The Breakdown - Will Sam’s Frenetic Media Tour Save Him or Damn Him?

Episode Date: December 2, 2022

This episode is sponsored by Nexo.io, Circle and Kraken.   Ah Sam, will we ever be able to escape you? This week, “main character syndrome” came roaring back into fashion as Sam Bankman-Fried broke his silence with a string of interviews culminating in appearances with Andrew Ross Sorkin at the New York Times DealBook Summit and on “Good Morning America” with George Stephanopoulos. NLW breaks down what SBF said, and how the community is reacting.  - Nexo is a security-first platform where you can buy, exchange and borrow against your crypto. The company ensures the safety of your funds and keeps innovating with products like the Nexo Wallet - a non-custodial smart wallet that allows you to create your Web3 identity. Get early access at nexo.io/wallet. - Circle, the sole issuer of the trusted and reliable stablecoin USDC, is our sponsor for today’s show. USDC is a fast, cost-effective solution for global payments at internet speeds. Learn how businesses are taking advantage of these opportunities at Circle’s USDC Hub for Businesses. - Kraken, the secure, trusted digital asset exchange, is our sponsor for today's show. Kraken makes it easy to instantly buy 185+ cryptocurrencies with fast, flexible funding options. Your account is covered by regular Proof of Reserves audits, industry-leading security and award-winning Client Engagement, available 24/7. Sign up and trade today at kraken.com/breakdown. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsors today is "Back To The End" by Strength To Last. Image credit: Michael M. Santiago/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, circle, and crack it and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, December 1st, i.e., welcome to the best month of the year. And today we are talking Sam's Media Tour. Will it save him or will it damn him? Before we get 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, friends, well, exactly one month ago, on November 1st, the world was very different. I was just coming off celebrating my daughter's fourth birthday, a Ghostbusters Halloween birthday party into a Paw Patrol dress-up birthday, of course. I was a couple days away from my ninth wedding anniversary, which is also my in-laws' 42nd anniversary. In the crypto industry, meanwhile, FTX was the second or third biggest exchange on any given day. Debates were raging about regulation, and market prices were more or less a byproduct of larger risk asset questions and Fed policy. Alas, this normalcy would not last long. The next day, CoinDesk would publish the partial Alameda balance sheet. FtX withdrawals would start based on the nervousness

created by seeing just how much of Alameda was held in highly illiquid assets. A few days after that, CZ's comments and FTT sale would help a trickle of withdrawals turn into a flood. A few days after that, it would become clear that something much more fundamentally wrong was happening inside FTX, as the normally loquacious CEO Sam Bankman-Fried was dead silent. A silence that, as I've explained before, was not just external, but internal. Silence to team, silence the clients. As the days went on, the pressure, questions, and revelations grew and grew. Turns out it wasn't just a quote-unquote run on the bank. Instead, it turns out that billions and billions of FTX customer deposits

had been knowingly sent to Alameda research who had lost them. So the reason that FTX could no longer service withdrawals is that they had broken their own terms of service, and possibly the law, shipping customer funds to a bucket shop hedge fund, possibly via backdoor accounting software, custom designed to obfuscate exactly these sort of transfers. To paraphrase Charles Dickens at the beginning of a Christmas carol, there is no doubt that FTX customer deposits were sent to Alameda illicitly.

This must be distinctly understood, or nothing wonderful can come of the story I am going to relate. Anyway, by Friday, November 11th, FTC was in bankruptcy and the industry was in shambles trying to figure out what the hell had just happened. That process of figuring out what the hell just happened largely consumed the rest of the month. After flurries of ill-advised tweets and text messages in about the first four or five days, Sam finally STFU'd for like 10 days, which, if there's one thing we can thank him for, it's for not making some stupid comments on Thanksgiving itself. But alas, Sam's absolutely congenital main character syndrome wouldn't let him stay quiet for long.

