Molly White's Citation Needed - Issue 52 – I am Sam's low-level culpability

Episode Date: February 29, 2024

Bitcoin prices are spiking. Are we in for another round of crypto mania? Also, Sam Bankman-Fried doesn't want to go to jail for 100 years. Originally published on February 29, 2024.

I'm Molly White, and you're listening to the audio feed for the Citation Needed Newsletter. You can see the text version of the newsletter online at citation needed.news. Issue 52. I am Sam's low-level culpability. Bitcoin prices are spiking. Are we in for another round of Cryptomania? Also, Sam Bankman-Fried doesn't want to go to jail for 100 years. This issue was originally published on February 29, 24. Bitcoin is still on a tear, yesterday surpassing the $60,000 mark. Recall that the all-time high for Bitcoin is around $69,000, achieved in November 2021 at the peak of Cryptomania. So we are approaching those levels again. Other cryptocurrencies are following similarly upwards trends.

But things feel very different this time around. Here's a glimpse at headlines from around Bitcoin's last peak, from publications including the New York Times, Fortune, CNBC, and others. They include, Crypto is Cool, Now Get on the Yacht. How a risky bet on the Shiba-Inu coin made this warehouse manager a millionaire, and Solana is up 12,000% this year, what to know before buying the Ethereum competitor. That was right around when I started Web3 is going just great, largely out of frustration at mainstream media outlets like these, who were only adding to the hype and encouraging average people

to put their money into an extremely risky speculative asset, an asset that would go on to lose around 75% of its value over the next year. Now, the only mention of cryptocurrency in the New York Times is describing Sam Bankman-Fried's hope that he'll be sentenced to only six years in prison. As I mentioned last issue, there's probably some delay between price spikes and breathless media coverage. But I am very interested to be able to look back on this moment in a year or two and compare it to the previous price highs. Will the mania reach similar or worse levels? Or has the crypto industry exhausted the narratives they came up with a few years ago?

Web 3. NFTs to help artists aren't a living. tokenized real-world assets, really own the items you buy in video games, and failed to come up with new ones to drive a similar spike? Web3? Isn't that the thing all these AI grifters were talking about two years ago? Meanwhile, the failures of 2022 are still very fresh in people's minds, with high-profile collapses like FTX and Celsius, all continuing to play out in bankruptcy and criminal courts. Journalists who were burned by reporting uncritically on the industry might be less likely to fall for the same PR pitches. The number is going up, but the crypto industry, regulators, and legislators alike have yet to meaningfully fix any of the massive issues that have plagued the sector.

Buckle up. In the courts, FTX Sam Bankman-Fried's sentencing is coming up in a month. He is now formally swapped out Mark Cohen and the rest of the court. rest of his rather unimpressive defense team for Mukasey Young. Concerns over potential conflicts of interest stemming from their simultaneous representation of Celsius's Alex Machinsky have been formally acknowledged by both Bankman Fried and Mashinsky, and both have waived the potential conflicts.

It seems Mukasey Young is mostly focusing on Bankman Fried's sentencing because he's hired a separate attorney, former prosecutor Alexander Shapiro, to focus on his inevitable post-sentence sentence appeal. Mukasean team have been busy on the sentencing side of things. On February 27, filing a 100-page-long sentencing memorandum that ends with a request that Bankman Fried be sentenced to only 63 to 78 months imprisonment, or 5.5 to 6.5 years. The filing contains a long rebuttal to the as-yet unfiled pre-sentencing report, which Bankman Fried's legal team says recommends he serve 100 years in prison. They describe such a sentence as grotesque and barbaric, and the kind that should be reserved only for heinous conduct like mass murder.

The filing also contains a glowing description of Bankman Freed, starting at his early life, with headings like Sam is not motivated by greed, Sam's caring for individuals, and Sam's remorse. A final section on Sam's condition outlines Bankman Freed's neurodiversity and says that he has already been suffering in jail as a result of harassment from other inmates, poor food options as a result of his vegan diet, and the generally grim conditions of MDC Brooklyn. Much of this comes from a letter submitted by a fellow inmate, which his counsel references heavily. In total, the filing attaches 29 letters in support from David Arfin, a parent of a childhood friend, Joseph Bankman, Bankman Fried's father, Gabriel Bankmanfried, his brother, Michelle Berry, the Stanford Dean for Global Health, who received donations from Bankman Fried, Stephen P. Boyd, a Stanford Professor of Electrical Engineering and friend of Bankman Fried's parents, Jeremy Brest, the managing director of Framework Capital and corporate financial advisor to a company that wanted to acquire

