The Underworld Podcast - Slave Compounds, Sam Bankman-Fried and Crypto’s Crooked Heart - with Zeke Faux

Episode Date: November 28, 2023

Zeke Faux is an NYC-based reporter with Bloomberg Businessweek. His new book, “Number Go Up”, is a wild ride into the criminal heart of cryptocurrency - from missing billions and cartel money-laundering, to Tether, FTX, bros in the Bahamas and crypto slaves in Southeast Asia. Learn more about your ad choices. Visit megaphone.fm/adchoices

Kayak gets my flight, hotel, and rental car right, so I can tune out travel advice that's just plain wrong. Bro, Skycoin, way better than points. Never fly during a Scorpio full moon. Just tell the manager you'll sue. Instant room upgrade. Stop taking bad travel advice. Start comparing hundreds of sites with kayak and get your trip right. Bad advice?

You talking to me? Kayak, got that right. USAA knows dynamic duos can save the day, like superheroes and sidekicks or auto and home insurance. With USAA, you can bundle your auto and home and save up to 10%. Tap the banner to learn more and get a quote at USAA.com slash bundle. Restrictions apply. It's April 2022, and thousands are gathered in the Caribbean city of Nassau for the inaugural Crypto Bahamas Conference, a showy, neon-drenched eulogy to all things cryptocurrency,

hosted by Salt, an events firm led by Blinking You Mistit White House Com Director Anthony Scaramucci, an FTX, a ballooning crypto exchange whose CEO, Sam Bankman Freed, is a mop-headed Toyota Corolla driving slug genius, whose Robin Hood aphorisms and membership of a movement called effective altruism has made him a darling of the Web 3, blockchain, and even political realms. Global names like Andrew Yang, Tony Blair, Chazelle Bunchin, Tom Brady, everybody's favourite DJ Steve Ioki, and even former US President Bill Clinton, a present at Cryptobahamas. Trying to make sense of stable and shit coins, same as everybody else,

but not clearly is enough to issue anything other than shining adulations of the tech, the country, understandably, and Bankman Freed, who most folks now know by his initials, SBF. I'm convinced that we've got a lot of money, energy and talent behind crypto, and when you have something that's obviously serious, you want to do right by it in the regulatory space. Says the sacks playing, cigar inserting, Arkansan Clinton, lending this strange new world, a whole other level of respectability. That's despite fleets of crypto scammers, Asian slave armies,

and the increasing use of Bitcoin and other ledgers, to wash and fund the activities of some of the world's scariest, criminal groups. Money talks, especially in the case of Pamperedex Politico's Fiat currency. Cracks will appear in FTCS' organization within weeks of the mega show. But the following January, this January, Bahamas police arrest SBF after U.S. prosecutors filed criminal charges, including wire fraud, wire fraud, wire fraud, conspiracy, and money laundering. That's another way of saying, FTX is a giant steaming pile of crap. And one writer has been there throughout the whole thing, ready to track its and

cryptos, full from grace. Welcome to the Underworld podcast. Hi guys, and welcome to the show where SW and DG dig deep into FTX, BTC, and of course SBF. My name is Sean Williams. I'm a journalist now, Tiroa, New Zealand, and I'm joined today, actually not by DG in NYC, but ZF or ZDF, if you're a normal person, also in NYC. An investigative reporter for Bloomberg Businessweek named Zeke Fox, an author of the recently

released Number Go Up, which is a wild ride into the heart of the crypto wave, including the wizards, wise guys and pukeshel necklace wearing bros who've made it into a multi-trillion dollar sector in just over a decade. And of course, Crypto Bahamas. What a guy will do to see C. Vioki, eh? First off, we've got a great new bonus from Auckland this week, drug trafficking tail winding from L.A. to Sydney to Tahiti. And I've got some cool stuff coming up for the show from Papua New Guinea, where I'm hitting this week on assignment for a Harper's magazine. Danny's also working a couple of audio docos to release soon, and we are actually journalists, guys.

And as ever, if you can't support the Patreon, please do get stuck right into the IG, the YouTube, the Twitter. It all helps us out a hell of a amount. Like, it really does help. I've spent a large part of this week listening to the Audio Book of Nile. number go up so cheers to Zeke for doubling my weekly gym time but it's a crazy crazy good read wines from Miami to the Bahamas El Salvador southeast Asia where some of the worst crypto related crimes are still going strong today and you might remember our show on the scam compounds from a year or so back now at the center of all of this of course sits SBF who's currently awaiting sentencing for fraud and

conspiracy convictions and who Zeke actually met for a business week feature around 18 months ago just before the whole house of cards came tumbling down. Less well-known perhaps is something called tether, a so-called stable coin, which is kind of like the foundation for a huge amount of crypto transactions. We're going to get into the whole grubby thing today. So I know it's late there, Zieg. Thanks so much for joining us.

This book is pretty insane. Thank you so much for having me on. I guess because you tee up the book with Sandbank and Freed, you mentioned meeting him in the Bahamas, is these kind of like slubby headquarters of FTX, which is his exchange. I mean, if you could draw a kind of cosmology of the crypto-milky way, say, like where is SBF and FTX? And then where is Tether as well?