And that brings us to this week, when Sam's post-FTX bankruptcy media tour kicked off in spectacular fashion. Let's put this in three acts, and since I already referenced a Christmas Carol, we'll call it the interview of Sam's past, the interview of Sam's present, and the interview of Sam's future. The interview of Sam's past was actually two interviews that were, at least in crypto time, far in the past. They were conducted with a totally random crypto enthusiast named Tiffany Wong, who had only just started making content around crypto during the Celsius collapse, and who by her own admission had never interviewed anyone before Sam, before Sam DM'd her at 3am on November

16th with what's got to be the weirdest you-up message in business history. So like I said, it was actually two interviews. One was on the 16th and one was on the 20th. However, they weren't released until November 29. which is honestly just genuinely shocking to me. I don't want to get into speculation, but I will say that it raises every one of my spidey senses that Sam chose this relatively unknown person,

which I say with no disrespect at all to Tiffany whatsoever, to start talking and then the interview, which is the hottest interview in media, wasn't released for nine days later in one case and 13 days later in the case of the first interview. Something here is fishy. At best, it's Sam trying to take advantage of someone relatively new to media and content

in an attempt to control the narrative, and that's the least nefarious version of the story that makes any sort of sense. The point being, I think you have to take Sam's words with an extraordinary grain of salt. Or, more precisely, you have to view them as an intentional first attempt to start shaping a media and potentially legal narrative for later on. So to the discussion, some of the key notes. Tiffany asked about the supposed back door, specifically saying that people had accused him of coding it.

Sam says, I don't even know how to code is the honest, embarrassing answer. Now, the important thing to note here is that this is the thing Sam has done a lot. He'll say something very specific isn't true when it obfuscates the larger truth that people actually care about. For example, in the Vox DMs that got shared, the Vox reporter says something about how could he have said on Twitter that FTX doesn't use customer funds to trade? And Sam basically admits that what he meant was practically true because it was actually Alameda that did the trading with customer funds, not FTX. Of course, anyone with a soul knows that this sort of technical precision isn't what matters

in real life, and that what people cared about was the funds being shipped to Alameda, not whether it was technically FTX or Alameda trading them. I think he did something very similar here in this interview with Tiffany, saying of course it wasn't him who coded the back door because he can't code. At the same time, even in trying to basically get off on a technicality, he did admit that people wired money to Alameda in order to get funds onto FTX, which is really, really against the rules too. Later in the interview, he defended FTT, saying that it had better value than most alt coins. He used coin market cap number 17 as a reference, which hilariously at the moment is decentralized exchange uniswops uni. He reinforced a thing that he

has said over and over, which is that his biggest mistake was not pushing customer funds to Alameda, but in fact being coerced into Chapter 11 bankruptcy. He believes he could have gotten all the money back with just a little more time. Now overall, the important thing to note is the narrative that's being structured. Simply put, Sam wants the story to be gross mismanagement, not fraud. Stupid immaturity, not criminal intent. And he wants that story to come from someone who is genuinely contrite. There are lots of I'm sorrys, I f*** ups, I wish I had done things differently. But within all that, there were some pretty big revelations too.

The wiring money into Alameda to get it to FDX is one example, but another was details around prioritizing Bahamian withdrawals. It was one of the rare moments of candor, and I don't think he realized how bad in self-serving it sounded. He said when it came to prioritizing Bahamian withdrawals, the reason I did it is it was critical to the exchange being able to have a future because it's where I am right now, and you do not want to be in a country with a lot of angry people in it. Ah, huh.

There was also a juicy little nugget for all those wondering why the hell his lawyers were letting him speak publicly about all this. He said, my lawyers chewed me to f*** up out. They made me promise to never say I f***ed up again. I told them to go f***ed themselves. They don't know what they're talking about. They only know a little narrow domain about litigation. They don't know about the broader world.

