Morning Brew Daily - The $32B Downfall of FTX & Can Paris Hilton Save 'X'?

Episode Date: October 3, 2023

Episode 161: Neal and Toby break down the Sam Bankman-Fried and FTX fraud trial that is set to get underway today. How did we get here and what could be in store for the former king of crypto? Plus, the Nobel Prize was awarded to the creators of the mRNA vaccine and 'X' inks a deal with Paris Hilton. Toby shares his favorite trends and why ads on Walgreens coolers ended up in court. Finally, how Katy Perry has been a huge influence on housing bills. 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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And I'm Toby Howl. On today's pod, the Sam Bankman free trial begins over what could be one of the largest business frauds in history. We're definitely going to talk about that. Then Katie Perry is locked in a mansion dispute in California that has gotten so messy it could affect real estate laws across the country. It's Monday, October 3rd. Let's Rise. Toby, what day? is it? It's October 3rd. So for anyone who doesn't get why we keep saying that, it's a famous quote from Mean Girls. Lindsay Lohan's characters asked what day it is by her crush, and that day is today. But Neil, I just want to know, do you think Mean Girls is on the Mount Rushmore of Most Quotable Mov?

It is extremely quotable, but I was looking through my list of the most quotable movies. It is in the top 10, but it's not in the top three. Here are my top three. Number one, I got to go stepbrothers, our Bonita Fish Big. It's too good. Number two is Big Lebowski, and number three, I have from way back when, Shrek, because I could not stop talking about that movie. I'm eating waffles. Dang, this makes me want to watch all those movies. Before we jump in the news, we do have a quick message from today's sponsor, Yahoo Finance. Neil, the Las Vegas sphere opened over the weekend, and I wanted to gauge what the public reaction was and see how its parent company fared in the markets, so I could break it down for you guys, the listeners. And that's where Yahoo Finance comes in. I moseyed on over there to read some news and get high-quality real-time market data all in one place.

Yeah, and it's so simple to use and find what you're looking for. This is not a Bloomberg terminal. Instead, it allows you to get in. Check that sphere stock is up 11 percent or keep tabs on what else is on your portfolio and get out without having to parse through the complex interfaces that finance is known for. To see what we're talking about, check out finance.jahoo.com. That's finance.com for markets data. you can actually use. Let's start our show in a New York City courtroom where jury selection will

begin today on the business fraud trial of the decade. Yes, it is not easy to dethrone Elizabeth Holmes from the top spot on the modern fraudster list, but Sam Bankman Fried may have done it. The former crypto wonder boy is accused of essentially stealing about $8 billion in customers' funds in his crypto exchange, FDX, by using it to take risky bets with his private hedge fund, make frivolously purchases like a $30 million penthouse in the Bahamas and make political contributions to various candidates. Experts say the fraud that allegedly happened

here is a combo of Elizabeth Holmes and Bernie Madoff. You had this larger-than-life character who supposedly ran this groundbreaking business, but once you got to peek inside the hood, you realize that it was all built on a house of cards. Toby, this trial is going to be spicy for

so many reasons. You have SBF's story arc of going from paling around with Tom Brady to a Brooklyn jail. sell, you have his eccentric young business associates who all live together and maybe dated each other in a Bahamas penthouse. You have the political intrigue. You have the celebs in SBF's orbit who endorsed FTX. And you also have the money involved. So much money that SBF allegedly swindled from customers as he built up his net worth to at one point becoming the 60th richest person in the world. As far as the legal arguments go, prosecutors will try to prove that

SBF knowingly used customer funds as his personal piggy bank. On defense, SBF will say that he makes business errors, but they were honest, and he never intended for customers to lose money. Toby, what are you watching? This, first of all, we've been waiting for this trial to start so we could talk about it for a long time, so it's finally kicking off. And to me, this is not just an SBF or an FDX trial. It's almost crypto as a whole on the stand there. It's kind of a proxy case because even though it's him on the stand, FTX was meant to bring crypto to the masses. It hired every famous person under the sun, every famous athlete you can think of. And it was supposed to be the thing that

legitimized crypto and made it mainstream. And yet here it is on the stand now for legal issues. So that to me is kind of, it's a proxy case in a certain way. A lot of people in the crypto industry, I think, want to see SBF behind bars because they want to show that there are bad actors that have game the system and scammed a lot of people. And then there are the above board people who say that Crypto actually still has a lot of applications, and SBF is not a part of what we want to do to bring Web 3 to the masses. For sure. And then there's so many weird details about this case, too, that I just want to run through.