So at that time, it's February 2022, and FTX had just aired its big Super Bowl ad. with Larry David, where basically they made the case that crypto was an invention as good as the wheel, the Walkman, the fork, and that if you doubted crypto, you are pretty much a loser who's going to miss out on the next big thing. And Bankman Fried at this point, he's 29. He's worth $20 billion. He's basically the biggest star in crypto. No, he's not like the richest guy. in crypto. That would be finances CZ

whose exchange was like way way bigger. But Bankman Fried was like a great hope for somebody in crypto who could go legit. He was testifying before Congress. He had just like a week before the Super Bowl

he had testified before a Senate committee and they were just fawning all over him. I mean, Corey Booker was complimenting him on his on his fro. They're asking his advice about how to regulate crypto.

And nobody's really talking about hey, like, why is this guy in the Bahamas? I mean, and the answer, what she would tell you is that the stuff we do with here would not be legal in the United States. Yeah. There's like moments where you meet

where you say that it's not really a mask slipping, is it? He just kind of comes out and pretty much blurts out of the whole thing in sort of not so cryptic language. So I went to go meet him because I wanted to solve this mystery of Tether. And if SPF was like the most legit guy in crypto, Tether was like the least legit. And it's also massive.

It's a stable coin. It's a coin that's always worth a dollar. And it's supposed to be backed by real dollars in the bank. And at that time, it had gotten to be bigger than $50 billion. So they're supposed to have $50 billion in the bank somewhere, and I'm basically on a mission to figure out where that is if it really exists. And Bankman Freed, as one of the biggest players in crypto, is one of the biggest users of Tether. Because you can kind of think of Tether as like casino chips, and you can think of FTX and these other crypto exchanges like casinos. So instead of each having their own cashier,

they send their gambler like, Gamblers, you want to play here, and over to the old tether cashier, buy some tethers, then you can bring them to whatever casino you want, move them around to different casinos, whatever. So I'm thinking Bankman Freed has got to know what's going on with tether,

but also I'm fascinated by this guy because when he actually seemed to be maybe living out something that I'd always kind of imagined, because I specialize in writing about people who made a lot of money in sketchy ways on Wall Street. And I'd been doing it at Bloomberg for, like, more than a decade. I've met all sorts of guys who had made fortunes on payday loans, penny stock schemes, online ad scams. And I'd sometimes thought, a lot of these guys, you know,

they get their $10 million, their $100 million, and they seem kind of bored and unhappy. And I'd even propose to some of them, I'd said, maybe you would get some more fulfillment for your life if you gave that money to charity. Like, that could be kind of cool. And nobody likes this idea.

Nobody took me up on it. And then I meet this, I meet this guy, Sam Bankman Fried, and he's like, hey, listen, when I was a teenager, I was a vegan, was an animal rights activist. Then I met this philosopher who said, that's not the best use of your time. You should just get rich. And then give the money to charity. We'll hire thousands of activists to hand out pamphlets with the money that you'll make.

And teenage Sam was like, that sounds cool. and then here he was in front of me, less than a decade later, running what appeared to me to be like a giant crypto casino where people are going to probably lose money and he's doing it for charity, he says. He seems sort of like he's following this Robin Hood plan that I had imagined.

So I was really fascinated by him. I wanted to pump him for info about Tether, but I also was curious, will he actually follow through with this plan or will the pursuit of ever more wealth corrupt him along the way? So I was down in the Bahamas with these two trying to investigate these two things

and sadly not really trying to investigate the thing that I should have been trying to investigate which was is this curly-haired guy sitting right next to me running the biggest financial scam of all time this is the

sort of effective altruism isn't it? They're kind of like get mega rich and make more a difference in the world that somehow hasn't saved the world from any of its major ills so far which you would expect it to have done if people were following it, I guess.

Well, like I find the idea kind of appealing. Yeah. If you start sort of small, they'll say, like, hey, like, you could probably give some more to charity, right? Like, your life's pretty good. Let's say you gave away, you know, 10% of your income. I mean, you'd make some sacrifices, but you could handle that, right? And that could make a big difference for someone where that money would go further,

somebody who might be hungry right now. And it's like, it's hard to argue with that. And then, but these effective altruists take that argument to crazy. extremes and Sam became like the face of this movement and he took it to the

absolute he pushed this to the limit and it actually gave him a crazy tolerance for risk because and we talked about this he would say

I don't think that my life matter more than someone else's. If my life is a little worse, but that could make several other people's lives better, I should make that choice. And if you asked him, hey, I...

So he would say, like, I don't really care if I end up broke. Most CEOs really want to hold on to that, like, last 10 million so they can have their yacht and their fancy house. He's like, I'm going to double down every single time because all I care about is maximizing the expected value of my earnings and earning the earning the most to give away. And I don't really care if there is a risk that I end up destitute. And like if you had asked him, hey, we're going to flip a coin heads.