This is perhaps why he was fired as a client by his white-collar law firm. In any case, people reacted fast. Doomberg writes, SPF casually admitting that he routinely had money wired to Alameda because FTX didn't have banking is, dot-to-dot, not smart. But still, a lot of people assume that him talking like this meant he thought he was going to get away with it. John Deaton wrote if Sam genuinely feared prison, he wouldn't be doing these interviews, making admissions, etc.

He would be listening to his lawyers. In an ecosystem where innovation is the norm, it's the basics that are in the spotlight. Nexto is a company that has never put the safety of clients' funds in question. With over 50 global licenses, $775 million in insurance, and a real-time audit of custodial assets, Nexo sets an example for security standards in the industry. Apart from keeping their 5 million clients safe, Nexo has kept building. They've just announced their non-custodial smart wallet. Visit nexo.io.

That's nexo.io and sign up today. This episode is brought to you by Circle, the sole issuer of USDC, and a leader in crypto that's held to a higher standard. USDC is a fast, safe, and efficient way to send money around the globe. USDC is always redeemable one-to-one for U.S. dollars and has over $45 billion in circulation as of October 13, 2022. Plus, Circle posts weekly reserve reports and monthly attestations of reserve capital, letting users know that USDA is safe, transparent, and compliant with regulations. Just go to circle.com backslash transparency to see why USDC is a trusted stable coin. As one of the largest, longest-lasting, and most secure exchanges, Krakken continues to set the industry example for transparency and trust.

Regular proof of reserves audits verify your balances are backed by real assets. Industry-leading security keeps your funds and information safe. And award-winning client engagement teams are available for support 24-7. Buy crypto instantly with fast, flexi. funding options on Cracken. Download the Cracken app on Google Play or the Apple App Store or visit crackin.com slash breakdown to join. Friends, that was just the first of these three interviews, which brings us to the big show, the interview of Sam's present. Now, for some time, Sam had been scheduled to appear at the New York Times Deal Book Summit on November 30th. One of the questions in the wake of all

of the FTX revelations was whether that conversation would still happen. On November 23rd, Andrew Ross Sorkin wrote, a lot of folks have been asking if I would still be interviewing Sam. at the New York Times Steelbook Summit. The answer is yes. There are a lot of important questions to be asked and answered. Nothing is off limits. Looking forward to it. I will say, I was nervous about whether Shorkin was going to ask the tough questions. But he started strong. Sorkin says, There are two ways to view what happened at FTX. There's a generous view that you are a young man who made a series of terrible, terrible, very bad decisions. The less generous view is that you have committed a massive fraud, that this is a Ponzi scheme, a manipulation of the system. What is this?

what did happen? Sam says he was CEO, so whatever happened, he had a duty, blah, blah, blah, blah, blah. But the key line is he says, I didn't ever try to commit fraud on anyone. I was excited about the prospects of FTX just a month ago. I was shocked about what happened this month. Quickly pausing here, I think overall Sorkin did okay, as we'll get into in a minute. But I believe that the main problem with a lot of these interviews is that they don't ask the questions in a pointed yes or no style way. They ask it in ways that allow squirming and half-truths and narrative construction. To his credit, though, Sorkin tried to keep the focus on this question. He says next, from a gentleman who said he had lost his life savings. The subject line is, Sam Bankman-Freed,

stole two million dollars from me, says, Andrew, can you please ask SBF why he decided to steal my life savings and the $10 billion more from customers to give his hedge fund Alameda? Can you ask him why his hedge fund was leveraging long all of these shi coins? Please ask him if he thinks what happened was fraud. These are the kind of letters I've been getting repeatedly over and over the past couple days. What do you tell this man? Now, Sam, for his part, chose not to answer any of the actual questions about his decision, which was, of course, the question's subject to give customer funds to Alameda. Instead, he talks about Alameda's positions on the platform. Sorkin then cuts him off. The bigger question is where Alameda got the loan from. There is a view that this is about commingling of funds. In that letter,