FTX assets after its bankruptcy. Paul Brest, Stanford Professor Emeritus of Philosophy, former dean of Stanford Law School, and friend of Bankman Fried's parents, Madeline Chaliffe, a parent of a childhood friend, Daniel Chapsky, the former FTX head of data science, Edward Dodds, a friend and fellow effective altruist, Luis Dron, a donation recipient, Mark Dibel, a Georgetown professor of medicine, interim chairperson at Purpose Africa, and who spoke to Bankman Freed about pandemic prevention at a workshop. Jamie Forrest, an executive advisor at Purpose Africa, who spoke to Bankman Freed about a pandemic research proposal. Barbara Freed, his mother. Wayne Xion, an animal rights activist.

George Lerner, the former FTX company therapist and personal psychiatrist to Bankman Fried. Barbara Levitt, a parent of a childhood friend, Judy Mark, a disability rights advocate and autism expert, Barbara Miller, his aunt, Edward Mills, a McMaster University Professor of Health Sciences, and COVID-19 clinical researcher who sought funding from Bankman Fried, Hassan M. Minhus, a clinical psychiatrist who evaluated Bankman Fried in July 2023 at the request of his defense team, Matthew Nass, a childhood friend, David, David Pierce, an effective altruist. Ross Rangan's U, a friend, F.TX Foundation employee and fellow effective altruist. Carmine Simpson, a fellow inmate at MDC. Brooklyn, and former New York City police officer charged with sexual exploitation of minors. Douglas Slemmer, someone who had business dealings with Bankman Freed. Natalie Chin, the former head of communications at FTX and executive assistant to Bankman

Freed. Francois Venter, a university of the Witsbatesrand professor who sought funding for clinical trials in Africa, and Cat Woods, a victim of the FTX collapse, who lost, quote, most of what they had. Bankman Fried's veganism comes up a lot. Like a lot. In this sort of, ah, well, Your Honor, I know he committed one of the largest financial crimes in history, but have you considered that he is a vegan kind of way? One fellow effective altruist, and vegan, David Pierce, writes of Bankmanfried's veganism. Quote, here we have a person who literally wouldn't hurt a fly,

incarcerated in a place that wasn't built for folk with such soft hearts. I actually found myself looking up if Judge Lewis Kaplan is himself vegan, because it's so, excuse my phrasing, ham-fisted, that I wondered if it was an attempt to appeal to a bias of his. My guess is that so many of the letter writers are effective altruists and vegans themselves, that they see it as an impeccable testament to his character, and don't realize that others don't necessarily assign it the same moral value. That or they realize that vegan is a convenient way to signal

white, wealthy, and well-connected without having to say it. Probably both. Another weird thing I noticed. In her letter, Barbara Freed writes of her son's empathy. To this day, Sam is the first person we would call if we needed an angel of mercy in a pinch. This is a wild thing to say, given the terms common usage. Thanks, Mom. Moving past Bankman-Fried, the sentencing hearing for Ryan Salem, former co-CEO of the Bahamian FTX entity, has been scheduled for May 1st. It's the first sentencing hearing for any of the four

co-conspirators who pleaded guilty, and Salem was the only one not to cooperate with the investigation. He faces up to 10 years in prison and is already forfeiting over a billion dollars. Binance. A judge has signed off on the record $4.3 billion judgment against finance. Prosecutors want former CEO Cheng Peng Zhao to surrender his passport and be subjected to various other modifications to his bond conditions. Zhao says he's willing to accept the terms with limited exception, but is annoyed that prosecutors might be giving the impression that he's done something wrong to necessitate the changes. Binance is evaluating potential nominees for the monitorship role, and Sullivan and Cromwell is

apparently on the short list. Sullivan and Cromwell has provided legal services to FTX, both pre-and-and-post collapse, and have been paid more than $180 million for their bankruptcy work alone. Now they're positioned for another windfall. Nigeria's Department of State Security detained at least two Binance employees in Abuja, in connection with an investigation into the company's operations in the country. One detained employee is an American citizen, the other British. The action seems related to the country's recent crackdown on Binance's local presence, which they say has facilitated $26 billion in transfers, quote, from sources and users who we cannot adequately identify. Elsewhere. The Craig Wright isn't Satoshi case.

continues on, and accusations of forgery are flying. Copa says Wright forged a whole bunch of documents purporting to prove that he's Satoshi Nakamoto. Now Wright's own lawyers have raised concerns that some of the emails they submitted as evidence could be forged. Wright says any forgeries are attempts by his enemies to frame him as a liar, which does seem rather like the sort of thing a forger might say. Coin desk's Daniel Kuhn has nailed the general vibe around this case with the headline, Stupid Things Craig Wright said in his latest stupid trial.

