Morning Brew Daily - SBF's Ex-Girlfriend Takes the Stand & California Coming For Your Skittles?

Episode Date: October 11, 2023

Episode 167: Neal and Toby explain how Hamas raised millions in crypto and the role crypto has played in terrorism fundraising. Plus, former Co-CEO of Alameda and Sam Bankman-Fried's ex girlfriend Caroline Ellison takes the stand in the FTX fraud trial. Also, California looks to ban certain food additives and why Ireland is swimming in money. And Home Depot has it's own crime tracker and finally, the billionaire who gave away all his wealth passes away. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI. Good morning brew daily show. I'm Neil Freiman. And I'm Toby Howe. On today's pod, how terrorist groups like Hamas use cryptocurrency to finance their operations. Then the Sam Bankman-Fried trial is heating up after star witness Caroline Ellison took the stand yesterday to do the one thing we've all wanted to do at one point. Put her ex-boyfriend on blast.

It's Wednesday, October 11th. Let's ride. Neil, to start the show today, I want to put a little call out to our listeners. It's been a minute since we've done one of these, but I have a couple of Morning Brew Daily coffee mugs burning a hole in my pocket that are just begging to be given away. So here's the deal, MBD listeners. Neil and I want you to post a picture of wherever you listen to Morning Brew Daily and tag us on either Twitter or Instagram. Maybe you listen in the gym on your commute or maybe you just sit in silence in a dark room to fully soak in the experience. Wherever you listen, snap a pick and tag us at MB Daily Show to enter.

We'll pick three winners to receive a mug this Friday, so do not lollygag. I am pumped for this one, Neil. Tag MB Daily Show on Twitter or Instagram. We'll be looking at them all day. How big are your pockets? I know. I knew you're going to make that joke. Anyway, I just want to give a quick shoutter to our sponsor Yahoo Finance.

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Toby and I try to put a smile on your face as you listen each morning. But we also recognize that it's been a really hard week for many of our listeners as we begin to learn more about the atrocities that occurred in southern Israel on Saturday. Some of you may know a family that was killed or taken hostage. Some of you are worried like I am about your friends that have been called up for reserve duty to fight in the Israeli army. Some of you may know people in Gaza who are scared for their lives as bombs rained down, unsure of where they'll get their next meal or sleep at night. This is a human tragedy above all, so I just wanted to take some time at the top of the show to acknowledge that. Okay, here is the latest on the war. In a speech

at the White House yesterday, President Biden issued one of the most powerful statements supporting Israel of really any president in U.S. history, definitely since Harry Truman in 1948, calling the Hamas attacks pure evil and reiterating that the U.S. has Israel's back. Israel, meanwhile, is amassing troops for a likely ground operation into Gaza, as it appears like it may be only a matter of time before that happens. What Toby and I wanted to discuss today is how Hamas, a terrorist group that's blocked from accessing the global banking system, finance their attack that stunned the world with its complexity, planning, and use of modern technologies such as rockets, drones, and paragliders. How did it possibly pay for?

this. Yes, we know that Hamas gets $100 million from its benefactor Iran each year, but a bulk of its funding comes from a different source entirely. Cryptocurrency. A report from the Wall Street Journal dug into the finances of Hamas and its affiliates and found massive sums raised through crypto, the Palestinian Islamic jihad, a militant group that breached the border with Hamas on Saturday and took hostages, collected $93 million worth of crypto between June 2021 and August 23. Hamas itself collected about $41 million in digital payments. It started raising money through crypto as early as 2019 when it put out a call on social media for users to donate Bitcoin to its cause.

This is definitely part of a trend that national security experts are very concerned about. Terrorist groups all over the world are increasingly turning to crypto, which has a reputation for anonymity and far fewer regulations than traditional finance to raise money for their operations. Yeah, crypto is a very appealing alternative for a lot of these groups because, of course, when you are deemed a terrorist organization, as you mentioned, you are cut off from the global financial system. So anyone found transacting with those entities, risk criminal prosecution. So of course, you turn to crypto, which exists outside the bounds of that international banking system. But you also might be wondering, how are we tracking down

