The Breakdown - SBF Declines a Congressional Invite; Alameda CEO Is Seen in New York City

Starting point is 00:00:00 I don't know any specifics of anything regarding customer funds or that side of the business. But when it came to every part of the business that I saw him interact with, including marketing, all big decisions rolled through him. No one was ever empowered to make major consequential decisions without him. So color me extraordinarily suspicious that anything like customer funds moving to Alameda could have happened without his knowledge. Welcome back to The Breakdown with me, NLW. It's a daily podcast on Macro, Bitcoin, and the Bigot.

Starting point is 00:00:30 Big Picture Power Shifts remaking our world. The breakdown is sponsored by nexo.io, Circle, and Cracken, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, December 5th, and today we are talking about Sam Bankman-Free declining a congressional invite, all the while the Alameda Research CEO has been seen in New York City. Before we dive into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friendos, well, I hope you had a great weekend.

Starting point is 00:01:10 However, if you were on Twitter, you probably have already had an entire emotional relationship round trip with ChatGPT. ChatGPT is OpenAI's latest natural language interface for its GPT large language model AI system. One of the things that makes ChatGPT different and that has caught people's attention is that it can handle not just data prompts but creative prompts.

Starting point is 00:01:32 For example, when I asked, write a song about the downfall of FTX in the style of Taylor Swift's anti-hero, it spat back a full song, including verse one. FTX was once the hero of the crypto game, but now it seems they've lost their fame. They promised big returns and easy gains, but now they're just a symbol of financial pain. Thanks, AI. Thanks a lot. Anyway, I actually think that chat GPT is totally deserving of a headliner show. AI is clearly in the realm of big-picture power shifts. And just to give a taste, over the weekend, people were discussing it in relation to Google search and how disruptive this might be to that,

Starting point is 00:02:05 in relation to creative pursuits and whether this would actually replace some amount of human creativity, in the context of jobs that require basic writing, and a lot of debate around programming and how this might change programming as well. In fact, Stack Overflow, which is one of the largest Q&A sites for programmers, had to take the step today to temporarily ban users from sharing chat GPT generated responses. Basically, chat GPT made it too easy to find answers that looked right, but were in fact bullshit. In a statement, Stack Overflow said, the primary problem is that while the answers which chat GPT produces have a high rate of being incorrect, they typically look like they might be good and the answers are very easy to produce.

Starting point is 00:02:46 Anyways, I do think there was a real moment this weekend where a lot of folks who hadn't thought all that much about this sort of AI before saw the potential and said, holy crap. Metro, a software engineer at Endurrell, said, All the smartest people I know have spent the entire weekend asking questions to chat GPT. Why, Combinator founder Paul Graham writes, The striking thing about the reaction to chat GPT is not just the number of people who are blown away by it, but who they are. These are not people who get excited by every shiny new thing. Clearly, something big is happening.

Starting point is 00:03:15 And just to add a certain level of drama, Mark Antresen of A16Z says, the level of censorship pressure that's coming for AI and the resulting backlash will define the next century of civilization. Search and social media were the opening skirmishes. This is the big one. World War, Orwell. Anyway, this is a preview. I'm working on a whole show about this, but as a relatively new area, I want to just absorb a little bit more. We'll definitely have a show about it coming sometime later this week. In the meantime, we have plenty of juicy things to catch up with back in Crypto Land. On November 23rd, when Andrew Ross Sorkin and Sam Bankman-Fried announced that Sam would still be speaking at the New York Times Deal Book Summit a week later, I quote tweeted that and

Starting point is 00:03:53 said, this is the shit that radicalizes people. But boy, if you think being willing to do an NYT interview will radicalize some folks, you should have seen the explosion of anger around a tweet from House Committee on Financial Services chairwoman Maxine Waters. On Friday, December 2nd, the California Democrat tweeted SBF, we appreciate that you've been candid in your discussions about what happened at FTX. Your willingness to talk to the public will help the company's customers, investors, and others. To that end, we would welcome your participation in our hearing on the 13th. Here are just a sample of the responses. Jake Chervinsky writes,

