The Wolf Of All Streets - Martin Shkreli On SBF & FTX | Crypto Town Hall

Episode Date: October 6, 2023

Crypto Town Hall is a daily Twitter Spaces hosted by Scott Melker, Ran Neuner & Mario Nawfal. Every day we discuss the latest news in the crypto and bring the biggest names in the crypto space to share their opinions. ►►OKX Sign up for an OKX Trading Account then deposit & trade to unlock mystery box rewards of up to $60,000!  👉 https://www.okx.com/join/SCOTTMELKER  ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/   ►►NORD VPN  GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets    ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd  ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/    Follow Scott Melker: Twitter: https://twitter.com/scottmelker   Web: https://www.thewolfofallstreets.io   Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Yo, can you hear me? Yeah, how do I sound? You sound like you're in the bathroom and I sound like I'm in a red light chamber so it's going to be an epic show. I'm not in the bathroom but it's problematic if I sound like I'm in one. I can change that.

Your mic is pretty echoey so I'm not sure if you can fix it. It's AirPods, yeah, let me change. One second. It got a bit better so you can keep it if you want. Let me co-host Ryan. Ryan's on a plane, so we will not hear his voice. So we should expect big numbers. I'm joking. Simon, good to see you, Joe.

Iago, it's been a long time, Eden. How are you? I'm great. How are you guys? We're good. We're good. And I think, Brian, this is the first time you join us on stage no i've been here before yeah yeah a few other times but always good to be back good to have you back and i know that dan hasn't been here for a very long time dan reminds me of the so when i see faces that used to come on during the ftx days and then they don't come on for like a year and then they come back just i get the the deja vu feeling um so they they were here when

ftx collapsed they disappeared and they're back when when sam's in jail so good to see you that's called ptsd it is it is um but let's say let's keep working hard you know no ptsd just head down grinding work and family that's where i've been i think he's referring to me having ptsd yeah over having a 48 hours straight of spaces talking about spf when ftx collapsed i can't believe that's been almost a year now pretty pretty wild almost a year yes it's crazy to think because i my life changed since that day um that's because obviously you, spaces became a pretty big part of what we do. And, you know,

I stopped dancing since then. I haven't done any dancing, which used to be a big part of my life. And my social life got screwed. It's getting better. Last three months have been really good. We've been at least better. But yeah,

like SBF changed all of our lives. Most of us for the worse. And obviously David, Silver for the better. Joe, probably for the better joe probably for the better just got a lot more business so does that mean that you've touched the grass four times in the last three months which is a hundred x improvement no no i bought grass uh gorov was

making fun of me yesterday i bought grass and put it on my balcony uh pretty much when i when when fdx collapsed uh but i obviously i never go off on my go out on my balcony balcony, so it hasn't worked out too well. It's good to have John here. I see, John, if you can come up on stage. I know you weren't invited, but it would be a pleasure to get your thoughts on something that wasn't on the agenda. But the sentiment around the SEC, obviously, we saw the action taken against Elon yesterday. There was an announcement. Elon's response was pretty aggressive.

So that wasn't on our agenda. But since you're here, Scott, do I have your permission to kind of get John's thoughts quickly on this? Of course, absolutely. I think we could probably get a lot of insight from him on some of these other topics as well. Yeah, so John, can you hear me?

Yeah, just got on. What's on your mind, Mario? The news yesterday around Elon. Obviously, Elon's been facing a lot of scrutiny. So just for the audience, let me get the polls now and just give an update on, do you know what the lawsuit or what the action is against Elon and what it's about? Sure, it's a very unique action. You don't see many of these ever by the SEC for a lot of different reasons. It's generically called action. You don't see many of these ever by the SEC for a lot of different

reasons. It's generically called a subpoena enforcement action. There's not a lot of discovery associated with it. It's when the SEC is conducting an investigation, they're looking into something, they believe there's potentially a violation of the securities laws, the federal securities laws. So they issue subpoenas. When I was at the SEC, you get a formal order of investigation from the commission. And the way you get that formal order is you prove essentially that you've got some official curiosity. It's a very low threshold. So you get subpoena authority. So I would send out subpoenas, sign them and say, hey, you need to appear for testimony or you need to present me with certain documents that are in your possession. I can't force you to create documents, but I can compel you to appear or compel you to produce the documents that are in your possession. But the problem is, if you decide the answer is no, it's a very unique situation for the SEC because you don't actually, there is no motion to quash or there is nothing a witness can do. The SEC doesn't have targets or subjects, just witnesses. Everybody