some of these wallets? But a lot of this is happening out in the open in some cases, because I think you mentioned it as well, there's a telegram channel that was set up that is public. And fundraising via Bitcoin, so they posted their wallet address there. So authorities can literally track this wallet down. They know it's associated with these militants. And that's one of the reasons why even though crypto is anonymous, you can track a lot of these wallets because they're fundraising out in public. Right. I think you do know, you can see the transactions happening on the blockchain ledger. It's a little opaque as to who is doing it. And there's this huge industry that's cropping up. There are these firms like chain aliasis that are working with

enforcement all over the world and counterterrorism organizations to find out who is actually behind this and they're pretty successful at it. You also have to work with crypto exchanges where this is happening, which is a whole other scenario. The leading crypto exchange, Binance, has been a target for the DOJ and other U.S. regulators for fostering money laundering operations by terrorist organizations. And the DOJs, the DOJ sued Binance over this earlier this year. In the the in the lawsuit, it said that Binance's compliance chief acknowledged that Hamas used the company to send funds to avoid money laundering controls. So Binance says it's working on this, but it also has been accused of looking the other way. Yeah, it is interesting because as Binance is just

fighting for the right to exist legally in the U.S., they're also fighting this other kind of war against these terrorist groups that are using their platform as well. So it's kind of seeing it from both sides. It is interesting, too, tracking where some of these funds are coming from. Some funds actually ended up a, there was an India, a hack in India on certain cryptocurrencies, and through various trackings, various wallets, they tracked it all the way to Hamas. So it is interesting to see how this cryptocurrency is flowing from all parts of the word, sometimes through just donations, sometimes through hacks, and ending up in these terrorist wallets. Well, cash, we should say cash is definitely king here, because that is the most untraditional,

method of financing terror and Hamas gets a lot of its cash by through smuggling from Egypt into Gaza. But cryptocurrency, especially this new one called Tether on the Tron blockchain, is becoming increasingly used in terror attacks during there was a UN report last year that said a couple of years ago, 5% of terrorist attacks were financed by crypto or other digital assets. Now we're thinking that it may reach 20%. So this is a crypto is a very good way. I mean, for all of the promise of crypto, right, it's outside of the banking system and it's not controlled by a central bank. There's little oversight.

And that was seen as the democratization of finance. But it's also, you know, has this horrible reputation for being used by criminals and terrorists because it's so easy to cross borders with it. That's like one of the biggest reasons why they use crypto is because I can easily get it across from Egypt to Gaza, from Iran to Gaza. Let's move on to another story involving crypto. the ongoing Sam Bankman-Fried trial. Things started to heat up yesterday when Caroline Ellison took the stand. If that name sounds familiar, it's because she is all sorts of tied up in this saga, from running Alameda research, the crypto hedge fund associated with FTX,

to being Sam's on and off again girlfriend. And things got off to a weird start yesterday. Ellison started her testimony by taking more than 10 seconds to even identify her former boss and lover when a prosecutor asked her to point him out. but she soon left any uncertainty behind and began to testify pretty explicitly against Sam. He directed me to commit these crimes, she said at one point, also mentioning that there was a power imbalance between the two, given the romantic and professional relationship.

All is to say, Neil, that we got some fireworks and prosecutors have started to get some answers around just how financially intertwined FTX and Alameda were and how much SBF knew about it. Ellison is the star witness here, and we should say that she did take a plea deal. She pleaded guilty, so she is going to talk. She is cooperating with prosecutors. Let's talk about Alameda, because this is the crux of the crimes that FDX is alleged, or SBF is alleged to have made.

He is accused of using FTX, which was full of billions of customer funds, as the personal ATM machine for Alameda, and Alameda made all of. all of these illiquid investments into venture capital and really sketchy crypto tokens. So the crux of the prosecutor's argument here is that Alameda, which was run by Caroline, and she said she was directed by SVF to take all these customer funds and use them on risky bets. That is the relationship between these two entities is at the core of the prosecutor's case against SPF. Yeah, and also Ellison's at the core of SBF's case to try to clear his name, because what they are trying to prove is that Ellison was this person acting under her own accord

and that she was the one who ignored her, his instructions and made mistakes managing Alameda. So it kind of is this, he said, she said deal, where Allison is saying, listen, SBF had all the power in this relationship. He was the one telling me to have kind of this open line of credit between. Unlimited line of credit. That's the most absurd part of it. It's like going to an ATM and then if you see the top end of it being 100. it's you know there's an infinity symbol yeah truly i mean you mentioned the the ATM analogy that truly was what people have been likening it to is that whenever alameda needed some extra funds

