.

And to be clear, like, that's fraud. That's the crime right there. And so I've been told they'd done that on purpose. And I said to Sam, I explained this to Sam, and I thought he would just deny that this happened. But he said, oh, yeah, I kind of remember that meeting. But I wasn't really talking very much. I was maybe packing for a trip or something. He said that he was just kibitzing a bit on the meeting, that it hadn't seemed important at the time, and that he hadn't seen it that way, that there was no such decision was made, that Alameda was already borrowing some money from FTX, and it seemed like a really solid hedge fund and whatever, maybe it'll just borrow a little bit more. That was more or less his

explanation. But I'm just sitting there being like, I mean, I'm a reporter, so I want people to talk to me. But I'm also thinking like, you know, this will be probably discussed at a trial pretty soon. Like, why are you talking about this right now? Yeah, yeah. So between your interactions with him following this case, all your reporting, do you have a theory of Sam of what motivated him or what brought him to this point? Do you feel like you get him? So Sam spoke quite a bit about his attitude towards risk. And he would say that if presented with an option that was, let's flip a coin, 51%, I double my money and now I have $40 billion, 49%, I lose it all, I'm going to flip that coin. Because on average, that's a good bet. That will lead to me making

more money and me doing more good for the world. And I think that he was so convinced that he was the hero of the story that he just kept flipping that coin. He'd gotten really far with that. That's why he was the one who moved to Hong Kong and to the Bahamas and to start this sketchy exchange. And that crazy attitude towards risk had gotten him so far that I think he just kept pushing it. And when faced with Alameda's potential bankruptcy, sort of the end of the story, he decided to push it further. There's another theory, which is that this whole pitch about effective altruism and getting rich to give it away was just a grift. I don't think that's true. I think that these guys actually did believe in that. And that's what made them so dangerous.

What about you? Do you buy it? I do engage in some armchair SPF psychologizing, even though it can be difficult. I don't necessarily think he was a mastermind. I think this risk tolerance was huge, as you talk about. I think also this sort of blind attitude towards the risks in crypto for customers. Like, is this good for the world? Are we just creating a new generation of gamblers? Those kinds of questions never really seemed to matter to him.

Or when posed to him by me and others, he didn't really seem to care very much. So we're not even a full year out from the FTX collapse, which happened in November of 2022. What do you think its impact has been on crypto? So for my book, I spent a couple of years going down this crypto rabbit hole. And I was just looking for, first of all, why are all these coins going up and up and making people into millionaires and billionaires? But also, what do they do? Is this good for anything? Is there anything here? And everywhere I looked, I was just disappointed. I felt like there was nothing behind the curtain. And that basically boiled down to, if there was anything cool about

crypto, it was like a cool new way to gamble. And for a while, it seemed really fun. It was almost like a broken slot machine where if you just pulled on that lever, you were going to win. Now, the coins have crashed. So I think it's going to be really hard to bring in the next group of wannabe crypto gamblers to get them excited about the next coin or like the next crypto app when this whole last batch lost their money or had it stolen by various crypto platforms. Yeah, that's sometimes lost also in the discourse about this stuff or in the coverage that we're very much focused on Sam and as the mastermind of this big alleged fraud. But whether guilty or not, FTX still collapsed,

and that's a disaster for the people on the other side, the victims, who are mostly everyday people. There was one story that really got to me. It was a public school employee in New Jersey, and she had been sucked in by Dogecoin. You know, just like people were having fun on the internet, oh, I'm buying a little Dogecoin, oh, look at the price goes up when Elon Musk tweets about it.

But she hadn't stopped there. Then she'd heard about one of these crypto platforms that pays interest, and she'd sent in all her savings, and she was this close to getting the money she needed to buy a house. And then platform implodes, money's gone. That's like a huge setback that's going to change your life. And there's, I mean, you've seen the stories. There's like countless stories like that.

So the crypto bros like to laugh off the crash and be like, oh, ha ha ha, now I guess it's crypto winter. Let's get the next bull run going. But it's, you know, for a lot of people, it's not a joke, you know? Well, thank you, Zeke Fox, author of Number Go Up and investigative reporter at Bloomberg. I really appreciate it. Thanks, Jacob. For more CBC Podcasts, go to cbc.ca slash podcasts.