is a witness, unlike criminal prosecution. So in this situation, Elon Musk had testified, I believe, for maybe two half days before during an SEC investigation. The SEC got loads and loads of more documents since July 2022, which I believe was when that testimony was. So they wanted to bring him back. And I think initially he agreed to come back, then he didn't like that it was San Francisco. And they started negotiating where it was going to be, when it was going to be. And then all of a sudden he said, I'm not going to appear. And the reality is he's allowed to do that. It's not like then there'll be some bench warrant issued for his arrest or anything.

I always ask my students, what's the difference between a grand jury subpoena and an SEC administrative subpoena? They're actually very different. So the only way that you can essentially protest this is just by refusing to appear, which is what Elon Musk did. So the SEC filed what they call a subpoena enforcement action. Typically, the reason these are never filed, Mario, is because this investigation is non-public. It's totally secret. The SEC doesn't ever in any way, shape or form even confirm the existence of an investigation. So most witnesses will always appear because they don't want this information to go public, that they're being investigated. And the SEC can say whatever they want in their motion seeking this order for Elon Musk to

testify. So I can't blame him for saying, look, I already spoke to you guys. I don't feel like doing it again. But I also can't blame the SEC for saying, well, we found some new documents and we want to talk to you again. And there's really very little defense. I mean, I guess if you get a sympathetic judge, but generally the SEC has broad authority to conduct these investigations. The official curiosity standard is very broad. The formal order is very broad. But in this case, maybe Elon Musk, he just doesn't care. Hey, the SEC is investigating my acquisition of Twitter, whether I filed my 13D at the right time or whether I should have filed it more quickly. And he probably just feels like, you know, we don't have to appear.

Let's make them force me to. Now, the thing I wanted to ask you about is the responses. So me and Colin posted about this, and Elon replied to us with three interesting replies I want to point out. And it kind of shows the sentiment. He's been aggressive towards the SEC for a while. Sure. So one of the replies is, a comprehensive overhaul of these agencies is sorely needed he said the same thing but i think about the doj a couple of weeks a few weeks ago along with a

commission to take punitive action against those individuals who have abused their regulatory power for personal and political gain can't wait for this to happen um so he's and funny enough like just that morning i was was, so yesterday morning, I was speaking to some large investors and they were talking about Elon versus the quote unquote, the establishment, you know, the narrative that they're referring to. I know that that's a pretty vague term. And this case that he, you know, his concern is that the SEC and other three letter agencies just have too much power. And then someone said, will it ever happen? He said, I estimate the probability at a hundred percent. And then he replied to the other post saying, it's going to be amazing the amount by the DOJ and other organizations against Musk and saying it's all coordinated.

It's kind of a response to some of the things he's done. So my question to you is how much legitimacy would you give such concerns? Because Elon is obviously not the only person to voice those concerns, and the crypto community is kind of leading the way against the SEC right now. Well, I don't blame him. I mean, I think the SEC can be very aggressive in situations. I don't think they're being very aggressive with respect to crypto. But I think the case against him, I don't think they are being very aggressive. I don't think it's that important.

I think that the SEC staff, and this is something that John Deaton came up with in the Ripple case, which I think is really a legitimate point, is that the SEC staff are often looking for headlines because that's the way you get promoted. And that has always bothered me. You know, I worked there for 20 years. So if you're working on cases that don't necessarily garner headlines, you're not considered to be doing the right kinds of cases. I don't know what he's talking about in terms of corruption at the SEC. I never saw any in my 20 years there. Never saw any, not one scintilla of it. You know, because like I said on the last base, there really aren't any political appointees at the SEC other than the commissioners

themselves and the chairman and the head of communications and the head of legislative affairs. Most of the people work there, their hearts are in the right place, they want to do the right thing, and they're investigating as best they can some lead that they turned up. And it doesn't really have any sort of political concerns or no one's out to get anybody. I've just not seen that. I mean, I guess it's possible, probably more likely in DOJ than SEC, where there are lots of more political appointees who run every section. Interesting. And you did say that the SEC could be very aggressive. And you said like, you don't think they're too aggressive when it comes to crypto, but you think, they're stuck between a rock and a hard place because when you open investigation, you kind of got to follow it. Maybe they got some inculpatory information in those documents and they have legitimate questions. And I think that's what the judge is going to say. I mean, I think the SEC can be very aggressive. I've been very critical. Some of the things they do, for example, they subpoena hard drives or subpoenas people's