I mean, SBF, particularly on the people in the case, SBF says he only drinks a half a class of alcohol a year, which is just such a random detail to ever have as a human being that you can quantify it in terms of glasses. And then also Caroline Ellison, who is SBF's romantic situation ship, who also ran the Almeda hedge fund. She ran a Tumblr blog that talked about everything from Harry Potter to eugenics. So that was like a weird angle to all this. And then also there's this effective altruism angle as well. So SBF was known for this philanthropic kind of philosophy that attempts to maximize an individual's positive impact on the world by using logic and reasoning. So that was one of the big things when

he was on the rise. Everyone said, we finally have this altruistic billionaire. He wants to give all his money away, make the world a better place. And yet here he is now on trial for potential fraud. So there's all these different angles to it from a personal perspective as well. Caroline Ellison will definitely be the witness that everyone will want to watch her testimony because she ran the Alameda hedge fund that is kind of at the center of this entire case. Basically what Sam Bankman-Fried is accused of is taking in customer funds to FDX and then using those that billions of dollars to fund risky bets with his private hedge fund called Alameda.

Those were like beyond the pale in terms of the kinds of things he was investing in. There was a bank run in 2021 or 2022 on FDX and all of that money was in Alameda. It's balance. She was completely underwater. And then there was no money for the customers to take out. And that's how we got here. Right. Yeah.

There was not a lot of separation of church and state. And just to put a bow on this, John Ray, the third, who is hired as a CEO to kind of clean up SBF's mess, said once he got under the hood of FTX, it was worse than Edron. And he calls it a good old-fashioned embezzlement case. So he has justification to say it's worse than Enron because he oversaw the Enron bankruptcy. I know. So whenever you're getting mentioned in the same sentence as Enron, that's not going to be good. Let's move on to our next story where it's time for science hat Toby to reemerge. That's because the Nobel Prize in Physiology or Medicine has been awarded to two of the scientists behind the development of the MRNA COVID vaccine.

Professors Caitlin, Carrico, and Drew Wiseman will share the prize for their unprecedented rate of vaccine development during one of the greatest threats to human health in modern times. Really quickly, MRNA vaccines differ from old vaccines because instead of relying on a dead or weakened version of the original virus to provoke an immune response, M RNA vaccines inject part of the virus's genetic code into a patient to provoke that antibody response. The key difference is it's a lot easier to play around with the genetic instructions for a virus versus growing large amounts of infectious cells, then inactivating them for use in a vaccine. And while these vaccines are mostly known for the role in the pandemic, this technology makes it way faster and way more flexible to teach our bodies to respond to a variety of different diseases and even can. answer. So, Neil, I remember the hype around mRNA technology when the vaccines first dropped,

but it's not quite top of mind anymore for a lot of people. So I'm glad these two are getting the award because it's such a cool piece of technology. It is, but it had been shunned for many years in the past few decades. And when you read into Kariko's story, it is absolutely crazy. She was at the university, she was an immigrant from Hungary, worked at the University of Pennsylvania, completely sent to the outskirts of science for research. mRNA because when you did early experience with experiments with MRI, it would get destroyed by the body really quickly. So it wasn't, it was this cool technology that people knew about, wasn't this mysterious thing, but it would get destroyed by the body really quickly. So it couldn't

be used for any treatment. But Kariko was just telling herself, I have to persevere. I have to keep doing this. I see potential in this. And she met Weissman at the photocopier in 1998. And that, literally altered the course of humanity. the course of human history, that meeting at a photocopier because they ended up in this partnership that produced this breakthrough. But just to read about how the University of Pennsylvania kind of sidelined her and didn't allow her to get any grants, and she had to retire from the university a decade ago because what she was doing was just seen as an outlier, not super effective to any sort of breakthrough in medical treatment. And here we are. Now she's a VP at Bioentech,

which is partnered with Pfizer on making one of the lifesaving vaccines. Yeah, I mean, she started work in 1970, and it took her till 2020 for the mRNA vaccine to really become a thing. So that's 50 years of perseverance. Pretty crazy. Also, I looked into, just because I was curious, how much do you think a Nobel Prize winner earns? I know. I looked at a million dollars. Yeah, it's 11 million kroner, which translates to right around a million dollars. Not too bad, actually. No, so what's next for Kariko is her daughter

is an Olympian. She's a gold medalist and she's going to try to start a business with her. That's an overachieving family right there. I love these stories of scientists getting the call. After working so hard in the lab for decades, they get the gall from the Nobel Prize Committee. It is just a very cool thing and obviously they're doing

really important work. Moving right along, we don't often say win and X, the platform formerly known as Twitter in the same sentence, but X did take one step forward in its turnaround plan yesterday by signing an exclusive content deal with none other than Paris Hilton. As part of the revenue sharing agreement, Hilton and X will work together to make four original video programs per year that includes live shopping, and the content will focus on topics such as Halloween, music, motherhood, and cooking. Hilton will even get her own hashtag sliving,