Starting point is 00:04:28 Representative Waters, we appreciate that you're holding a hearing on the 13th, and we look forward to substantive fact-finding about what happened at FTX. I am certain that fact-finding will show that SBF has not, in fact, been candid in his discussions. He committed fraud, full stop. Fat Man Tara said, I sincerely hope this is a ruse to get SBF into the U.S., so you can sneak attack him with handcuffs and haul him to prison. If not, then I'm at a loss for words, and I will have to concede that you are exactly as corrupt as people say you are. Nick Carter added to that one, Congress pulling off a ruse like this would be

Starting point is 00:04:57 so-based. And then, of course, there was Udi Wertheimer, who has at this point nearly ratioed Congresswoman Waters with this comment. Lord Vader, we appreciate that you've been candid in your discussions about what happened at the Death Star. Your willingness to talk to the public will help Alderan's victims and survivors. To that end, we would welcome your participation in the Galactic Senate on the 13th. Meanwhile, if you look at the quote tweets, it's even worse. It's people confirming their suspicions of political corruption at the highest order and on top of that, a lot of people who aren't any type of conspiracy thinkers just genuinely asking, how the hell is this the tone and why the hell is this conversation happening on Twitter?

Starting point is 00:05:32 Well, it got even weirder when last night on Sunday, Sam responded. Representative Waters and the House Committee on Financial Services. Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain. I'm not sure that that will happen by the 13th. But when it does, I will testify. Shandra Shrikanth of Moneycontrol.com wrote, Is this going to be the future of how dubious people are treated in the U.S.? House Committee, can you please testify?

Starting point is 00:05:57 SBF, yeah, let me figure. We'll keep you posted. All on Twitter. Surreal. Seth Hurtlein, the head of policy for ledger, writes, SBF breaking up with Congress. It's not you, it's me, with a dash of, I need to work on myself. Duneberg writes, this can't actually be happening.

Starting point is 00:06:11 And Mike Duda sums up my feelings exactly when he tweeted, Home, you're really going to clam up for regulators and financial oversight after doing 712 podcasts, 1,345 Twitter spaces, and 2,300 incoherent DMs to journalists and randos over the past three weeks? Water's tweet was also a big contrast with Senator Pat Toomey's tweet, which said, What happened at FTX is horrendous, but we shouldn't confuse the bad actions of individuals with an underlying asset. The Code isn't guilty of anything. The Senate Banking Committee should bring in SPF for a hearing. Still, I think the blockchain associations Jake Trevinsky might be the closest when he tweeted translation.

Starting point is 00:06:46 He doesn't mind lying to Andrew Ross Sorkin or George Stephanopoulos, but lying to Congress under oath is less appealing. Now, to that point, Sam did another interview over the weekend, this time with the blocks Frank Chaparro. Frank, as I completely expected, did a great job. And Dave Weisberger from Coin Routes pointed out that Sam had caught himself in something. He writes, When Sam said he is embarrassed by not knowing about the no liquidation accounts,

Starting point is 00:07:10 that is an admission he lied in testimony to the CFTC and likely Congress. He specifically cited statistics on FTX systemic risk and performance of the engine. Later in the interview, when Sam admitted to seeing high-level balance sheets and P&L graphs, Frank, created an aha moment. Either they were falsified, criminal, or he would have known the extent of specific losses from Luna, GBT, etc. Now, when someone asked Dave to clarify, saying there's a difference between lying directly and holding contradictory narratives, in what way did he directly lie? It's important to be very explicit. Dave followed up and said, he cited statistics on the performance of FTCS's risk engine saying there was less than a fraction of 1% of losses to the FTCS internal insurance fund.