phones and they don't have any authority to do that. There's absolutely no authority. They don't have search warrant authority. They can't subpoena a file cabinet. They also went after Covington and Burling in a way that made no sense. Covington and Burling, for those who don't know, is one of the greatest, best law firms in the world. They experienced a cyber attack. They disclosed that cyber attack to their clients. The SEC then

decided at some point that perhaps Covington and Burling's public company clients didn't disclose the full impact of those cyber attacks on their vendor, that would be Covington and Burling, in their public filings. And it was a very attenuated, you know, a big fishing expedition that this happened in 2020. And so the SEC filed a subpoena enforcement action, just like they did against Elon Musk. And this was only, you know, a couple months ago, they filed this subpoena enforcement action, where they literally compelled Covington and Burling to identify the names of their clients. And for the lawyers on this call, I mean, the names of your clients are nobody's business ever.

It's clearly something that's protected by the attorney-client privilege, which is not a federal privilege. But that just drives me crazy. I couldn't believe the SEC was doing it. Neither could 90 or 100 or so other law firms who signed on as amicus curiae, also alongside their bitter rival, you know, their

competitor, Covington and Burling, saying the SEC had no authority to do this. But the SEC still leaned in and the, you know, look, the official curiosity standard is a broad one. So as a result, the judge sort of said, look, my hands are tied here. I'm very sympathetic. I don't think that entities, that Covington should have to turn over the names of their clients. But this is what the law says. It's allowed and forced Covington and Burling to name six of their clients. One of their clients decided to remain anonymous and has appealed that. But that just struck me as being way too aggressive. And there's lots of other examples of that, too. The recent cybersecurity rule that says that companies have to disclose a cyber attack within four days. What's up with

four? What's the magic number there? And anybody who investigates cyber knows you really know nothing four days after an attack. So those are some other examples, Mario. I could go on, but that's what I think. Last quick question, because I want to move on to SBF. Sure. One more quick, quick question is, why do you think the SBC, and that's unrelated to crypto, but why do you think the SEC is being aggressive towards Elon in this case? Is that just because of how wealthy he is, how much influence he is, how aggressive he's been towards them, his narrative?

Oh, the answer is easy. You know, the way the SEC doesn't have that much in terms of resources. So the way they make they send messages is by bringing big cases that garner big headlines. So they go for it. They look for opportunities where they can send a message, in this case, about 13D filings and whether after you have acquired more than 5% of the stock of a company that you need to immediately disclose that. And if you don't do it right away, you're going to get in big, big trouble. It's not a criminal case, Mario. I think it's difficult to figure out the damages here. You know, I personally believe the SEC should bring mostly fraud cases or big registration cases and turn their resources

to that. But on the other hand, you know, 13D is an important rule. It's a rule about transparency. The market needs to know who owns out when somebody is acquiring that much stock because they might be working toward a takeover. So, you know, there are arguments on both sides. But I think the reason they go after people like Elon Musk in these situations is, again, because of the headlines. And the good part is it does get the message out with respect to the rule. The bad part is that staff are way too incentivized to bring these headline-grabbing cases instead of digging into the tougher fraud cases like micro-cap fraud and penny stock fraud and all the other things that don't necessarily make the headlines. So that's what I think. And Scott, I see that you just were chatting in the back door in the back room about

the gary wang admission and not sure if you had a chance to read through it it's pretty seems pretty serious yeah i'm reading it i'm reading it live right now i mean i'll say there's nothing new that we didn't know but when you're reading these updates i'm reading them from inner city press and then from the new york post still astounding to see all of this admitted of course we know that gary wang you know co-founder and and has pled guilty. And we knew what he was going to say when basically when he came on the stand. But just like I said, reading it in real time, it's pretty astounding. He's basically admitted now that Alameda had a allow negative balance checked on the FTX account and that they had a backdoor to the code

where they could take money anytime they wanted. He also admits here that they could trade faster than others. So he says it has allowed negative trade more than it had in its account. They had a large line of credit, which we now know, by the way, was $65 billion. Astounding. And it could trade faster than others. And then he goes on to basically show the account,

show that there was another account called Cottonwood Trading that was an Alameda account. But basically, I mean, what he's saying here is that they had code that backed toward Alameda. Alameda could take unlimited funds. They could then go negative if they traded poorly. And even if they went negative, which I don't know how you go negative, by the way, when you have access to customer orders and literally are trading and cheating. But apparently they're so bad at this that that's what happened repeatedly. And then they were able to just continue stealing the money.