A term she's been trying to make happen since 2019. That's a combo of slang and living. Yeah. Anyway, this deal is a milestone in CEO Linda Yakorino's plan to find new areas of growth for X after it lost more than half of its sales following Elon Musk's takeover and a subsequent advertising exodus due to rising hate speech on the platform. There's a lot more I want to talk about with X, but let's start with the Paris Hilton deal. Do you think it's the start of something real or a flash in the pan?

I'm kind of in on the idea because first of all, the live streaming market is just so big, especially internationally, in China. It's just this massive, massive market. And a lot of people have been trying to figure it out in the U.S. Because whoever does win the live streaming shopping battle is going to reap a very large piece of the pie. And so, I mean, X is clearly trying to become the everything out. We've talked about that a lot. And so it is definitely throwing stuff at the wall.

So who knows if this is really going to take off? But if there's even a 5% chance that this could become a $100 billion business, then why not take a shot at it? Is Pereselt and the person to start with? I don't know if Ferriselt is sliving is ridiculous. We talked about Mean Girls. Stop trying to make fetch happen. Stop trying to make sliving a thing. But, I mean, she's still a big name.

And, I mean, she moves the needle a little bit. We're talking about it. So I don't think it's the worst idea. Yeah. But you talked about live shopping, live stream shopping, being huge internationally, especially in Asia. but so many social media platforms have tried in the U.S. to make it happen here, make live stream happen here, to quote me girls again. But it has not worked out. Something about the American consumer just doesn't sort of die with it yet, but maybe someone will crack it. I just don't know if I go on Twitter X2 shop. So it's kind of a change in mentality that one would have.

But I do want to talk about, you know, last week there was this interview that Linda Yaccarino gave at the Code Conference that was the talk. of all text circles because it highlighted the disconnect between her and and owner Elon Musk. There were so many kind of cringy moments where she held up her phone and showed that X was not even on her home screen. She botched a lot of the user numbers saying various figures at different points in their interview and just she couldn't respond to a lot of things that Elon Musk had said. It seemed like she had never heard them before. So she's trying to work her way out of that PR hole that she dug herself last year.

Right. I mean, there was a lot of different angles because actually the former head of Twitter trust and safety went on right before her and kind of skewered a lot of things that the new regime had done. And so people said that she was set up to fail. And yeah, yeah, there's always been these rumors that she's kind of a lame duck CEO and that Elon still pulls the strings. And that did nothing to dispel it. So, but it is interesting. I mean, they do ship stuff. We talked about live stream shopping. They also, Elon did a 45 or 50 minute live stream. of him playing Diablo, which is a video game. So they're trying to get into Twitch streaming as well, type vibes.

So again, X is a Everything app. I'm on board with the Everything App idea concept if they can monetize users in the most intelligent way possible. So they already are paying users based on the impressions they get from writing. If then they also pull in if you can monetize video views as well, and then also get live streaming as well. So suddenly you're a creator and say, wait a second, I can monetize every single part of kind of the creative sphere all under one hood.

It becomes a compelling proposition. So even though all these setbacks like this interview was awful, it didn't go well, all this like the rise of hate speech on the platform, if they can figure out the creator's side, I do think that there is a path forward for X. All right, Neil, before we jump into our next half of the show, we're going to take a quick break. Exima is unpredictable, but you can flare less with ebbglis, A once-monthly treatment for moderate to severe eczema. After an initial four-month-month- or longer dosing phase, about four-and-10 people taking ebbglis, achieved itch relief and clear or almost clear skin at 16 weeks.