in order to make some of these risky investments they could just tap into ftx's customer funds and so again sbf is trying to say no this was caroline she was in charge of this hedge fund it's on her while caroline is trying to say no spf was telling me what to do there were also some other juicy details that came out uh caroline said that sam Bankman Fried told her that he calculated he had a 5% chance of becoming president of the U.S. one day, which speaks to his broader political ambitions. And there is this also hypothetical coin toss. Did you read about this? So SBF likes to take this coin toss question. And there's a scenario in which you say, hey, if I flip a coin, if the, if the coin lands on tails,

then humanity will cease to exist. Like, the world will end. But if it lands on heads, then then the world will be twice as happy. Wait, so what is this? So he says that... He says that SBF is so idealistic, so intent on improving humanity, so he says that he would take the coin flip. Oh, interesting.

So he said... He would say, I would give a 50% chance of making the world a better place to X or I would wipe it off the face of the earth. I would take that chance. That's some hubris right there on a lot of levels. I also, Neil, what is your percentage of becoming president?

because clearly people are just calculating it these days. What are you, what's your level at? Less than 1%. I am not a politician. I'll put you in that. Yeah, I'm not, I'm not into that. I can't even host a podcast and promote it. Okay, moving on, you may have heard rumors that California just banned Skittles.

Those rumors are not true. You can still taste the rainbow from San Diego up to Tahoe. However, California did enact a law that prohibits four food additives found in 12,000 candies, cereals, drinks on Saturday, due to scientific research linking them to cancer, reproductive issues, and behavioral and developmental problems in children. These additives are, I'm going to try to get this right, red dye three, propoparabin, brobinated vegetable oil, and potassium bromate. Let's go. And they're found in everything from peeps to trail mix. The reason you heard so much about Skittles earlier this spring is that titanium dioxide, a coloring agent that's in Skittles,

Starburst and Sour Patch Kids, was included in an earlier version of the ban, but everyone came to their senses, and it was ultimately left out. With its ban on these four additives, the first of any state to do this, California joins the EU and many other countries that have restricted them. The goal for lawmakers who sponsored this bill is not only to protect consumers in California, but also to push the entire U.S. to get rid of them. California is such a massive consumer market, so if manufacturers have to tweak their formulas for California of stores, they might as well just make changes for their products nationwide. Right. A lot of these regulations are based off of what the EU is already doing.

So regulators can clearly point to Europe and say, why the heck are we so far behind the rest of the world when it comes to food safety? It's been banned in Europe for a while. But then there's also a little bit of pushback on this as well because various food and beverage associations are saying, listen, the FDA has certified these foods as being safe for a reason. And so anytime now we're just messing with consumer confidence, why are we making this patchwork approach and letting states determine which foods are or shouldn't be included in the foods we eat, even though the FDA is supposed to be the national advisor on this. And so I see it from both sides a little bit because it is classic.

I know, this is classic. Because it does disrupt a lot of the manufacturing. And California did give until 2027, I believe, in order to institute these changes. but I can see how it frustrates you if you're a food manufacturer, if you have to adopt this piecework approach on a state level. And it's not just manufacturers, you know, you assume that they are going

to be against this, but also food experts at UC Davis named James Cofflin told reporters that banning the chemicals is unnecessary and unscientific. So he kind of supports that claim. But we should all, I just want to talk about some of these chemicals. Draminated vegetable

oil, that is added to popular citrus drinks to prevent the flamethrins. To prevent the flamethrase, flavoring oils from floating on top. It's so gross on so many levels because it's an oil to prevent other oils from bubbling up and separating. So I never want my oil determining what another oil does. That's just a baseline whatever food I eat. So this law will go into effect in 2027. So manufacturers will either have to take their products off shelves or tweak their formulas by then.

Neil, we could talk about brominated oils for the rest of the show. But we got to take a quick break, but don't go anywhere because we have a story about a Home Depot crime ring coming up in the second half of the show. Hey, honey, it's mom. Did you know if we switch to Verizon we can get four phones for $0, plus four lines for $25 a line? Call me back. Me again. That's just $100 a month for four lines on unlimited welcome, plus four phones, no trade in needed.