And he admits here, he says, I'm going to find the prosecutor. Whose Bitcoin, for example, would Alameda be withdrawing? Gary Wang, FTX's customers money. So basically, I mean, it's all here laid out plainly, but it still blows my mind, just as a side that FTX literally was running a legal 100x leverage casino, making billions of dollars a year free money and somehow because of greed managed to completely botch that even when they had literal cheat codes and access to customers orders while doing it i mean the incompetence and stupidity of these people is

so astounding it's almost hard to comprehend i think scott for me the most astounding part is the more that i read about this the more that i realized like these guys could have had one of the best businesses in the world today i mean these guys could have been making billions and billions and billions and billions of dollars if they just didn't do any of this shit. That's the part that astounds me when I hear, or when I read what I've been reading. And then I think to myself, you didn't have to do any of this.

You just needed to run an exchange. That's it. Hey, Ryan. Go ahead. Yeah. How much of the success would you attribute to spending client money though because i think one of i think the most fascinating thing about ftx was was the sheer media social social engineering for anyone that was around like before 2017 you know when when

people keep referring to spf as the crypto golden child you know we most people a lot of people that were there before were just like who the hell is spf what is ftx i mean i agree with you where did this thing come i agree with you but sam let's just you know maybe just i don't know if people can just do a show of hands here but there's probably 5 000 people listening to us live now how many people had an FTX account and used it as one of their top two primary exchanges because the usability of FTX and because of the things that it allowed you to do

were just unbelievable. Let's not forget that FTX was a large part of crypto people. I don't mean people that are buying spot because I think those people were trading mainly on Binance. But the more sophisticated trader,

everybody loved trading on FTX. I remember my traders, you know, I could never get used to the interface. I preferred using Bybit. But these guys had an interface

where most traders actually loved trading. So I think there was some kind of mystical element about it. But on the other hand, they had something good in terms of a trading interface.

Cool. I think this audience, because I remember even, Mario, you'll probably remember this. Even during, right before the FTX collapse, we were on these spaces and you had people in the audience that were like, yeah, I'm still using FTX. And we were all like, everyone needs to take their money out of this. and they were like yeah i'm realized what a dj and i am i'm still trading on there yeah i'll take it till the end because yes simon i think the truth is somewhere in between your question and the end reality i think that they built a what most would argue was a great product that would have had a meaningful amount of success but the astronomical success was a result of using that stolen money for pr marketing campaigns stadiums

of course right so i think it's probably somewhere in between but i don't think you can debate that they would have had a successful business without necessarily stealing the customer funds i just don't think it would have been the same mammoth business as it ended up being. Well, and Scott, I've seen the point made that Alameda was really shitty at trading. Everyone thought they were good, but it turns out they weren't. And so FTX was also benefiting

from giving slightly better spreads on derivatives and other things because you had Alameda as a counterparty losing billions of dollars to more sophisticated traders on the platform. Yeah, I mean, it's just really, like I said, it just blows my mind when you dig in. His main defense here is that he told Caroline to hedge and she didn't, right? I mean, that's his defense. Completely dismissive of the fact that she's literally telling her to hedge against bets being made fraudulently with customers' money.

Like, who cares about Alameda's trading behavior if they're using stolen funds? I mean, how out in the clouds do they have to be that that seems to be their meaningful defense in this case? I mean, the woman, Caroline, I mean, she went in interviews and said, I don't use stop losses. Yeah, I mean, yeah, I mean, yeah, I get it. I think there are a lot of other exchanges that have done, I'm not going to say what FTX have done, but that have bent the rules a little bit.

But I think they were just smarter about the way that they traded and a little bit more control. I think these guys got addicted to the... And maybe different rules, Ran. I mean, you know, there's rules that people bend and maybe you get a slap on the wrist and you move on. And it's kind of implicit. We've seen this with the biggest banks in the world, right?