Their coverage of the case has been good, as has protoses, and I thank them both for paying attention to it, so I don't have to. Ilya Lichtenstein, arrested in February 2022 for his involvement in the 2016 Bitfinex hack, is now cooperating as a government witness in a case against Roman Sterlingov. operator of the Bitcoin Fog Crypto Tumblr. Lichtenstein testified about how he repeatedly used the service to launder money he stole from various cryptocurrency exchanges, and that in addition to Bitfinex, he also improperly accessed accounts on the Coinbase and Cracken cryptocurrency exchanges.

Although Lichtenstein was reportedly the person actually behind the massive hack, he has somehow been eclipsed in media coverage by his aspiring rapper wife, Heather Rosal Khan Morgan, who just helped with the laundering end of things. I suppose the lesson in this is that if you intend to commit major crimes, marry the most cringeworthy person you can find. in bankruptcies. Genesis has been given the okay to sell $1.6 billion in GBTC shares. This has Genesis' parent company DCG quite worried.

Although some of their complaints are based in purported concerns for the company's creditors, for example when they say the repayment plan, quote, disproportionately favors a small controlling group of creditors over others, I suspect their real concern may be that, quote, sheer quantity of the trust assets at issue will pose a serious risk of value destruction. More plainly, such a huge dump could tank crypto prices. Gemini has reached a settlement in principle with Genesis, though it still needs to be approved by the bankruptcy court.

FTX has sold the European division of its company back to its original owners for $32.7 million. FtX acquired the company in 2021 for $320,000. $23 million. Pretty sweet deal for those guys. In Governments and Regulators. The European Central Bank released a scathing report on Bitcoin and Bitcoin ETPs, which begins with the statement, Bitcoin has failed on the promise to be a global decentralized digital currency and is still hardly used for legitimate transfers. The latest approval of an ETF doesn't change the fact that Bitcoin is not suitable as means of payment or as an investment. Bitcoins are furious, of course. Various international law enforcement agencies

cooperated to take down the Russian lock-bit ransomware group, which was one of the most prolific ransomware groups by quite a margin. According to the agencies, they were able to take advantage of a server the group was using, which had an unpatched PHP vulnerability. How they convinced the ransomware operators to load a random far file, I don't quite know. Since, then the UK National Crime Agency has been mocking LockBit by uploading a look-like version of their site to the domain they once used. Meanwhile, the U.S. Office of Foreign Asset Control, OFAC, has added 10 crypto wallets associated with two LockBit-affiliated Russian citizens to U.S. sanction lists. The New York Department of Financial Services has reached a settlement

with Gemini, in which they will fully repay the $1.1 billion owed to the customers of the Gemini Earned program, who have had their assets tied up since late 2022. Gemini will also pay a $37 million fine. This settlement is separate from Gemini's settlement with the SEC, where they will pay a $21 million fine, and it's separate from the ongoing lawsuit from the New York Attorney General. The U.S. Energy Information Administration's plan to collect energy usage data from cryptocurrency miners has hit a stumbling block, with a judge granting a temperamentary temporary restraining order in a lawsuit filed by the Texas Blockchain Council and riot blockchain.

They argue that crypto mining businesses will be, quote, irreparably harmed if they have to disclose information about their electricity use. The irreparable harm to Texans who are facing skyrocketing electrical bills or to the environment as miners waste massive quantities of electricity naturally go unmentioned. The Sacramento B has done a nice fact check of the claims in the two million-dollar Katie Porter attack ad by the Fair Shake Crypto Super PAC that I mentioned last issue. They have described the ad as mostly false, noting that the roughly $5,000 in individual donations by, quote, Big Pharma, Big Oil, and the Big Bank executives that are singled out in the ad, in fact, come from executives of pharmaceutical and oil companies that are not part of those

industry's lobbying groups, and that the Big Bank is in fact a community development financial. institution in California that specializes in offering financial services to first-generation immigrants from Asian countries who are not getting adequate services from other banking institutions. And here I thought the crypto folks were all about banking the unbanked. The bank in question comes in at number 274 on the Federal Reserve's list of large commercial banks with around $4 billion in consolidated assets. For comparison, this is 0.1% of the consolidated assets of J.P. Morgan, and 8% of the assets that would qualify the bank as too big to fail. Meanwhile, Porter has fired back at these, quote, shadowy crypto billionaires with a tweet.