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See Verizon.com for details. Neil, oil-rich sovereign wealth funds have become a topic de jure of recent years, especially as Saudi Arabia splashes cash around the sports world. But yesterday, a surprising country jumped into the mega-fund game, Ireland. But it's not using oil profits to grow its nest egg. Remember, Ireland has been a haven for international companies looking to take advantage of a favorable corporate tax. tax rate, it's last from 40% to 12.5% back in the late 90s. That has led to around 950 U.S.

businesses currently operating in the country, which has caused Ireland's corporate tax income to triple to almost $24 billion within the last eight years. So they are setting up the future Ireland fund to capture some of that excess cash and grow it for future generations. Neil, their finance minister said yesterday that they are targeting a $100 billion fund by the year. 2035. That is a lot of Guinness. I didn't know where you're going with it. I know. Yeah, this is, I mean, Ireland dropped its tax rate over the past, in the past decade, and it has seen such a windfall in corporate profits. Dublin is like Silicon Valley 2.0.

I mean, Google, Microsoft, any huge tech company you think of is based there so they can take advantage of these taxes, and they are paying so much to the coffers of Ireland. last year there were 950 U.S. businesses operating in Ireland, and they employed just under 10% of all Irish workers. So I'm sure a lot of people listening to this have, you know, they're doing Zoom calls with Ireland because many, many huge U.S. companies are based there to take advantage of this. And it is benefiting Ireland. And whatever Ireland benefits, the U.S. is not getting any of those of that corporate revenue, income tax revenue. It is interesting. Some of these stats are just mind-blowing.

just three companies were estimated to pay a third of all corporate tax revenue between 2017 and 2021. Ireland didn't name what those companies were, but you can kind of guess it's probably Apple, Microsoft, and actually Pfizer has their headquarters over there as well. I do want to talk about a little bit about why Ireland is doing this. We did discuss on the show recently about Alaska, how they set up this fund that was in order to preserve some of the oil profits for future generations. Ireland's doing the same thing, but their goal is to future-proof their economy. So they want to plow money into helping people, helping set up things like public education, infrastructure, and other stuff to raise the standard of living. And it is an interesting departure because in Alaska, we saw them depositing direct stimulus checks into people's accounts.

And everyone's like, yes, it's great to get a thousand bucks every year. But it also would be better if you use these profits to develop things like public infrastructure. So it looks like Ireland's taking the, let's just raise society as a lot. whole, let's use the profits that we're capturing from these mega companies in order to kind of bring up the standard of limiting. And they're doing it now because the good times may not last. There is a wave of, you know, there is a movement to raise the corporate tax, have a corporate tax a minimum across the world.

And that is going into effect sometime soon. And that's going to raise the corporate tax rate to a minimum of 15% across all countries. And with Ireland as the main target of this because the US is saying. look, you had some good times. It's not going to last. So that's why Ireland wants to stash all this money now, while the times are good. Well, the end is good.

Yeah. Okay, over the past few years, we've been getting a mouthful from retail CEOs about the problem of theft at their stores, specifically pointing to organized retail crime rings that offer a profit motive to swipe things off the shelf. Well, the Wall Street Journal recently published an article that explores one such crime ring at Home Depot,

and the perpetrator is not who. who you may expect. Robert Dell is a pastor who ran a drug recovery program in St. Petersburg, Florida, but along with helping his patients in rehab, Dell was the mastermind behind a crime network that netted him $3 million in sales since 2016, according to authorities. Here's how it worked, prosecutors say. Del told people who went to his recovery program to steal tools from home depots across Florida and drop them off at his home. This turned out to be the inventory base for his online business. Under the username,

Anointed Liquidator on eBay, Dell then sold 10,500 of these swiped items from January 2020 until this May, earning him about $1.5 million. After a month's long investigation between Home Depot and law enforcement, Dell and four others, including his wife and mom, were arrested in August.

The robberies were apparently so pervasive in the area that after Dell was arrested, the number of thefts at Home Depot stores in the area drop, the company said. Toby, this was a fascinating story that offers a detailed look at how organized retail crime operates. Yeah. So I want to dig into that a little bit because I did read about what these operations look like. So Dell is what was known as a fence. So fences kind of are the ones who obtain the supply of goods from these people called boosters. And boosters, as you can imagine, are the people who go in and physically steal the goods from the show.

So you can't really have an operation without a booster or a fence. And so Dell was kind of the person pulling the strings, handling the merchandise, and selling it on eBay. It was crazy, though, this story, because, I mean, anointed liquidator is such on the nose. He is a pastor, so I can't think of a crazier name to set up your eBay counter. He was very self-aware. Yeah, and very successful, too. I mean, this business was bringing in, it brought him $3 million for him. And he had really good reviews because he offered it at lower prices than competitors.