Starting point is 00:07:50 He said this in the context of systemic risk to all the other clients of FTCS. In context of the hearing, he argued for a model where losses were confined to collateral posted, and the exchange clearinghouse combination managed risk without socializing losses. He spoke authoritatively and claimed complete knowledge of the working and performance of the engine. Now, my strong feeling at this point, and I don't begrudge journalists, or content creators who continue to do interviews with Sam. It's fairly naive to think that they won't. Although I also admire those who are taking principled positions right now to not do so. Anyway, my position is that there is nothing more really to be learned by interviewing Sam.

Starting point is 00:08:25 There might be more lies to catch him up in and inconsistencies, which may be useful in court later, but by and large, Sam has a story and a narrative now. Every day that goes on, he remembers less and less of the important details and distances himself further and further from having had any agency. I will say again that I don't know any specifics of anything regarding customer. customer funds were that side of the business. But when it came to every part of the business that I saw him interact with, including marketing, all big decisions rolled through him. No one was ever empowered to make major consequential decisions without him. So Caller Me' extraordinarily suspicious that anything like customer funds moving to Alameda could have happened without his knowledge.

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Starting point is 00:11:10 funds to Alameda, leading many of those employees to quit on the spot and walk out. And this gets to what seems like it will be the central legal battle of all of this. whatever Caroline said at that meeting and whatever she says in the future, versus the narrative that Sam is pushing. And of course, that gets us to the biggest intrigue of all from this weekend. On Sunday morning, Sam Stan turned quote-unquote citizen journalist account, Autism Capital, published two photos of someone who certainly looks like Carolyn Ellison at a New York coffee shop from that morning. The caption read, Please confirm. A user claims they spotted Carolyn Ellison at ground support coffee on West Broad and Soho Manhattan at 8.15 a.m.

Starting point is 00:11:46 This would mean she is not in Hong Kong. and is in New York not in custody. Within a few minutes, the general manager of the coffee shop responded confirming that it was indeed her. This, as you might imagine, led to wild speculation. Why the hell was Carolyn in New York? Rumors over the last few weeks placed her location in Hong Kong or even trying to get to Dubai. It wasn't long before there was consolidation around a theory. Multiple people posted Google walking and driving maps of the under a mile between that cafe and the local FBI building. Indeed later, Autism Capital wrote the general consensus is that Carolyn Ellison is likely in New York cutting a deal and cooperating with Southern District of New York

Starting point is 00:12:21 prosecutors to roll on Sam. They went on later, a highly credible source claims that Carolyn Ellison is currently being represented by Wilmer Hale, a well-known DC insider law firm. Please verify. Now again, to be clear, this is all serious speculation, hearsay, and intrigue. It should not be taken as true. The only reason I'm willing to share it here is that, one, this has basically been all anyone is talking about on crypto Twitter, and that, two, this autism capital account has become a central hub for people with real information to share it anonymously since this all went down. So, giant grain of salt, but make of that what you will. What's more clear and for real from Friday is that the U.S. Department of Justice wants a fraud investigation into FTX. The Department of Justice filed court documents

Starting point is 00:13:02 in the FTX bankruptcy proceeding on Thursday requesting an investigation. The DOJ, which was already looking into the matter, now wants the bankruptcy court to appoint an independent examiner to probe potential wrongdoing that may have led to the collapse of FTX. The filing said, quote, an examiner could and should investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement by the debtors. In the same filing, the DOJ described FTX as the fastest big corporate failure in American history. The DOJ claimed that there is a substantial basis to believe that CEO Sam, along with other managers, quote, mismanaged the company or, quote, engaged in fraudulent conduct.

Starting point is 00:13:38 According to a Bloomberg report from Thursday, the U.S. Attorney's Office for the Southern District of New York and attorneys for the SEC's Enforcement Division have sent requests for information to crypto-investment, investors and trading firms that worked with FTCS. Now, meanwhile, in the court filing, the DOJ said an examination would be preferred to an investigation because the former can be made public. They say this is, quote, especially important because of the wider implications that FTC's collapse may have for the crypto industry. Point being, this is getting more, not less, messy. Now, rounding this show out with a couple more bankruptcy-related updates, liquidators for failed crypto hedge fund three hours capital have seized $35.6 million from bank accounts held in Singapore.