Californians aren't fooled. Shadowy crypto billionaires don't want a strong voice for consumers in the Senate. They fear people who call out corporate greed, so they're spending millions on dishonest dark money ads against me. Fairshake has now rolled out new ads against her, directly targeting crypto holders on social media. The ad reads, crypto owners vote no on Katie Porter March 5th. A spokesperson for Fairshake has said they simply want to, quote, make sure the 8 million crypto owners in California,

who are disproportionately young voters who support Democrats, know about her hostility toward the technology and how that would hurt American jobs. This is kind of a strange thing to say, given she hasn't been terribly outspoken against crypto, and Fairshake has yet to identify any statements of hers they find objectionable. Elsewhere in crypto. Why are crypto enthusiasts so obsessed with sending their stuff to the moon?

Less than two months ago, Bitmex tried to send Bitcoin to the moon. Instead, it spent six days as space junk before burning up in the Earth's atmosphere. Now, artist Jeff Coons has sent 125 small sculptures of moon phases to the moon, aboard the Odysseus. Purchasers of these sculptures also receive a larger physical moon sculpture, and, you guessed it, an NFT. According to a random person in the project's Discord, each sculpture is selling for $1 million. Bad news. The company that made the spacecraft cheaped out on testing and missed that they had forgotten to flip a switch to enable the moon lander's laser positioning system. Although the company's engineers were ultimately able to land the craft

on the moon anyway, it tipped over onto its side. Because of its orientation, its solar panels won't be able to charge the lander properly, and it's about to run out of juice. Good news. Buyers of the sculptures still have their NFTs, I guess. Bad news. Coons promises that the NFT will have, quote, an image of the sculptures installed on the moon's surface. But according to the spacecraft company, the only payload installed on the side of the craft that's currently mashed again. against the surface of the moon is the sculptures. A spokesperson says they'll still try to get a picture of them somehow. Good news? Perhaps the sculptures cushioned the fall?

The Web 3 is going just great recap. After last issue's dry spell, we're back, with a vengeance. There were 24 entries between February 14 and February 28, averaging 1.6 entries per day. $271.53 million was added to the Grift Counter. Crypto people won't stop shitting up open source for everyone else. In their defense, the first time it happened, it at least mostly just impacted crypto open source projects. After projects like Starknet and Celestia calculated airdrop distributions based on factors

including whether a person had contributed to their open source repositories, AirDrop hunters began madly filing pull requests on open source code repositories for other crypto projects that had yet to issue a token, but might someday. Quote, please don't submit a GitHub issue just for farming purposes, wrote one beleaguered crypto project maintainer. The project core team is stretched thin enough as it is. Please don't make our lives harder. Worse still, another project called t.xyZ came along, promising to incentivize open source

contributions by distributing crypto tokens to anyone who could prove they had commit access to popular open source repositories. The project leader, Homebrew creator Max Howell, claimed that they somehow didn't foresee the obvious outcome of such an incentive, which is that people started spamming pull requests to add themselves as code owners to repositories they never touched before. This makes me wonder if he's never observed the crypto world until today, or very very very various other attempts at introducing external incentives to open source contribution that have had similar outcomes. Particularly affected was the open source project Ghost, which happens to be what powers this newsletter, and which was used as an example in their demo video. A ghost maintainer

wrote, quote, in practice, the T project is not helping to support the ghost project, but is instead causing a rush of self-serving PRs to be submitted to cash in on other people's work. This This is why people hate on crypto. Howell promise they would fix the problem going forward by banning those who spam open source repositories and requiring people to be able to prove they have direct commit access to a repository before trying to register it for the t.xyZ program. Tornado Cash merged Malicious Code. Malicious code was apparently merged into the Tornado Cash cryptocurrency mixing service two