Yeah, that is a big part of setting up a successful. offense operation is that you're selling very high quality goods. And so it is a self-fulfilling prophecy where your store gets more and more successful. It has been interesting, though, to see how law enforcement has been cracking down on these stores, because one thing they're doing is looking at stores that sell a high amount of these goods that are, they know are likely to be stolen. And so they've had their eye, they had their eye on Dell since 2017, but they had to take some time to piece the case against. They bought, they bought some stuff from him and then, and then returned it and checked where it went, and it turned out it was his house. Right. I love that.

that they literally tracked a package. It is their job. Right. I guess that is. And then to zoom out a little bit, the retailers have definitely been soundingly alarm about what's known as shrink in the business, which is the loss, which is basically theft or other amount of, or what happens to its industry that, or its inventory, sorry, that is lost.

Shrink accounted for $112 billion in losses in 2022, which was up from $93 billion the year earlier, but that's still on average with levels in 2019 and 2020. So it seems that on net, this problem that a lot of retailers I've been talking about is not necessarily huge. Right. Or growing massively. I think it's just more front of mind right now because when we go into a Walgreens, you go to CES, you see everything behind locking key. And we've heard about these organized crime rings as well. So even though the top line number might not be much different from years past, it is more top of mind for consumers. All right, Neil, to end the show today, I want to talk about Charles Feeney, who passed away at the age of 92, beginning at the beginning of this week.

Now, I would imagine most of you listening hadn't heard of Charles, but he was a very successful pioneer of duty-free shops, as well as a prolific tech investor who at one point amassed an $8 billion fortune. But the reason we are talking about him is that he's also one of the most prodigious philanthropists pretty much ever. He quietly gave away nearly all his fortune in his lifetime, but not all at the time. the end or at the same time. As he amassed money, he gave it away almost entirely in secret to Warren Buffett called him my hero and Bill Gates's hero at a Forbes event in 2014. Charles Feeney Neal,

it's one of those guys that you don't know about until you know about. But once you do, he's just an amazing person. Yeah, he was known. He was of Irish ancestry and he gave a lot to Ireland and he was known there as the James Bond of philanthropy. So people did know about him. He tried to keep it as anonymous as possible. He built thousand, he financed thousands of buildings across five continents and no one knew because he took a lot of steps to keep his name out of it, primarily because he didn't want people asking him for money. But it is, it is really tremendous when you look at the numbers. For every $100,000 Fini gave away, he kept only $25 of them. He had, at one point, he had estates all over the world. I mean, he did live the life at certain points,

but then he was like, you know what? I really don't want this at all for his birthday one year. He got a $13 Cassio watch. And he was like, yeah, this feels right. I do love his. There's a couple of facts about his life that are just truly amazing. One, you mentioned the buildings. His name appeared on none of the 1,000 buildings on five continents that he gave $2.7 billion to fund.

So that is a classic thing. When you see these billionaire philanthropists, they have their name everywhere. Like, they want their name, whether it's a bench or a building, they want their name somewhere. but Feeney on purpose made sure that he never had his name on anything. And then you mentioned his seven houses that he had at one point. When he divorced from his first wife, he gave her all the houses. He's just like, I'm done with this lifestyle. That's an insane divorce settlement.

Imagine not even getting one of the house. You get all seven of the houses. And then now that he lived out the rest of his life, he didn't even own a home or a car. He rented a two-bedroom apartment. He kept just $2 million for himself to kind of fund his retirement. Just one of those stories that you don't often hear about someone practicing this philanthropy while they're living, not just at the end of their lifetime. Yeah.

I mean, it's great. I probably like money a little bit more than him, I would think. I would give away 98%. I would probably keep the houses on the various contents because that sounds freaking awesome. At least three above one. At least three, I promise. I would give 98 to 99%. I would not put my name on it, but I would probably keep the houses.

Anyway, that is all the time we have for today's show. Hope you are able to get over the hump that is Wednesday. Maybe writing to us will help. You know the drill. Morning Brew Daily at Morningbrew.com for questions, comments, and recipes. Let's roll the credits. Emily Milliron is our editor and producer. Samantha Velas and Raymond Lue are associate producers. Eugenwa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is moving to Ireland before it's too late to get the tax benefits. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.