this gentleman actually copy and paste the terms of service for FTX into the email. None of the digital assets in your account are the property of or should be loaned to FTX trading. FTCTX trading does not represent or treat digital assets and user accounts as belonging to FTX trading. So how is it possible that Alameda had this loan of such a large size? Sam says in one of the sleaziest answers, there's that piece of the terms of service, but there were a number of other parts of the terms of service and a number of other parts of the platform on top of that. He then talks to the borrow and lend portion and the futures portion, claims that the platform could margin call all of those positions and close them when needed. But Sorkin cuts him off again and says,

let's make this very straight. Was there commingling of funds? That's what it appears like. It appears like there was a genuine co-mingling of the funds of FTCS customers that were not supposed to be commingled with your separate firm. Sam says, I didn't knowingly co-mingle funds. I wasn't trying to co-mingle funds. Now, the savvy observer here will note that it's not totally clear how much it matters whether he was, quote-unquote, trying to or not. It certainly reads again, like someone mounting a defense of gross mismanagement, not fraud. But I wasn't trying to commit fraud might not be the strongest argument. Later on in the interview, Sorkin brings up Carolyn Ellison from Alameda, who had told staffers that Alameda used FTX client funds to cover loans that were being recalled because of

the Luna triggered credit crunch. According to the Wall Street Journal, Caroline said that she, Sam, and Gary were all aware of that. Sorkin asks, how do you square that with what you said on Twitter, that this was an $8 billion accounting mistake? Sam didn't really answer this one. Now a little later, Sorkan does push hard and leads Sam to start to reveal what sort of seems like another part of his plan, which is to pin this all on Alameda. At one point, he said, I wasn't running Alameda. I didn't know exactly what was going on. I didn't know the size of their position. To that, Jake Trevinsky wrote, If you're Carolyn Ellison or Sam Tribucco right now, I assume you're watching this and thinking very hard about your options. DoJ is only a phone call away. Another part of the interview that has gotten

much coverage was when Sorkin asked Sam if he could go back to the U.S., to which Sam said, to my knowledge I could, which Sorkin then followed with how concerned are you about criminal liability at this point? Sam says, I don't personally think that I have. It's a long interview, so I'm skipping over a lot, but one of the more egregious seeming lies was when Sam said, I don't know the details of that house for my parents, but I know that it was not intended for their long-term property. Barf. Anyways, at the end, Sorkin asked, were you truthful with us today? And Sam says he was. And then Sorkin says, I want to thank you for this interview. I hope that some of the answers have been helpful as we try to understand and entangle what is still a tangled

story. I know this has been a difficult conversation and a tough conversation. On behalf of everyone here and on behalf of the public, I want to thank you for engaging in it at a time in truth when I know you've been advised not to. At that point, Sam gets a round of applause, which is just super weird. Now, clips of that round of applause have caused a lot of folks on Twitter to be very angry at the interview as a whole. For me, I would give it like a solid C to C plus. Maybe graded on the scale of the rest of the media coverage up to this point, maybe it eaks into the bees. The reason for that is that Sorkin did ask some hard questions. But there can't be too many points awarded for that, as those are the clear questions. Second, Sorkin did try to drag Sam back to get answers when

obfuscated, at least at the beginning, he just wasn't really that successful. But third, there were some really big things he missed. Alex Kruger pointed out that Sorkin didn't ask about the $3.3 billion in loans to himself, or the Alameda God mode where they didn't get liquidated as they were trading. Now, some folks thought it made Sam look bad. Nyarish from CoinSender says, as expected, Sam looked terrible and had no answers. Slate wrote a piece called Sam Bangman-Fried made another risky bet that didn't quite go as planned. With the juicy line, whether the hole that the disgraced Crypto Titan finds himself in is