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Book it with Priceline. Download the Priceline app or visit Priceline.com and book your next trip today. Neil, we are back with another edition of Toby's Trends where I, a screen-addicted, GenZier, educate you, a millennial with lower back pain, about a recent trend I've had my eye on. And that trend is influencer-owned brands making it mainstream. So I'd venture to guess that most of our listeners know who Mr. Beast is. He's the biggest individual YouTuber in the world and has recently dipped his toe into other business ventures as well. One of those ventures is a chocolate bar brand called Feastables. Now Feastables is a juggernaut already. Soon after its launch,

he was already pulling in over $10 million a month. But the reason we're talking about Mr. Bees and Feastables is that they just became the Jersey sponsor for the NBA's Charlotte Hornets. Neil, this is a pretty big deal. The sponsorship is worth a reported $5 million a year, so Feastables has to be making some cash to be able to afford it. And in fact, when the Morning Brew Twitter account tweeted about the deal,

we included that $10 million a month stat. And Mr. Bees responded to us and said we needed to add a zero, to that number. So you do the math. But what is also interesting to me is that we are increasingly seeing the lines blur between creator-led brands and more traditional media properties like the NBA. This is an example of a YouTuber going extremely mainstream. I think it's really cool. I mean, this guy, Mr. Bees's name is Jimmy Donaldson. He's literally just a dude from North Carolina who loves basketball. And he's built himself a big enough of a brand and made enough money to sponsor his favorite basketball team and get his brand up on the jersey.

So I don't really have anything more to, I don't have anything to complain about. I think this is so cool. I wish I was in a position to do this. I would do it for the Sixers. I did. That is true. Morning for Daily on the Sixers. That would do it's so cool.

I do think it is more of a passion project because the whole idea of a creator-led brand with someone with the scale of Mr. Beas is that you don't have to pay for advertising because you control the means of distribution. you have a YouTube channel that pulls in 100 million views every single video you post. And so everyone is kind of scratching their heads saying, like, you don't actually need the NBA, Mr. Beas, but I do think he does love basketball. He is a North Carolina boy, so it does seem like maybe this is just something that you... Maybe you reach new audiences, too.

Right, you will. The people who watch the NBA and the people who watch Mr. Bees YouTube, maybe are different audiences. So you can't always rely on your own YouTube channel to get your message across or get your brand out there. So, yeah, maybe you always... have to spend money on advertising, as we'll talk about in this next story. Even Tesla, after decades of not advertising, they have started to. So you reach a limit with organic reach. Neil, that was a

great transition. So I'll let you ride that. I'll ride that transition. For our next story, we have a food fight in the freezer aisle. Cooler screens, a company that sells digital cooler doors, is suing Walgreens for $200 million in damages, saying that the chain didn't fulfill its contract of using its digital displays across all the stores that said it would. Okay, what the heck is a digital cooler door? Well, imagine going into Walgreens for an Arizona iced tea, but when you get to the beverage aisle, instead of seeing a transparent glass door, you see a digital display that shows you advertisements and also shows a digital rendering of the contents of the refrigerator. Cooler screen says the goal is to give consumers more relevant information about what's inside

the fridge or freezer. Its CEO says, this is the future of retail and shopping, but it doesn't seem like a future Walgreens wants to be a part of anymore. Customers notice these internet-connected doors in 2022 and posted viral TikToks complaining about them, saying that they made shopping way more complicated than it needed to be. Walgreens, for its part, said cooler screens did not meet its contractual obligations by providing bad technology that often glitched. Cooler screens has shot back that Walgreens has poorly maintained refrigerator infrastructure. So here we are in a legal dispute over digital doors in.

convenience stores. Yeah, it is so interesting to read some of the complaints from it, too. Sometimes these cooler screens were even sparking and catching fire. So not only were they not effective, but they're also dangerous in some cases. Again, this is a very tit-for-tat thing where, yeah, cooler screens was saying, listen, Walgreens, you have such bad electrical connectivity. Of course, our screens can't stay on. And then Walgreens was like, your screens just don't work. So that, we're definitely going to see a protractic kind of legal battle going forward. But also, I do think it is interesting that some of these companies are realizing that, hey, wait a second, we have a ton of foot traffic, we get a lot of website traffic, we could be media buyers and media partners of sorts for

a lot of brands. So Walmart, Uber, Marriott have ramped up the development of their own kind of media networks, which allow a brand to place an ad in their website or their app or on their literal screen. So it is an interesting advertising trend to see these consumer-facing brands say, wait a second, we can be an advertising platform as well. Right, but about this Walgreens thing, can you make an argument that this isn't the stupidest thing in the world? It's so dumb. Because you're basically just putting a barrier between the consumer and getting what they want. What is wrong with just looking into a transparent refrigerator and extracting exactly the drink you want or the de jrano pizza?