It's not like JP Morgan and Wells Fargo don't get multi-billion dollar slaps on the wrist every year. But outright stealing and then losing all the customer funds and allowing a single entity to have unlimited resources of customer funds stolen and then also to trade with a negative balance indefinitely also i mean there's one i'm just reading these updates as they come in how long did it take to liquidate an account wang with a regular customer immediate for a larger client longer then they ask what does the code say about when to liquidate the normal customer sbs lawyer objections for the the word normal, judge, overruled. But then it basically goes on here to say that Alameda also couldn't get liquidated. Bigger clients wouldn't get liquidated, but your quote-unquote normal customer would be

immediately liquidated by the liquidation engine. I mean, this was an outright fraudulent enterprise, period. Dan? Yeah, I mean, the more that I've followed this over the past 12 months and stuff, the defense is weak, as you say, and they're also claiming naivety as well and all these things that just don't really add up. But I think a large part of it was arrogance as well. So, you know, they had built a fairly decent front end and a platform and stuff, and that did well. And I think that just gave them the confidence to say that, hey, we're great

traders too. We know what we're doing. And I mean, things like Caroline saying that she doesn't trade on stock losses, that's just arrogance, right? And it's like they thought that they programmed God mode into the platform and they were playing a racing game and they didn't have to break to get around the corners because they'd never hit the walls and guess what this is real life and you hit the right but i think you're right and i think arrogance is the reason that this case isn't even happening in the first place right i think somewhere in svf's twisted mind he believes that he's innocent and didn't do anything wrong but do you really believe that sorry scott do you really believe that yes i do yes no come on i

really do just let me finish this point then jump in and really quick yeah because i believe he would have just freed out or taken a deal and moved on with his life but uh this is the thing is that you know if alameda believed they had a cheat code or were playing in god mode they were if you look at this testimony that's happening right now this was happening since 2019 they already had negative balances in 2019 at alameda using ftx customer stolen funds you're talking about three years at least of horrid trading and zero evidence that they were even successful in godmo uh is it normal i don't believe a common pattern by the way i don't believe that i don't believe that there's any chance in the world that SPF thinks that he's

innocent. I think that it's all a facade so that the press and, you know, like they said, he's got a chance to get out of it. I think that, I mean, this is black and white and I don't care. SPF is a very smart guy and I don't believe it is even a 1%

chance that he thinks that he's innocent. What do you think he could have pledged to, Scott? I mean, what do you think he could have pledged to? Yeah, I guess there's no other option here when everybody's already turned on him and he had to put up some sort of defense. There's no option for him. They didn't give him a sweetheart deal. This completely matches his risk-taking profile.

If you go back and you look at all of the stories about how he thinks about risk, he is like, he always takes very outside risk and it makes sense. Like, yeah, he was never going to plead for something that was less than 15 or 20 years in prison.

And I think if, you know, if you're looking at reasonably, especially he's 31, like if you're going to be in prison for 20 years, zero years, or the rest of your life 20 and rest of your life is pretty fucking equivalent didn't they say that he wasn't offered a plea deal didn't they

say that he wasn't offered a plea deal in the beginning of the case they may not have come out and done it but if he if he'd gone to them it could have almost any federal defendant can plead out if they want to yeah you could i mean he could have pled guilty and you would have definitely been treated presumably a bit nicer. But to your point, nicer if it's 100 years versus 200 is somewhat irrelevant. So I understand that point.

And I'm not a psychologist, but I mean, even the very fact that he was effectively trying to manipulate the case from his like broken laptop in his mom and dad's basement so much that he got sent to jail shows I think a bit of a detachment from reality and a belief that he can do whatever he wants still even after he's in trouble no we we know he was lying because we remember it from exactly these spaces i remember

really clearly um ran coffeezilla uh myself mario and tep arguing um because they're not asking the right questions um and we we we got him like literally saying one story then another story um and knowing that he was using he admitted it he admitted it but but but maybe like you know i'm gonna go i'm gonna swing to scott's side now and say if he was so quick to admit it do you think maybe he didn't know that commingling was was a crime like you know because yeah i think he didn't think it was nice it's the hubris i've seen this in i've seen this in spf it's the it's the belief in themselves that arrogance that they think i can make it back and therefore i know i'm doing something wrong but it's okay i'll figure out another way of filling the hole um and the you know the media

blitzes and all that stuff i'm creating this godlike belief in god made um that this this this doesn't matter because even when the number starts approaching the multi-billions i still believe i can make it back and i'll just keep going i just need another another trade that is a common pattern so even if even if kerming alien wasn't a crime from a business point of view he would have at least known that that's going to push his risk profile higher even if it wasn't illegal i think it's very clear he doesn't have a risk profile then. He says, I'm reading the updates.

