Morning Wire - Sam Bankman-Fried's Media Apology Tour

Episode Date: December 4, 2022

As the fallout from the FTX cryptocurrency scandal continues, the exchange’s embattled 30-year-old founder, Sam Bankman-Fried, has begun making the media rounds defending his actions. The company is facing legal consequences as tens of billions in digital assets have been wiped out — and around $2 billion in client funds are still unaccounted for. Daily Wire culture reporter Megan Basham digs into the what led to FTX’s downfall and what the wider impact might be on the financial markets. Get the facts first on Morning Wire. Learn more about your ad choices. Visit podcastchoices.com/adchoices

As the fallout from the FTX cryptocurrency scandal continues, the exchanges embattled 30-year-old founder Sam Bankman-Fried has begun making the media rounds defending his actions. The company is facing legal consequences as tens of billions in digital assets have been wiped out, and around $2 billion in client funds are still unaccounted for. For this episode of Morning Wire, we talked to Daily Wire Culture reporter Megan Basham. She'll walk us through what led to FDX's downfall and what the wider impact might be on the financial markets. This is DailyWire Editor-in-Chief John Bickley with Georgia Howe. It's December 4th, and this is your Sunday edition of Morning Wire.

If you like this podcast, subscribe to our Morning Wire newsletter available exclusively to Daily Wire members. Get the Morning Wire newsletter delivered straight to your inbox when you join at DailyWire.com slash subscribe. Use code MorningWire to try Reader's Pass membership and get your first month for only 99 cents. All right, Megan, before we get to the discussion of why the FTX Empire crumbled, I want to quickly catch up where things stand legally now. The company is still going through the bankruptcy process, but I read that a class action lawsuit has already been filed. Is that correct? Yep, it sure is. And that's not surprising, given that, as you said, an estimated $2 billion are still unaccounted for in that bankruptcy filing. I mean, really, it's just kind of disappeared.

And it's not only FTX's 30-year-old former CEO Sam Bankman-Fried, who's been named in this suit. So have some celebrity endorsers like Tom Brady, Giselle Bunchin, Steph Curry, Larry David, Shaquille O'Neal, so really big names. But the issue that has a lot of financial and legal experts talking is how difficult it's going to be to make a clear case against Sam Bankman-Fraid, or SBF as he's known in the financial world. For one thing, FTX is based in the Bahamas and U.S. securities laws

typically only apply to domestic deals. Secondly, cryptocurrency is an almost entirely unregulated market. It's been described as the Wild West, so there's a lot of debate over what laws might even apply here. Here's what financial analyst and head of the wealth management firm, the Bonson Group, David Bonson, told me about that. I don't think there's going to prove to be in the end grown-up accounting, grown-up books and records.

I'm not even sure what the regulatory venue is going to prove to be because these entities are incorporated in the Bahamas, but then they have some U.S. entities, some of which are going to be on their balance sheet. Others are not. They're self-dealing, you know, where he was trading with other entities he owned. But I think legally it's going to be a mess.

The biggest point prosecutors and plaintiffs alike are going to have to prove is whether Bankman-Fried knowingly funneled client funds from FTCS to a trading firm he also, owned that his girlfriend ran, Alameda research. What we know is that some of these money transfers were actually used to make personal loans to company insiders, including SBF himself. He bought things like at least 15 lavish homes in the Bahamas, including a 600-acre beachfront property for $121 million. Whoa. And of course, we know that he made a lot of very large political donations

primarily to Democrats. Strive Asset Management founder Vivek Ramoswamy told me that even if prosecutors can prove that he was using client funds for these things, that doesn't mean it'll be easy to make a criminal case against Bankman Fried. You know, he makes it sound like, well, it wasn't quite that,

but it was just that Alameda research happened to be one of the biggest players on the marketplace, on the stock exchange, on the crypto exchange that, hey, he had set up with FTX, and that a number of customers were using other funds as collateral because that's part of the ways in which the exchange was used. And it was just that Alameda research had Alameda had too much of a too sizable of a position on FTCS. And on that view of the world, if he's really successful in pushing that argument, I mean, for the result, it's a distinction without a difference. But for the way the law looks at this, it might actually be a way out for him.