months ago through a successful governance proposal where no one knows the function that would send the private notes associated with a deposit to a separate private malicious server maintained by the developer. Private notes are the keys associated with a tornado cash deposit that allow the depositor to later withdraw their funds. This means that any funds with leaked private notes that have not yet been withdrawn are at risk. If I was involved with the tornado cash project, I would be wondering who exactly introduced this exploit given the enormous motivation for various governments and other groups to compromise what was once the primary crypto laundering service. Two individuals suffer multi-million dollar wallet compromises. Two people

separately learned the hard way that it's really hard to securely store millions of dollars in crypto assets, particularly when you're using a hot wallet. One trader, who goes by Curlm.eath, fell victim to a fishing attack in which they lost 180 million beam tokens. which are issued by the Beam Blockchain Gaming Network. Although they were ostensibly priced at $5.14 million at the time of the theft, slippage meant the attacker could only sell them for around $4.5 million, and the sale caused the token price to drop 10%. Later, a co-founder of the Axy Infinity Blockchain Gaming Project

suffered a wallet compromise of his own, losing around 3,248 Eth, or around $9.5 million. dollars. The large flow of funds from Axy Infinity's Ronan Bridge led some to briefly fear that the project's bridge had been hacked again. But the co-founder later stated that it was his wallet that was hacked and not the bridge. Everything else. A bug in the Seneca Protocol enabled at least $3 million in stolen user funds. The Crypto Inheritance Project Serenity Shield was hacked and the token price plummeted 99%. Scammers hacked the Twitter account of late actor Matthew Perry, claiming they were soliciting donations for his substance abuse charity.

Micro Strategies Twitter account was hacked and $440,000 was stolen. D-Chat announced its token launch with a link to the wrong token. Bit4X shut off its website after a suspicious $57 million withdrawal, The so-called fully private alio blockchain accidentally sent out copies of users' identification documents. A Myanmar-based romance scam operation pulled in $100 million in less than two years. The risk on blast gambling platform rug pulled for $1.3 million. An Australian disappeared with more than $585,000, erroneously transferred to his cryptocurrency account by OTC Pro. The Blueberry Protocol narrowly avoided a $1.3 million hack.

D's Nuts 404 was hacked for $170,000. The influencer Crypto Rover was accused of pumping and dumping tokens and other shady behavior. Over $55 million was taken from the defunct AAX crypto exchange. The fixed float exchange was hacked for $26 million. Ugal Labs acquired moonbirds amid speculation of eugene. insider trading. The YouTuber KSI has been accused of pumping and dumping. The so-called decentralized social network farcaster has been criticized after confiscating channel names to be used by influential crypto podcasters, and the creator of the Robotos NFT project, once

collaborating on a TV series with Times Studios, has been accused of a rugpole. Worth a read. Corey Doctoro wrote a piece recently titled Incomplete Versa overshoot. I really enjoyed it. He addresses something that I say often, that Web3 folks and I often agree on a lot of things, including that the web has been trending in a worse direction with the proliferation of advertising, tracking, and general rent-seeking. However, Dr. O highlights the very important additional point, that despite agreeing that there is a problem with the web today, we diverge drastically on the web we would like to see. It isn't, quote, just a matter of who you agree with on a given issue, the real issue is what you're trying to accomplish.

Here, here. I loved a recent blog post by Sootalk titled The Tech Industry Doesn't Understand Consent. It echoes a long-standing grape I recently voiced in response to a report about Automatic, the owner of WordPress and Tumblr, selling user data to train AI. He goes further to tie in the trend of tech services allowing you to opt-in to features or choose not right now, promising to keep bugging you in apparent hopes that they will wear you down eventually, which is not how consent should work. Right as I was thinking I would need to write about the having, also called the having,

Amy Castor and David Gerard wrote their own piece explaining what it is and giving their opinions and predictions. I may still write about it, but their piece titled, The Havening is Coming, what this means for Bitcoin, is worth to read either way. In the news, I rejoined Cass and Bennett over at the Crypto Critics Corner to talk about Chris Dixon's Read, Right Own, which I reviewed in this newsletter recently, if you missed it. It was a really fun conversation. The episode is titled Read Right Own, Web3's Broken Promises. Others have also reviewed that book recently, notably Dave Karp.

I also joined the This Week in Google Crew and had a grand old time talking about crypto, Wikipedia, AI and sneaker phones. The episode is titled Goodthorpe and Vietan. That's all for now, folks. Until next time, this has been Molly White. Thanks for listening to this issue of the citation-needed newsletter. To learn how to support my work, visit mollywhite.net slash support. If you'd like to read the text versions of these episodes,

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