You're going to become a trillionaire. And you can give it all to charity and save the world from the evil robots. one of his goals. Tails, you're broke and you're going to be in prison for rest of your life. He would have said, like, let's flip that coin. We've got to flip it because the heads is so good for the world. And Tails is kind of bad for me, but negligible impact on the world. It's funny, because you mentioned, and one of the kind of next things that you get into in the book is you go to this huge

conference in Miami, like the biggest sort of collection of crypto. I'm going to say diplomatically, maybe dickheads. They sound like the most awful collection of people. I don't know. But like you get like mayors of these cities and like heads of government and people just like desperate to get on board with the crypto riches that are flooding in. And it's a similar kind of message, right? It's like, you know, I'm sure they don't understand what the hell this thing is,

but it's like we can divert money to build bridges and solve gang crime or what have you. Like it's a similar message to that. I mean, Bankman Freed and his people, it's now come out like at his trial, some of their internal communications. They were at least contemplating paying off the entire national debt of the Bahamas. Just as like a, I don't know,

like a thank you for the government for passing friendly crypto regulations so that they could move there. And yeah, I think for like a couple of years, it was as if a spell had been cast and the normal rules of the financial world totally didn't apply. And these people I met at this conference in Miami, I heard some of the dumbest business plans that I've ever heard. and I met some of the like sketchiest people that I've met in a career of specializing in yeah finding yeah um but at that time

these people were amassing billions of real dollars with their these plans because these all these random cryptocurrencies were going up and up and up and up. Um and I remember around that time

um I went out for drinks with Danny. And we were talking about, he was telling me about NBA Top Shot, which is like a kind of a collectible trading card. It was like you could buy NBA highlight videos on the blockchain. And people were making huge money flipping these. There was a guy in the Wall Street Journal,

there was an article about like the top top shot trader and he had made like 20 million dollars and Danny was telling me the website barely works it's always crashing it's hard to even tell like it's hard to watch your highlight videos once you once you buy them but yet like there was big money to be had in uh in flipping these and you had like really legit companies like the NBA just saying you know who cares it really works like this is hot we don't want to this out. There's FOMO everywhere. Yeah, I mean, Danny's just fun that he didn't get his Corey Leonard like top shot video as well.

I think he did pretty well on that. You got to ask him. Oh, damn. I will. I will. But yeah, it's so the whole world has kind of gone mad that being put under a spell by this, well, Ponzi scheme. I don't know. It's just crazy. Yeah. I mean, I couldn't believe it. I was skeptical of crypto going in, and I still, though, I sort of thought, kind of like today, if you're not paying that much attention to crypto, you just see some headlines like Black Rock's going to do an ETF or, you know, Visa is testing Solana payments.

And you sort of think, okay, like I know, like I think crypto's kind of silly, but it seems like legit things are happening. maybe there's something there. Do I really want to miss out on like the next big thing? And that's how I felt a couple of years ago. The headlines were different, but the story was kind of the same. But then I get to this conference and instead of seeing people with plans that made sense, pitches about cutting out middlemen in finance or making payments easier around the world, you got these speeches from people who are just like insane for Bitcoin

who just like love Bitcoin with their whole heart and argued that it was going to save the world. And I mean, this is actually a chapter of the book that my mom's an English teacher and she was reading the book and she was like, listen, I know every paragraph of this conference in Miami is gold, you've got to cut like half of this. And it is very hard, but I don't. did. And even now, I'm like, I want to tell you a story from the conference and I'm just like,

what do I choose? Just like everything that people said was so stupid and funny. But I think that the craziest part for me in the moment was at the end of the day, there was big problems with the conference, with the food, couldn't get any food, it was very hot. I don't like the smell of cologne. The whole city's reeks. A big problem with Miami. And So I'm in already sort of like a bad mood. And this Bitcoin bro takes the stage at the end. And he's really like laying it on thick. He's sort of acting like a frat bro.

He's pacing the stage. He's got his hoodie up. He's got like a trucker hat. And he's cursing a lot. And he's talking about going surfing in El Salvador. And it's got something to do with Bitcoin, but I can't quite follow. And then he explains that like Bitcoin is going to save El Salvador. And then

he hits play on this video, and it's the president of El Salvador, and the president is like, Bitcoin will now be our official money in our country. And it's real. It's not like some sort of trick. And then the kids comes back on stage, and he's crying. And he's like, ah,

this is like one small step for El Salvador, one giant leap for mankind. And then he starts, um, he starts yelling, I will fucking die on this fucking hill and he's like bawling and then I look around I'm just like

what is going on and instead of laughing like I see other people in the audience who are also crying because they're so moved by El Salvador adopting Bitcoin and

a spoiler alert for but I went back to the conference the next year and I had a meeting with the crying guy and I asked him, I wanted to ask him how things were going in El Salvador with the experiment. Natural, like, not like a tough question. And I said, so how's it going in El Salvador? That was a big announcement last year. He's like, oh, I don't like to, I don't want to talk about that. And then I said, he's like, bro, I don't want to talk about that. Then I'm like, well, when was the last time you were in El Salvador?

did you notice anything? He was like, bro, I don't remember. And I'm like, you don't remember when you last traveled to El Salvador? And he was just like, no. Can we move on? But that was because this experiment was a disaster. People in El Salvador hate Bitcoin.