If it's reflective. I'm reading the updates. What was FTX's revenue then? Gary Wang, around $150 million. How much was Alameda's negative? Around $200 million or more. Who created FTT? Sam and I.

I mean, there's good shit coming out of here. Yeah, I mean, I hate to follow the updates and things like this, but this one was pretty riveting. Yeah, but that's the other side of it. Just believing that as long as you've got a token and you can print money, then you can

mark the token to market and fill the hole and hide everything from all of your investors. What about the thought now that Anthropic may actually make everybody whole? And you think to yourself, if Sam could have run this for just a little bit longer, and he may have actually been able to turn the whole thing around. One or two of these... Look, remember that FTX also...

For an hour. Well, no. Three minutes market. No, hold on FTX also- For an hour. Well, no. Three minutes market. No, hold on. The market wouldn't be this. The market wouldn't be this if $8 billion hadn't been sucked out the market because FTX didn't collapse.

But, Ryan, you're saying that if it worked, if at the end of the day, the market continued doing well and FTX and Alameda made money doing what they did, you're saying that the exchange never gets, like for any lawyers here, doesn't the exchange shouldn't get audited? Like, isn't that going to be found out later?

Maybe now, maybe in five years time. If you do something criminal and make money, it's still criminal. Yeah, it would have been criminal. But what I'm saying is there could have been a scenario where he could have traded himself out of this. Like, just think a couple of things. One is imagine that the market hadn't collapsed

because, remember, FTX caused the collapse. So, imagine the market hadn't collapsed. Solana would still be at, I don't know, what is Solana trading at before the whole collapse? I remember after the collapse, it went below. Solana hit 200 before the collapse. Hold on, hold on. He was never going to trade his way out of this.

To Scott's point, negative $150 million in 2019 and during the greatest bull run in years went to negative $8 billion. Hold on. Anthropic is about $4 billion.

At this valuation, but you've got to remember it's not going to be liquid, but it could be worth $4.5 billion. What about all the they had a layer zero layer zero they had they were a big hold of layer zero i'm just saying i'm just saying my point is he was gonna keep losing money yeah we're all losing money and making other bad bets that's right ftx i don't believe you know you've got to rewind history you had l you had 3AC, you had the deleveraging of all the platforms that were lending to each other, charging higher yields with Ponzi schemes. And then FTX was just the one that, you know, you had to reveal that if you crash a token,

you know, then you can show that these companies were propping up their balance sheets with fake money that they printed that they were using you with ftt was being used to to create collateralized loans you know with voyager with celsius and to say like i i know that ftx was the thing that solidified the ball market but it was just simply exposing the shit that was always going to be exposed. And the biggest weakness in this, you know, I've been in Celsius core all week this week. But the FBI were investigating and arresting people in Celsius in 2021. And they still allowed it to get as big as it is today, as it was, sorry. And so the bigger failure here is that they allowed these things to get that big. And to think you could outtrade it, you know, that sounds like Nick Leeson and Barron's Bank.

And that took the freaking bank down. Yeah. Also, Simon, just once again, to reiterate, Alameda was never making money, was never good at trading. And this goes back four years. So the notion that they wouldn't have just continued losing whatever came in is preposterous because we have as much evidence as we need that they were unable to actually ever turn a profit and needed customer funds to keep well i mean i just i mean caroline could have done sheldon sniper school she would have learned how to use a stop loss she would have learned how to use a stop loss and mind you man this is through the greatest bull run in the history of any market that they were losing all of their customers

funds so to show just how incompetent and bad but can i can i ask a question though to the lawyers like if they did make money and if it worked if their strategy worked like maybe johnny could jump in on this one um can exchanges get away with doing this like could there be an exchange right now that did the same thing as ftx but that it worked and they made money and no one knows about it yeah the federal reserve somebody please edit that out and do it over and over again i mean that's the whole point mario the reason you have regulation and licensure and insurance and audit and inspection and examination are because all of those kinds of activities would immediately get detected by an appropriate compliance infrastructure because they're so patently obvious.