But I will say that history will teach us that if he does walk away from this situation without bearing some level of personal accountability, possibly criminal accountability, this will not be the first time that such a quasi-fraud, if not outright fraud, were perpetuated where people got to walk away for free. And in fact, we're basically seeing Bankman Freed out this week making the case that he did not knowingly misuse those funds. Yeah, it's been interesting to see him out on the media circuit. I've been a bit surprised Is it how sympathetically he's been treated in some cases?

Yeah, I think a lot of people are surprised by that. In fact, I caught Michael Brendan Doherty, who's a senior writer at the Conservative Political Journal National Review, quipping, have they already started the Sam Bankman-Fried redemption tour before he stopped robbing people? And to that point, he was invited to speak at the New York Times Deal Book Summit, and what that is is a symposium of elite business leaders.

critics really felt that it provided him a forum to rehabilitate his image. Thanks for having me. And at the end of the day, I was CEO of FTX. And that means whatever happened, why ever it happened, I had a duty. I had a duty to all of our stakeholders, to our customers, our creditors. I had a duty to our employees, to our investors, and to the regulators in the world, to do right by them, to make sure the right things happened at the company. And clearly I'd do a good job of that.

Clearly, I made a lot of mistakes or things I would give anything to be able to do over again. I didn't ever try to commit fraud on anyone else. Now, his interview with Good Morning America on Thursday was a little tougher, but a lot of people still feel that too much attention is being paid to Bankman Freed as a personality and not to the specifics of how this money was lost.

I should have been on top of this, and I feel really, really bad and regretful that I wasn't. And a lot of people got hurt, and that's on me. I think I got a little cocky. I've made more than a little bit. So you contrast the kidglove treatment that Bankman Freed received at the New York Times conference to comments from John Ray III, who is the debtor CEO that's been brought in to oversee FTC's bankruptcy. Over a 40-year career, Ray has performed. presided over the biggest financial collapses in recent history, including Enron, and he said he has

never seen anything as bad as FTX. In fact, he wrote in one FTX filing, and I'm going to quote, never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. Wow. So, yeah, Ramoswami says the reason so many media outlets and financial reporters might be willing to take it a bit easy. on Bankman Freed is because his conduct hasn't exactly been dissimilar to some standard financial conduct. I think part of this is looking in the mirror and seeing that recognition, recognizing that the facts of this case are not that different than what happened with MF Global, with a former political figure who was, you know, the head of Goldman Sachs, John Corzine,

involved in that, whereas others recognizing that, wait a minute, if this guy goes down, and, you know, in my opinion, it is very clear this guy, behavior. in ways that were unthinkable and probably downright fraudulent. But a lot of other people who were lacking clean hands back in 2008 are saying that, wait a minute, we've got to be careful turning him into too bad of a guy because it's not that dissimilar than what happens in the normal financial system even outside the cryptocurrency world as well. And kind of an intriguing side note on that, Amazon has already ordered an eight-episode

series about Sam Bankman Fried that's going to be directed by the Russo Brothers, who you might have heard of for directing those last two Avengers movies. So SBF's heading straight to Hollywood here. That's right. Has the financial world pinpointed any other key contributing factors that caused this mess? Yeah, they have, and it's a pretty big one. Essentially, they say that this is like so many other tech-related scandals in that it centers on this cult of personality

and that the social agenda investing practice that we know as ESG, that stands for environmental, social, and governance is at the center of it. They point to similar scandals with Elizabeth Holmes of Theranos and Adam Newman of WeWork. In all those cases, these tech leaders said they were driven by altruistic motives or virtue investing, but it seems to have led them to commit fraud. And I think that there's a sort of pathology that's really frightening. And the Sam Beckman-Fried was just like next level naming. an entire new nominally for a vision of philanthropy, which in and of itself strikes me as incredibly narcissistic, but all of a while standing over this type of grift and corruption.