Yeah. That's our good friend Naipa Kelly, right? He's like a stable, he's a store of this manner because of the anti-gang drives. It's kind of all tied in, right? this like pivot to Bitcoin and the kind of like autocracy and it's just like a crazy

situation. I don't really I'm still kind of confused what's in it for him with Bitcoin. It kind of made him popular with the crowd of dickheads that you mentioned.

But it he spent quite a lot of money on this Bitcoin initiative like hundreds of millions of dollars and it totally backfired. He's actually, Koukele, his authoritarian policies are popular according to, you know,

real independent polls. But his Bitcoin policy, people hate it. And it's, it hasn't... Where is Daredevil? I'm right here. Don't miss the return of Marvel television's Daredevil born again. So what's next? I'll be liberated.

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when you find the one, you've got a real shot at getting it. Get started at redfin.com. Own the dream. It's brought in some Western investors, but I don't think, clearly nothing commensurate with the size of his spending on Bitcoin. So, but he's, still he's still sticking with it and you will see i see on i follow him and on social media

and it's seemingly like anyone who has anything to do with bitcoin who visits the country can can get an audience with the president um he i saw recently a woman who sells uh like bitcoin stuffed animals was down there gave one to the president my god, it's so embarrassing. I mean, this is kind of one of because I've done a bunch of reporting on crypto as well and I think I share a lot of your opinions on the whole thing.

But I mean, I guess one of the biggest red flags is that when I've been reporting on kind of blockchain web three related companies is that there's some talk of this kind of this sort of like restorative or like kind of democratizing stuff about, you know, saving the world, getting around fiat currency. You mentioned at that conference, I think there's like a stack of dumped Venezuelan currency.

There's like, God knows how many stories on this is going to save people in Iran. This is going to save people in Uganda or, you know, and it always ends up being bros selling pictures of apes or like NBA shots to get a few bucks. and it like you mentioned also going to the Bahamas where SBF is talking as well he's actually getting in view by Michael Lewis of all people who wrote a book that came out recently I think got well there was a wide story that was just like brilliant saying that your book was way better account of everything but um you know it's it's it's it's basically an elitist game right it seems like it's become a sort of play thing at the top end for for kind of celebrities and sports stars and politicians and whatnot. A lot of the ideas that crypto people put forward,

like to give them some credit, I don't know they sound good. And there's, I know there's smart people who are in this space who may even have good intentions. But I think you have to judge crypto based on what it's accomplished so far. And yeah, like I think what you've seen is kind of a zero-sum game where the way to get ahead is to get in, be friends, either create the coin yourself or be friends with the guy who created the coin and get in really early at a discount. And by the time, Danny and I are, you know, talking about NBA Topshop at a bar, I mean, look, there's some chance we're going to get lucky, but we are basically the suckers who are going to provide what they call the exit liquid

for the insiders who are going to dump their overpriced highlight videos on us just when we think we're going to get this this big score. And when it comes to Bitcoin,

I would have a lot of these conversations with Bitcoiners. Some of them, I think these guys are very sincere about how much they love Bitcoin and how great they think it is. But I would say let's say your vision of the world comes true. won't we just have like a new

because they're all very anti-bank anti-billionaire, anti-establishment, but I would say won't we just have a new set of oligarchs? Maybe like the Winklevoss twins, are they going to be like our kings? We'll all just have to, you know, beg them for stats. That's what Bitcoin people call like a fraction of a Bitcoin.

There's no way it's going to, it can make us all rich. You know, that was sort of one of the pitch at the Bitcoin conference would be like, just get in now. We're all going to be rich. We can, and that's like the crypto people like to say, we're all

going to make it. Like, wag me. That was a big meme. And it's like we can't all make it. It's actually not possible. It's quite prosperity gospel kind of stuff, right? It's like similar. Yeah. Yeah. It's kind of crazy. I mean, let's

let's turn to tether then because this is, you know, this is kind of the, well, it tethers a lot of the story together in your book. And it plays a kind of pivotal role in holding the crypto world together, I guess, in some ways. And you mentioned, you mentioned before that it's kind of this $50 billion thing and it's tied to a US dollar. And its founders were saying that it was kind of tied to secure investments, right? But you, you were not. not really finding any evidence of that. How did you start to report that and kind of tell me about some of the key characters involved in that out there as well? So if you, in the regular financial world, if you write about a company, like I was just reading an expose

that somebody else wrote of a startup that claimed to be doing like big business in Nigeria. And they basically found like, the CEO, he's got this sketchy past, and it doesn't look like their, you know, their factory is actually just like a rendering, that image is fake. You know, they basically,

they point out these red flags. And that is often enough to change investors' minds about the company. Because, like, investing is based on confidence. With Tether, just in a few minutes of, Googling, I turned up enough red flags that I certainly would have had some doubts about this company that's like, meaning crypto, it's like the central bank of crypto.