merely reputational or legal or financial, he's now eagerly grabbed a shovel offered up by the New York Times columnist Andrew Ross Sorkin. Others, though, thought this was extremely calculated. Ledger status says, I think the play on intent or lack thereof is extremely calculated and may even work. Jake Chavinsky said, I agree that's the play. It has a non-zero chance of tricking a jury if he wants to go to trial. That's a high-risk play, since the downside is a life sentence. But hey, Sam never was one to shy away from risk. Still, better chance if he shuts his mouth. Nick Carter took it even farther. This morning he wrote, Sam isn't behaving like a renegade who is ignoring the advice of his lawyers. He's behaving like he has a world-class crisis management firm and legal team constructing a very

specific and deliberate public narrative. It's not 10D underwater chest. It's just basic legal positioning. Obviously, he has an interest in representing that he had no knowledge of Alameda and had no intent to commit fraud. Perceived intent matters. Manslaughter is a lot less worse than first-degree premeditated murder. Even simpler, Vinnie Lingham echoed this point saying the SBF legal strategy is to attempt to characterize fraud as incompetence in order to stay out of jail. In any case, this was the entire conversation for all of last night, but shockingly, I think it was completely upstage by an interview this morning with, of all institutions, Good Morning America. George Stephanopoulos apparently flew to the Bahamas recently and had a two-hour conversation with Sam,

which was condensed down to what is, for my money, the best nine minutes of any interview so far. It starts right off with George Stephanopoulos asking if FtX went bankrupt. because it used customer funds to pay Alameda creditors. Sam gives a meandering answer as he is wont to do, to which Stephanopoulos responds, I'm no cryptocurrency expert, I'm no finance expert, but I don't think you answered my question. Did you know that FTX deposits were used to pay off Alameda creditors? And that, my friends, is the point when I sat up in my chair. Stephanopoulos didn't leave it either.

He goes on, Carolyn Ellison says you all knew these funds were put into Alameda, that these are funds that were owned by your depositors. Sam starts, GS cuts him off, reads the FTX terms of service. Sam tries to say in some cases it's okay, but then Stephanopoulos says, if Alameda is borrowing FTX users' funds, that's a bright red line, isn't it? Sam tries to say there are a lot of cases where that's explicitly part of the program, but GS cuts him off again saying, but not here. Here it says explicitly that these funds can't be loaned out.

Now, if you thought some of the answers were slow or meandering when it came to the dealbook interview, in this one there are just awkward minutes of silence, it feels like. The last section may be even crazier. Again, what we have here is someone trying to say this was about negligence, not criminal intent. Stephanopoulos is talking to Sam about risk management. He uses his own words against him when he said, You've been in podcasts saying that your best skill is dealing with risk. Sam said, yeah, that was true and tried to defend himself saying that it wasn't that he was a bad risk manager.

It's that he wasn't doing it at all. Specifically, he said, I wasn't spending any time to manage risk on FTX. To which Stephanopoulos responded, that's a stunning. admission. Sam said, I don't know what to say. What happened happened. So a couple notes on this one. First of all, huge kudos to George Stephanopoulos for being the first person to actually just not let up on the most important questions. I'm honestly quite glad that if there was going to be one interview like that, it was the one likely to be seen by the most people. Good Morning America has been the most watched morning show since 2012. Second, I called this interview the interview of Sam's

future because it feels like the one most likely to come back to haunt him in whatever comes next. Listen, entire psychological courses could be devoted to why this media tour is happening. I think the folks like Nick who are identifying this as an attempt to craft a media narrative that moves away from fraud and towards negligence, or even a benign version of fraud that could be plea bargain down, are dead on. But boy, it's hard not to feel like Sam has given a hell of a lot of material to those who are actually investigating him right now. But apparently the media tour continues. Sam is saying that he'll show up on a Twitter space is tomorrow and maybe Frank Chaparro's podcast too soon. Will that actually happen?

even after the reactions to these latest interviews, time will tell how it all shakes out. For now, I want to say thanks again to my sponsors, nexo.io, circle and crackin. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.