Starting point is 00:14:13 This is the largest portion of money gathered by liquidators since the firm, collapsed in July, leaving 3.5 billion owed to creditors. During the latest court hearing, liquidators blasted 3AC founders Kyle Davies and Sue Zhu for talking to the media when apparently they continue to be uncooperative with the bankruptcy proceedings. Tenio, the New York-based liquidation firm acting in the case, said during the hearing on Friday that they have only had one phone call with each of the founders in August and that Sue and Davies have failed to provide a complete set of financial records. Jen Wisner, a features writer at New York Magazine, live tweeted the hearing and basically said it was crazy. Threeac's liquidation.

Starting point is 00:14:46 are currently slamming Suu and Kyle Davies for non-cooperation and accusing them of making improper payments for the yacht much wow with company funds. I'm still in the hearings Sue and Kyle aren't present. It's about as wild as bankruptcy hearings get. The liquidator's position as the founder's behavior shows they have something to hide. Three AC's liquidation lawyers and the judge are now debating whether they can serve Suzu and Kyle Davies subpoenas via Twitter because they haven't been able to reach them any other way. No one is sure if this has ever been done before. The judge doesn't even think a Twitter subpoena will work because both Sue and Kyle may have given up their U.S. citizenship and are hanging out in non-extradition places like Bali and

Starting point is 00:15:19 Dubai. Not only were Sue and Kyle absent in the 3AC hearing, their lawyers skipped it too. I'm told they were, quote, very aware it was happening. Quite a power move when a half-dozen lawyers accuse you in court of brazen and improper conduct, and you don't even bother to send legal defense. Kyle and Sue both seem like they want to talk about this explicitly everywhere they're allowed to, so I'm sure we'll be hearing more of their side of the story in the months to come as well. And then there is Genesis. I'm unethical. I'm unlawful. I'm honestly shocked that we haven't heard anything from Genesis or parent company DCG, who also owns CoinDisc. However, into that absence is coming legal action. Last week, the Financial Times

Starting point is 00:15:54 reported that customers at Gemini Earn, which is a pass-through service for Genesis products, had sought legal representation for negotiations with Genesis. That group of creditors are owed $900 million, according to the report. A second group of Genesis creditors with loans amounting to an additional $900 million are now being represented by law firm ProSkauer Rose, according to CoinDesk sources. A third group of creditors is still organes, organizing and is being represented by Kirkland and Ellis, which is the law firm representing both Celsius and Voyager Digital in their bankruptcy proceedings. In a letter to investors in late November, shortly after halting withdrawals, Genesis said it had, quote, begun discussions with potential

Starting point is 00:16:28 investors and our largest creditors and borrowers, including Gemini and DCG, to agree to a solution that shores up our lending business overall liquidity and addresses clients' needs. This is, of course, the last that we've heard about it. On Sunday, Masari's Ryan Selkis walked back, some research that he and Asari had shared last week, suggesting that things might not be as bad or at least would be survivable over at DCG. And basically still no one has any idea. Until DCG and or Genesis speak up, we just don't know. And for what it's worth, whether Genesis and or DCG are going under or they're going to get out of this alive, I don't believe the industry can really move forward until they do. It has now been two and a half weeks since the last public statement that tends not to be a good

Starting point is 00:17:08 thing when it comes to this space. I know that there are some things that have to be dealt with behind closed doors, but I would suggest, humbly, that the industry could use a little update pretty soon. Anyway, for now, I want to say thanks again to my sponsors, nexus.com.I.O., Circle and Cracken, for supporting the show. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - SBF Declines a Congressional Invite; Alameda CEO Is Seen in New York City

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