And it's clearly really important in crypto. But the CEO has so rarely seen that people online speculated that he was not a real person and did not exist. like she was a stock photo. Not true, but it was not a fringe view. And I'm told quickly that by people like Sam Bankman-Fried,

they say, oh, well, if you want to do business at Tether, the real guy in charge is a CFO. His name is Jean-Carlaldoivacini. He's Italian. He's from Milan. And early in his career, he was a plastic surgeon. And

you Google him, you find this photo of him with half his face shaved where he's looking in a mirror and he's talking about how he quit plastic surgery and he says he just realized his whole work was just a scam and then

from there he got into the import export or the import business who's importing electronics from China and he appeared to be operating on the fringes there because he got

sued for counterfeiting Microsoft soft products. So then his business burned in a fire. His factory burned in a fire. Oh, I mean, on the web, it didn't take that much research to find that

on its website, he was portrayed as like this really, really successful entrepreneur. But in fact, like Italian corporate records showed that many of his companies were reporting losses and like his factory had burned in a big fire. So like

this is the guy that's behind one of the biggest companies in crypto. They won't say where the company is exactly. They had implied it was regulated by the British Virgin Islands, but I shot an email to the regulator, and he said, no, what are you talking about? So, and when I started looking into it, Tether had already been sued for fraud

by the New York Attorney General, and in that lawsuit, they had revealed, like, serious misconduct where Heather had misrepresented the nature of its reserves. So, you've got this company that's saying oh yeah, we've definitely got

$50 billion in the bank, but we're not going to say where. And there's pretty good evidence we've lied about this stuff in the past and our resumes are really weird. Trust me, Brian. Yeah, in the finance and they're not even going to get on the phone to

say trust me, bro. They're just like, uh, you know, these sort of mysterious figures. And this is enough that like, in a traditional financial world, it's hard to imagine that people would trust them with billions of dollars. It's kind of a pump and dump.

Right? This whole thing is like a, just a store from. Yeah. I mean, they're not even investing the money to create like the appearance of legitimacy that, one would expect.

But, so I start looking into it, and I don't really find anything reassuring. For example, at this Miami conference, one of the shadiest guys I met with, Alex Mishinsky of Celsius, now facing serious criminal charges for running a big fraud. At the time, one of the most legit guys in crypto, but also really unsurprising that happened, based on my first impression. But anyway, he told me pretty early on. He's like, oh, yeah, Tether, great guys.

I give them Bitcoins and they loan me tethers. And I've borrowed more than a billion tethers from them. And I pay 6% interest. So I'm thinking, wait, I thought Tether was just backed by dollars in the bank. Now you're making loans to like some one of these weird in Miami at 6% interest backed by Bitcoin, which is really volatile. Is that, that seems, you know, riskier than, than a bank line. Promised, yeah.

And I also find evidence that Tether, as I start investigating, I find records that show that Tether has invested billions of dollars in short-term loans to Chinese companies. and basically the situation at that point was that interest rates were zero. So even though Tether had amassed $50 billion, which sounds great as a business model, they didn't have an easy way to earn money with that pile. And so in order to earn profits, it's tempting to put their reserves at risk and to invest in weird stuff, which they were apparently doing, like this loan to sell. or the Chinese

commercial paper. So as I'm learning about their investments, I can't quite get to the bottom of like, do they have the whole $50 billion? Where are they keeping it? But I find signs that it's like

maybe a bit riskier than I had imagined. And plus, as I like get to know the people behind Tethermore, they only seem you know, more mysterious.

but yet tether as i'm looking into it tether just uh just grows and grows yeah the number go up yeah i it's um it's just crazy and i mean people should definitely buy your book because it's like there's so much more than we're going to talk about in the book as well there's so many crazy stories and individuals that are involved in this um I want to kind of move on to possibly one of the darkest, darker, if not the darkest side of the kind of crypto world, which is something called pig butcher in which some people listening might know what that is. I think we last spoke, what was it, at the start of the year,

I think you were just heading out to Southeast Asia to report some of this stuff. And you went on a pretty wild ride around some of the sort of seedy corners of Cambodia. looking for scam compounds that are run by various shady organisate, well, shady, I mean, they're running human trafficking things, but you kind of dive into the story when you're out at a bar and somebody called Vicky Ho gets in touch with you. And I'm just going to read what her opening, well, one of her opening gambits is, because it's, I don't know if people would be snagged by this, but she says,

I like to pursue romantic things like a healthy body and the surprise and preciousness of love, which, I mean, that's nicer than most people's opening gambits on Tinder. So it seems pretty legit, but you kind of string her along and find out that she is maybe she or a he, but they're working at one of these scam compounds. Tell me sort of what you went to the region thinking you'd see and kind of what you, because it sounds like you basically landed and it all just went off. Yes. So, we've talked mostly about like silliness. And I, but as I learned more about crypto, I realized that it is having like a big impact in the real world. It's not the one that the crypto guys are promoting to me. and the scam compounds are definitely the most evil part of that. And I had been reading up about these scam compounds,

like huge office towers filled with thousands of people, forced to send spam text messages around the clock and to run, hopefully, lure people in, richer countries into kind of fake friendships and then lure them to they start dropping so vicky like all of them eventually starts dropping hints like oh i have a lot of leisure time look at my Ferrari my uncle gives me trading tips look he just gave me another good one um and after a few days i mean she finally let me in in her secret and had me download like a trading app and I had been

because the part of this that I wanted to investigate was that I had heard that a lot of these scams involved Tether and that I mean you could imagine them using it

any cryptocurrency but what I'd heard is that they overwhelmingly preferred to use Tether which I was and I was trying to investigate Tether's continued appeal and one of the theories I'd heard was like it's great for criminals. Criminals love it.