Because you're just putting a barrier and it's obviously going to make consumers angry. From a consumer perspective, it's not a better experience. but from a brand perspective, I can see the pitch because you can then, there's sensors in the doors that can gauge whether someone has seen an ad. They can also gauge whether they opened and closed the door. So you start to get a little insight into consumer behavior. Like, oh, if I see an ad for body armor, will I open the door and actually grab a body armor or not? So I can see how, of course, everything goes back to data, but I'm totally on your side. Worst consumer experience by far. Yeah, I mean, there's nothing broken with the current way of opening,

seeing what's in the content of the refrigerator, opening it, and then grabbing it. So creating a barrier in between that just seems like you're going to piss off a lot of people. Maybe if there's a way to get... I don't know. I'm trying to think of it. Maybe there definitely is a place for digital screen somewhere. They've been experimenting with voice recognition, which could work. So maybe there's a way that you can infuse this technology without it being so annoying, but I don't see any current way.

Yeah, just don't cover the entire case. case. A glass pain works just fine. Just fine. Neil, we have a crazy story to end the show today. So Katie Perry is currently involved in a lawsuit against Carl Westcott, who's the founder of 1-800 flowers over the sale of his eight-bedroom mansion in Santa Barbara. Westcott is also crucially 84 years old. Now, that's important because even though he agreed to sell the mansion to Perry for $15 million, he later contended that he could not actually consent. the sale given he was suffering from mental decline and had been on prescription opiates for an upcoming surgery when he agreed to sell the home. Now, Westcott and his family are working to

establish the protecting elder realty for retirement years, aka the Perry Act, in order to address the risk of elder financial abuse. The act establishes a 72-hour cool-down period where either party involved can rescind the agreement without penalty. Neil, Katie Perry is literally getting California real estate laws proposed against her. And the wildest part is this is a pattern for her. This is not the first time. So back in 2015, I believe it was, Perry wanted to buy a former convent from a bunch of nuns. And they didn't want it to sell it to her. They wanted to sell it to someone else. So there's this legal battle. And Katie Perry eventually won out. But the most famous thing that happened during that trial was that a nun collapsed and died during the legal proceedings. So

people are saying, Katie Perry, why are you just taking, what do you have against older people here? It is insane that this is a repeat offender type case. One of the nuns during that case said to just please stop pursuing the purchase. It's not doing anyone good except and it's hurting a lot of people. So I don't know why she keeps finding yourself on the other side of, yeah, these kind of elder cases. Okay, but yeah, everyone's accusing her of elder abuse here, but I just want to talk about whether this cool down period. I was looking into whether this cool down period, exists. It does exist in some other countries. And British Columbia just instituted a three-day waiting period where parties can back out. But it's only on the side of the buyer. So this would be

on the side of the seller. But in British Columbia, a buyer can back out. And the FTC for some transactions in the United States allows a buyer to back out. This protects the seller. And Katie Perry's team said this guy had a lot of showings of the property. I mean, they are saying, he's, Westcott is saying that he was on painkillers and he wasn't fully there and he has early onset to Bencha and Katie Perry's team was like this guy was showing the property. He drew up all these

contracts before he was on these painkillers for surgery. So there are certain laws that there is a cool down period across many transactions in the world across various jurisdictions for every type of purchase you can think of. But I don't

know whether one exists for saying a seller can back out of a contract that they... It feels like you could never trust any deal because if both sides can black out. But I do think the damning timeline here is that Westcott was discharged from the hospital after undergoing a major

six-hour back surgery on July 11th. And then on July 14th, he signed the contract for the sale of his home. So I could see that just three days. You're definitely on some sort of medication to manage the pain. So I do think there is a case that maybe he wasn't in his right frame of mind.

Either way, Katie Perry, you do not want to be associated with an elder abuse law. Nuns and now this. It's insane. All right, that is a wrap on today's show. The Phillies begin their playoff run tonight. Nothing like October baseball. Quick reminder ahead of our holiday show next Monday. Please submit topics you want to hear us debate at the email Morning Brew Daily at

MorningBrew.com. We're going to do a whole show themed on bullish or bearish. Toby and I are going to go at it. Let's roll the credits. Emily Milliron is our editor and producer. Sam Velas and Raymond Lou are associate producers. Euchenoa Ogu is our technical director. Billy Minino is,

audio, hair and makeup, won the Nobel Prize for not showing up. 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. All. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buckslot machine by Aristocrat Gaming, Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package.

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