Judging Freedom - New FTX CEO tears into Sam Bankman-Fried in Congress - hours after his arrest_

Episode Date: December 14, 2022

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Last night, probably around 6 or 7 o'clock eastern time, without warning, Bahama police showed up at the palatial home of Sam Bankman Freed and arrested him. 30-year-old kid. Normally it wouldn't be big news except this 30-year-old kid was the toast of the town up until about a month ago and was worth a couple of billion dollars. What did he do and how did he get that money? Well, Sam Bankman Freed ran a crypto exchange and he persuaded some very wealthy, even some very well-known people, their names in a moment, to invest in his entity. He had investments up to about $30 billion. Unfortunately, the government alleges he took that money and without their knowledge or consent, invested it in another entity that he owned entirely and which was paying him handsome salaries and paying his expenses, including the purchase of this villa. I think it's really a penthouse in a magnificent apartment building on the beach in the Bahamas. He was arrested by Bahama police because the federal government asked them to do so, saying they were about to indict

him. And of course, they did indict him yesterday and revealed the indictment this morning. And the indictment alleges that Mr. Bankman Freed engaged in a massive fraud. Fraud is, you know, a material misrepresentation made to somebody else, so they rely on it, and then they rely on it, and it's to their detriment, and that's what happened here. These people invested billions, believing they would make a lot of money, And of course they didn't. And then when word got out, things weren't looking well. They asked for their money back.

There was a run on the bank. They didn't have the money. Where did it go? Where are the missing billions? What did Sam Bankman-Fried do with our money? The SEC investigated, the Securities and Exchange Commission, the U.S. attorney in the Southern

District of New York investigated, and Mr. Bankman Freed was indicted. He's now arrested and awaiting extradition to New York. Okay, so if he operated out of the Bahamas, why did he get indicted in New York? Well, he did engage in many activities in New York, banking activities and use of computers in New York. And of course, this is a bank fraud and wire fraud. So the feds only need to show a certain minimum contact with New York in order to indict him for the crimes that are connected. Some of the crimes are conspiracy crimes, meaning planning and plotting to do something with others, which he never succeeded in accomplishing. You know the names of some of his investors because they are celebrities.

These names are, these folks were not only investors, but they did commercial advertisements for him. Shaquille O'Neal, Tom Brady, Naomi Okasa. You know, these are superstars, basketball, football, tennis, who lost money themselves and persuaded others to invest. Are there causes of action against them? Well, it would depend on what they knew and when they knew it. The answer is probably no. Did they have a duty to find out if Bankman Freed was above board before they advertised for him? Probably yes. Bankman Freed, who said a few months ago he was worth billions. We don't know what he's worth now, but I doubt that he's worth what Shaquille O'Neal, Naomi Ocasa, and Tom Brady are worth.

One of his defenses will be he got lucky. He didn't know what he was doing. He kept bad records. He didn't try and cheat anybody. Okay, that's a legitimate defense because these are crimes of intent, meaning the government has to prove that he intended to defraud people. Sam Bankman Freed was scheduled to testify before the House Financial Services Committee this morning, and he was going to do so by remote from the Bahamas. Also testifying before the committee this morning is John Ray. John Ray was appointed by the court as the new CEO of Sam

Bankman Freed's company when the company declared bankruptcy and Sam Bankman Freed resigned as CEO just two weeks ago. Take a listen to what John Ray said about how this company was managed. The FTX Group's collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company entrusted with other people's money or assets. Grossly unsophisticated, incompetent individuals. Okay, so here's how fraud works. If you record in your books that two plus two equals 22 in order to inflate the value of your company, and you do that intentionally, obviously that's a fraud.

You want to claim to investors that you're worth more money than you're really worth, so you make what look like accounting errors, but you do it intentionally. But if you record two plus two as 22 by mistake, or because you pressed the wrong numbers, or because you weren't thinking about what you were doing, or because you're stupid enough to think that two plus two actually does equal 22, that's a defense to fraud. So you just heard under oath, the new CEO who can't stand Sam Bankman Freed articulating what Mr. Bankman Freed's defense will be. I'm not saying that he's innocent. I mean, he is legally innocent as a matter of law until the government proves every element of the charges against him beyond a reasonable doubt and to a moral certainty. So legally, he is innocent. What I meant to say was I'm not saying he didn't do anything wrong. And he may have done nothing wrong. And they all

have been the grossest, sloppiest banking and bookkeeping in the modern era that Sam Bankman Freed went from earning nothing to a couple of billion in just a couple of years. There'll be a lot more on this, more as we get it. Judge Napolitano for judging freedom.