And they... So this is why I'm playing along with Vicky to try and see, well, she asked me to use tether. And sure enough, she did. She asked me to zap her over 100 tethers to her fake trading app.

And though I had hoped to figure out like exactly where she was, once I sent her the money and told her, I was an investigative reporter, asked her, where she was working and if she was being held under like bad conditions she disappeared. But yeah, I went to Cambodia and linked up with two reporters, star reporters,

who had been really early on working on exposing this problem for a local news organization called Voice of Democracy. Mechdera and Danielle Keaton Olson. And legitimately, These two were on it from the start, and it had written big exposés of different scam compounds around the country. And if they were in the U.S., I think they would have won journalism prizes. But their reward in Cambodia was literally the president closed their newspaper. He didn't say it was because of the scam compounds, but they'd become like a national embarrassment by the time I got there.

is a this the scale of this problem is huge they've actually the UN has recently put out a report estimating that 200,000 people are held in these scam compounds forced to work on like gambling and crypto scams so I'm looking into I want to look into the crypto angle I'm not really sure what I'm going to find out because as I'm not thinking that I'm

going to interview the owners of the scam compounds or I don't speak the language or the languages in the region I do meet up with some people who escaped from the compounds by paying ransoms and hear about

a little bit about how they work that way but one I'm taking the bus from Pochimun City to Phnom Pen in Cambodia and the I

cross the border and I get out in this like dusty casino town and I'd seen videos of workers escaping from one of these casinos chased by the security guards beaten with batons and I'd seen investigative reports that that showed pretty convincingly

that right here was the site of some of the biggest scam compounds. And right in the parking lot, like next to where the sites that the workers had escaped in the video, there was like this little booth advertising. We will trade

tether for dollars. And I have the tether logo on it. And I'm pretty sure that's the first place in the whole world outside of crypto conferences that I had seen the Tether logo. And I just think to myself, like this doesn't prove anything,

but this is kind of, maybe this is a sign that this is what Tether is used for. And then with, Danielle and Dara take me to Chinatown in Cianukville. And this is the most notorious compound it's this huge complex that was built

as around a casino that hasn't been completed. So, Cianukville was like this casino town on the west coast of Cambodia. And it sprung up in like the last five, ten years, with all this Chinese investment. And the investment was based around this kind of loophole that they could offer, online gambling to people in China over live stream.

And this town was it was kind of like a sleepy beach town that was transformed by this huge amount of investment. There were, like, hundreds of casinos were built. And then there was a crackdown on the loophole and COVID hit. And the rug was pulled out from all this development. So you go there now and there's literally hundreds of unfinished skyscrapers

wherever you look and so Chinatown is sort of one of these unfinished complexes and there's about I'm going to say like 30 office towers down this boulevard on the outskirts of town and each of them had held

these scam outfits and some people had estimated there may be like 6,000 people had been held in Chinatown and workers would try and they'd jump to try and escape the Ra was very good at like finding social

media of people who'd been trapped inside showing videos of people getting like tortured, forced a scam trying to escape and just the stuff you could see on the outside was incredibly spooky like stores so

from the street you could see all the stores on the ground floor had signs in Chinese rather than local language, Kumai. Because the people in this area who had the liberty to go buy stuff were the bosses who were Chinese. And the stores were divided inside by bars. So if you came in from the street to buy food, you could not pass through to the courtyard where on the inside, where the workers would come. So there was like

people who were trapped in the compound could only go into the stores from the back and they could not pass through and get out to the street. And I could see that a lot of these towers had were built with balconies but then these balconies

had cars welded onto them turning them into cages. And by the time I got there with Danielle and Dara there was a few months after a big raid. This was like the most prominent of the

compounds. It attracted a lot of attention. So they made a big show of cracking down on it. And we had thought we're curious to see what had happened. What we saw was that actually it appeared like activity had restarted

and judging by the laundry hanging on the balconies. There were, workers were, they're filling back up with workers. And most surprisingly, the, there was like a hotel in, I, I've spoken to this one guy who had escaped from here, who'd been one of my best informants about what went on at Chinatown. And there's this hotel with a, kind of a gilded front, like a very nice looking hotel,

weirdly surrounded by all these like semi-abandoned dingy scam towers my source had said this was a place where the bosses would go and sleep with prostitutes

but it's this hotel that's like totally deserted in the middle of this really sketchy area but it's on booking.com and you can get a room there for $100. Like, it's over. Wow.

And so, I decided to check it out. And I do that I probably wouldn't see that much because most people don't speak English. But I went in. Own it all. Pay off your home. Travel for life. Drive a Ferrari.