So, you know, you call FTX an exchange, but the real nomenclature for an exchange is, you know, that you're regulated and that you've registered with the SEC. Now, I realize FTX calls themselves an exchange and Binance calls themselves an exchange, but they're not regulated in the way that SEC exchanges are like the New York Stock Exchange. Not here, John. Not here, John. That's an important nuance. Oh, absolutely. Absolutely. Yeah. But to be clear, right, like just to answer the question directly, no, you are disgorged. There's a disgorgement actions. You don't get to keep your ill-gotten gains. That's the point.

Well, if you want to vary one for one example, you have to just look at Martin Shkreli, who his hedge fund returned money to his investors because he did get lucky or good on his last play. And made a return, exactly. And made it all return. And it does not matter. He still committed the frauds beforehand and went to jail for all of the previous lies and frauds that he had committed. And it does not matter that at the end of the day, none of his investors lost money. get licenses obviously in the bahamas they got a license in australia they got a license in dubai japan um but they didn't get an sec license but they get licensed in all these other jurisdictions

how could they get their license knowing what we know now well look i i think fraud is fraud whenever you're wherever you're committing it it's going to be a problem and if you're committing it and you're making money for your customers it It really still doesn't matter. It's fraud and it can all get clawed back. Isn't there any form of audit before a license is granted? Well, I don't know enough about other countries exactly how they go. I can tell you that with respect to the SEC, of course, yeah, there's a lot you're going to have to do in order to register in the first place. That's why entities like coinbase don't want to register because it's a it's a financial colonoscopy 24 7 that you are subjecting yourself

to and it's not fun it's not easy it's challenging it's costly it's unreasonable but they've got a license in australia and i know shell is pretty strict australia canada some western european countries and the us they're all strict how could they get a license in Australia obviously you can't answer that directly but that's pretty surprising to me Mario is completely right these are very aggressive regulators Japan is way more aggressive than the SEC the SEC is light touch compared to some of these regulators and liquid was up to all sorts of shit. And Japan was the first country, you know, with Mt. Gox, with Coincheck, to actually build a regime to prevent exactly these things happening. But then what it is, Mario, is it's the silo structure, where, you know, you think you're dealing with this one entity called FTX, and maybe it looks like they split it into US and non-US, but they get a license for one particular thing. And then the cross audit, you know, this is kind of really the criticism of the Binance setup at the moment, the cross audit between the two

different licenses, where you could say, well, these funds are attributed to this entity, those funds are attributed to this entity. And if you look at the sheer complexity of, I think it was 150 different entities when we got the first disclosure of the different silos and complexity, it was that that was used to bamboozle regulators where you could appear completely legitimate in one jurisdiction, but be doing completely illegitimate things in another jurisdiction without the two finding and detecting each other. I'm sorry, I'm finding this conversation a little bit absurd. Enron was SEC regulated. Madoff was SEC regulated. AIG was SEC regulated.

Fannie Mae was SEC regulated. Bear Stearns was SEC regulated.ig was sec regulated fannie mae was sec regulated bear stearns was sec regulated what are we even talking about sec regulation and regulators around the world have failed time and time again including with ftx so we have an alternative right and the alternative ftx was a money a money transmitter SEC, just to be clear. Sure, sure. That's why I say regulators around the world, right? But, you know, we've got these incredibly Byzantine systems, right? SEC and CFTC and FINRA, et cetera, et cetera. And they're all supposed to be regulating these organizations. And they fail with multi-billion, like, failures, which are orders of magnitude greater than FTX.

And on the other hand, we have a really simple system where you trade on-chain, you use DeFi, and you can see exactly where the funds are all the time. It protects you against fraud. It protects you against malfeasance. It's a technical solution where our liberal arts solutions have failed. We should be excited about this. There's no fraud solution.