It's this incredibly kind of hip but hedonistic aesthetic that they subscribe to. But then it's all couched in like saving the world. And so there's just sort of a secular Phariseism around it that I would think at some point we might want to catch on to and say when Adam Newman is, you know, rate making billions of dollars but telling everybody that he's doing it for the sake of world consciousness. These guys are sort of like cult leaders that are just way more sophisticated than cult leaders. That was something that Ramoswami strongly echoed. He says these Silicon Valley guru types, use ESG to pull the wool over investors' eyes. This is the game. I mean, this is the woke industrial complex at its finest,

is you create this smokescreen of virtue. And the problem with signaling your virtue is at some point it becomes more important than being virtuous itself. And this is not just a matter of hypocrisy. If it was just hypocrisy, I wouldn't even bother talking about it. There's so much hypocrisy in the world.

This is an essential part of the act itself. That is the point here. It would not have worked. He would not have been able to deflect accountability for this long if it were not for the fact that the public saw him as one of the good guys. And to prove just how unbalanced applying political measurements to investing can be, FTX actually had a higher ESG score than ExxonMobil, even though FTX only had three board members,

and according to Forbes magazine, they never had a meeting. Well, speaking of these tech CEOs being activists, You mentioned that Bankman Freed spent a lot of client money on political donations, and we've talked before about the fact that he was the second largest donor to Democrats in the midterm elections. How are those political leaders addressing the situation? Well, a few like New York Senator Kirsten Gillibrand and Dick Durbin of Illinois are making it known that they're giving away the political donations that they received from him. But beyond that, what they're mostly calling for is new regulations on crypto.

But ironically, that's something that Bankman Freed himself was lobbying for before this fiasco. And Ramos Mami thinks it could do more harm than good. I think that's an over-inclusive reaction. It's a low-resolution reaction. And the irony is that it may actually be what SBF himself was calling for. I mean, part of the reason he was able to get away with this was that he cultivated this do-good smoke screen, the good guy who was calling for so-called responsible regulation of the industry. Well, guess what? Whenever a captain of industry, and he was one for a short time, is calling for regulation of their own industry and their own companies, they're usually using that to obtain a

competitive advantage. And there are some ways in which decentralized exchanges could have actually prevented the kind of fraud that he perpetuated. Now, decentralized exchanges have issues of their own, but they wouldn't have had the theft of customer funds issue by a human being that a centralized exchange has. My own view is different. I think that whatever regulatory regime exists, whether it's smaller, whether it's bigger, whether it's more tailored, whether it's not, it needs to be applied even-handedly to all kinds of securities, be they stocks, be they collateralized loans, be they bonds, be they cash, be it gold, or be it crypto. Now, if general financial regulations are applied to cryptocurrency, what that could do, though,

is take a lot of interest out of it for crypto enthusiasts. We know they tend to be somewhat libertarian-minded, and for them, a lot of the appeal is that the market doesn't have the kind of government oversight other financial sectors do. On the other hand, this meltdown has the whole world questioning the viability of crypto in general. Bonson says essentially those who want crypto to survive as a credible market are going to have to decide if they want digital assets to grow up and become part of the formal trading world. You can't lend money out from a bank or a broker dealer that you don't have. And crypto is able to because the regulators have not gotten around. deciding what they want it to be.

And so it's a weird thing I'm about to say. As a general rule, I favor deregulation, but I think this whole space will go instinct if they don't decide to invite some form of regulation because there just simply can't be any confidence in the space when some 29-year-old, you know, I mean, this guy is just a complete tool, brought down billions and billions of dollars.

Now, do people worry about that happening at Morgan Stanley? Well, it can't happen. The regulation, there's a certain institutional credibility when people have stocks and bonds at a brokerage firm that if someone wants to go get their stocks and bonds, they're actually there. But crypto wasn't limited by that. Well, many more layers to peel back on this story

as the ramifications continue to be filled. Thanks, Megan. Yeah, anytime. That was Daily Wire Culture Reporter, Megan Basham, and this has been a Sunday edition of Morning Wire. From all of us here at Morning Wire, we hope you're enjoying the show. Did you know that if you subscribe to Daily Wire Plus,

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