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Fit for your ambition for citizens' banking. In the lobby like an eight foot tall golden pineapple, which was odd. Yeah, a little bit. And I go up

these marble stairs to the restaurant and it's like a giant banquet hall that could have a wedding there. But there's very few people eating there. And one of the, they appear kind of confused that I'm even there and don't seem to

know what to charge me. I'm just, I'm sort of just waved in. And it's kind of like a buffet. And it seems like there's like a bunch of, uh, like a couple buff dudes are eating there and watching like really loud TikTok. videos. All these other guys who are like their minions come up and talk to them

and they're being handed cash. There's a fridge with beer. You can just go take the beer. There's also a chef. There's sort of like a buffet with like traditional Chinese food. There's a chef who'll make you whatever you want. I'm just sitting there. I'm like, I really wish

I knew what was going on. This would be like this seems like who knows what these guys are up to. One of the servers does speak English and starts talking to me. And I said to her, what's with this hotel in the middle of what's with like these weird towers around here? So I've seen workers passing through this gate. It seemed like heavily guarded.

It's very odd. And I'm asking the server about this. And I'm like, why is nobody at this hotel? Why is it so heavily guarded? And she's like, well, don't you know this is Chinatown? And I'm like, no, I don't know. please inform me about Chinatown. And she says, well, like the people that work here, they can't leave.

And I make like a very bad face, I think, because then she says, oh, don't worry, the staff of the hotel, we have our freedom. Oh, my God. I'm just like, oh, no, this is. Look, I've talked to people who had been. suffered horrible things in this compound, so I knew, I already knew that terrible things went on here, but then just,

just being there and seeing that, like, no, this isn't some sort of conspiracy theory, this is real. It was truly, it was truly shocking. And right at the entrance to Chinatown, there was a shuttered currency exchange, just like that other one I'd seen.

advertised on its wall will trade US dollars for your tethers right here. It's just all out in the open. No one really cares about hiding it. I think you mentioned that

you mentioned that a lot of the kind of like political grandees are either in on it or profiting from it in some way. So there's very little kind of political movement against it. And you also mentioned about Hun Sen, the leader of Cambodia. he's had a pretty crazy crackdown on the freedom of press in the last couple years as well as he

I think he handed over the reins of power to his son so kind of like a juche thing going on there yeah I mean because obviously my question for the Ra and Danielle was like shouldn't we do something about this like what is there someone that we can that we can tell um and they said like The police don't care, and that when they do raid these places, they will often arrest the workers on immigration violations and that the true bosses do not get in trouble. But it seems like the situation, it's hard to know from afar. It seems like the situation has been changing a bit lately. There's been a number of arrests of Chinese criminals who run these places. it appears like China no longer tolerates this.

The government even allowed the release of a movie called No More Betts that dramatized this idea of people being tricked into going to take jobs at scam compounds. And it was like the number one movie in China. There's actually, there have been a few movies about this. So it's clear that they're trying to spread the word about that scam compound. are bad and that this won't be tolerated anymore. But the biggest compounds now are in Myanmar where they're like beyond the reach of law enforcement.

Right. Something I know a bit better about that country than down in Cambodia and how yeah, like massive drug cartels and illegal gambling operations. just able to go completely under the radar guarded by one of the billion different rebel groups that's fighting for land in that country or just sheltered by the government, right? Recent military coup and all kinds of corruption going on there.

Yes, and I haven't been able to make sense of these reports yet, but there's reports now that some of the scam compounds that have been sheltered by the government are now under attack by by rebel groups and some of the scam compounds are dispersing to

other locations in Myanmar or other places around the region. Now, if you are someone who's into crypto and you're listening to this, you are probably thinking what does this really have to do with crypto? Like why,

why are we talking about this? This is like clearly terrible, but it's not crypto's fault. And this is something I thought about a lot. And what I found was that look, these kinds of scams

they certainly did exist before. Like we can remember like the Nigerian prince email scam, which is kind of similar. But in the past, in order to receive the money from the victim, the bad guys needed to have money mules in the U.S.

who could open bank accounts in their name and that opened them up to risk. Like even if you get some sort of patsy to accept the money, that person might know who you are. They could get arrested and that's like a clue to go off of. And if you're making people send international wiretribes, transfers, that's going to raise all kinds of red flags at the bank too. With tether, I was able to go on a crypto exchange, easily acquire the tether I wanted to send

to my scammer, Vicky Ho, without raising any red flags. And once I send them to her, she just has to give me her 32 random character address. I zap them over. I've instantly sent money from the U.S. to... like a Chinese gangster in Cambodia. There's no refunds. I don't, and were I to give the police, Vicky's address, they would not be able to

glean any information from that. Even Tether the company does not collect Vicky's name or address. So, and I spoke to a Taiwanese human trafficking investigator, a police officer from Taiwan, and he said, like what you would expect. He was like, yes, this is making my job a lot harder.

When the criminals use banks, we would get different clues. Now it's on, they're using Tether. And it's, it's much harder to track. That's, in fact, why they're using it. He said that some of the gangs, the Taiwanese gangs, would even buy and sell the workers, the traffic workers for Tether. And so there's no. No allegation that tether the company has any relationship with these criminals,

but they've created this system that makes crime easier and is making it possible for this to happen on like a huge scale. People are sending billions of dollars. And there are people losing billions of dollars to these pre-butchering scams. And that's why these huge compounds are set up to, run them. And I think that crypto has like supercharged this. And these types of scams are kind of age old, but they wouldn't be possible on this scale without this semi-anonymous way to instantly move money around the world.

Yeah. And I found that like, I think if you create a startup, it's sort of on you to know how your company is impacting the world. and if that means that if your product is really popular with gangsters who are doing human trafficking and running scams, then maybe you should consider whether there's something you can do about that. But I found it again and again in crypto

that the people who created the products were not putting any thought into what the real impact was like another one that I looked into was Axi Infinity, this really popular game. That like became like a national craze in the Philippines. People were quitting their jobs just to play this game all day. Naturally collapsed, you know, like NBA Top Shot.

And real Filipino people like lost their livelihood. And they did not get any, any sorry from the creators of this unsustainable bubble. And that was a Vietnamese company as well, right? Axi infinity? Or was it?

Yes. No, Sky Mavis, the company behind Axi, based in Vietnam, one of the founders of Vietnamese, and then there were a couple Westerners

who were also founders. And amazingly, this was one of the, there's sometimes in crypto where I would just be like, I can't believe this is real. And this was one of them. Axi Infinity got hacked for $600 million. That was not the cause of the collapse. It was just sort of like adding insult to injury.

So it was like a Pokemon-ish game that got tons of people in the Philippines playing. and the hackers were North Korean and the US government authorities have said that the stolen money from the Pokemon game is being used to fund Kim Jong-un's nuclear weapons program. I know that's kind of not funny when you think about it, but it is funny as well. Yes.

and like Tether I couldn't get over this when I started looking into it similarly the top top officials in the U.S. government like the Treasury Secretary they're having meetings about Tether and they're like is this a threat to the financial system meanwhile

the co-founder of Tether was a child actor from the Mighty Ducks and who had a big business buying and selling like swords and Everquest and World of Warcraft on Oh my God

I don't know It was It sometimes Even now It's sometimes it feels like a dream It's like did this all like really happen Yeah But I feel lucky that I was there for it

Oh for sure To meet all these bizarre people Yeah I mean it is just some of the things and things that you rock up to in this book

are pretty unbelievable as kind of like these people who are just stereotype I mean it's just like hyper stereotypes of various people in the tech industry and in finance and various other places

since you since you published a book what kind of feedback have you had from people in crypto I imagine you're got plenty of love slash hate mail in the intervening time.

It's actually been very surprising and I was expecting more hate from the crypto people and I even thought that this might help market the book like if they were talking about it. But I've gotten almost no

hate and actually some really nice notes from crypto people one person told me that they hoped I stayed in crypto because crypto needed someone like me to to make fun of them and I actually I just got a note from a

blockchain developer in the Middle East and he said that my book is a nuanced description of what happened in the crypto space and he asked for my crypto address so that he could send me money which I cannot accept I can't accept any donations or anything like that so I did not give it to him but I appreciated the note and

I think the thing is a lot of like a lot of people in crypto are smart they can see that the last couple years were a total disaster and even if they are hopeful about the future of their industry is still kind of they can see that what happened recently was absolutely crazy which is that all the coins pretty much crashed some of the biggest most of the biggest companies in crypto were revealed to be to be frauds

and if you're in crypto it's like wait these are the guys who are like hanging out with at the conference a couple years ago. Now they're all like facing criminal charges. You know, it's extra surreal for them. So I appreciate that they

I like that the crypto guys have enough of a sense of humor to enjoy the book, enjoy the book too. Yeah, I mean, there's no like, there's no question in the fact that like it comes out of the financial crash in 2008

and there's so many people become disillusioned with global finance outright because one of the banks got bailed out to nothing seemed, no lesson seemed to have been learned from it in many ways.

So that, you know, the crypto movement comes out of a, I guess a lot of valid criticisms of financial systems. I guess it's just like any innovation that it gets, it's prone to be hijacked by

sort of very human elements of greed and sort of aggrandizement and other things that come along with any movement, I guess. Yeah. And like I think my book, the stuff that I write about these last couple of years, it kind of is an argument for traditional financial regulations. Because like the crypto has been saying like these regulations, like these regulations, are holding back innovation, and they've got a whole case that sounds pretty good about how, you know, the regulations have, like, entrenched these middlemen who are earning, you know, trillions of dollars picking our pocket every time we swipe our debit card. And, like, it's true. You know, that's why the argument sounds good, because it is true. But the problem is that if you don't have the regulations, then you have people like Sam Bankman Fried and they're sitting on a giant pot of money, nobody's watching. And he can just go gamble it all on dogecoin or buy a collection of rare board apes or, you know, $300 million of real estate in the Bahamas.

And, you know, no one's the wiser and tell it, as long as number keeps going up, no one will ever know. Yeah. Yeah. It's crazy. See, thanks ever so much for your time. It's late in New York City, so I'll let you go. but yeah thanks for joining us we'll put up links in the show

description to the book everyone's got to buy it's like it's awesome you've managed to make you've managed to make a financial story into a thriller so that's that's quite an achievement John thanks for having me on great talk with you

and thanks for you know advising me on my amateurish you know reporting in in Southeast Asia Oh, God, no. I mean, if people read the book, they're going to see so much more that you kind of got wound up in. I mean, we could have talked about the big Faty gang as well, but I'll let people read the book for that because that's another story altogether. Yeah, Zee, thanks so much. And yeah, hopefully we'll speak again soon. See you later.

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