I think you'll agree that and I agree with you, the ultimate world must be on chain. But I think that you'll agree that had there been some kind of oversight there is a greater than zero chance that this could have been stopped like you know like a lot of people can find a way to wangle through the oversight but but i mean if there was some kind of oversight and if they were reporting and if i did have to you know supply get

certain licenses and get certain orders done there is a chance that this could have been way more content. Yeah, there's regulations. Regulations make a difference in terms of consumer protection, segregation of funds, disaster recovery, business continuity, insider trading policies. All of these things are really good things for a financial services company to have. So to say that none of that is factored into the whole DeFi solution, you can still have on-chain a massive manipulation trying to pretend that something's decentralized and use the

blockchain as a false sense of security in a completely centralized network and all sorts of paper contracts and shenanigans that sit on top of the blockchain um it doesn't it's not a it's not a bill this certain what you're saying simon is effectively you're misunderstanding the point of regulation regulation is not meant and this will be conceived regulators can see this to prevent fraud you can't prevent fraud in all circumstances. What you can do is you can aid the detection and the deterrence of fraud. That is the point of regulation. Well, I think to say that a little differently, and it just goes back to the old Churchill

quote, democracy is the worst form of government except for all others. You know, as crypto has started using over the years, I mean, I remember OG back in 2014 and 15, you know, Cripsy being, you know, after Mt. Gox went down, when Cripsy went down, you talk about a company that was a leader and should be Paul Vernon, Big Vern, should probably be one of the wealthiest men in the United States. He was the first guy to recognize you can trade all these shit coins on an exchange and people would come out. But I mean, like if he did that legitimately, he'd be one of the richest people in the country right now. Instead, he's under indictment living in China somewhere. haven't seen the successful application for the long term outside of Coinbase of people using

this technology to build and use in real-time practice the successful application of something that everyone wants to claim is so transparent. If everything was so transparent, we wouldn't have had all these failures from Mt. Gox to FTX, Celsius, you know. Except Celsius, FTX, Mt. Gox are all the old way of doing things, non-transparent, not on the blockchain, which are, you know, theater. Yeah, what about Anchor Protocol on the blockchain? How did Anchor Protocol work on the blockchain? Was that pretty good? So yeah, Anchor Protocol was a perfectly transparent

Ponzi scheme. Did it work out well? It worked out more or less as you would expect a Ponzi scheme. No, hold on. I think there is a difference here. Anchor Protocol was a failed business venture. You know, everyone claims... You just described the vast majority of tokens.

Anchor Protocol wasn't a fraud where in the beginning the founders set out to defraud people. Or at some point the founders set out to destroy people. Anchor Protocol was an idea that we thought could change the world, and it didn't. I mean, that was what it was. And a lot of smart people did the analysis, and a lot of smart people bought into it. You just described the vast majority of all altcoins. Yes, but one is losing money in a venture investment.

And the other one is losing money because of fraud that is intended. And there's a big difference between this. SBF, I believe, had intention to do what he was doing, or at some point he knew he was doing something wrong. Anchor Protocol just stopped working because the mathematics were flawed and it was attacked. And some people warned us that this could happen. And smart people analyzed it and said it probably won't happen.

I thought it was all transparent on the blockchain. I thought it was all transparent. It was. That's exactly what happened. It was transparent. It was. It was. That's why it got attacked.

No. That's why I got attacked. No. That's why I got attacked. You got attacked. But Iago started us down this point because he said, well, we have an innovation for this. We can see it. It's all on the blockchain. It's all transparent. It's all audible.

Okay. Well, guess what? A bunch of people lost a ton of money with the circumstances you just described. I'm not arguing. But it wasn't fraud. Hold on. It wasn't fraud. It wasn't fraud.

There's a big difference. I think that's debatable. I think that's highly debatable. No, it wasn't. There's no. It wasn't fraud. It wasn't fraud. There's a big difference. I think that's debatable. I think that's highly debatable. No, it wasn't. There's no solution that stops people from losing money. There are solutions against fraud. There are solutions against malfeasance. There are solutions against people stealing your money.

If you choose to make a very poor investment, you're going to lose money. Crypto doesn't stop poor investments. Crypto stops fraud. Even if it is fraud, but Joe, even if it is fraud, do you prefer, and we'll go to Dan and John, but what do you think is better, fraud happening on-chain and off-chain? What's easier to spot and act on? Well, obviously, more information is better, right? You should never discount the fact more information. But I'm talking about there are degrees of this stuff, right?

And if you're putting together something sufficiently complicated so that the normies cannot, myself included, cannot understand it and cannot decipher it, what's the difference? What's the practical difference? People are going to pile money and do flawed projects, whether it's actively done by somebody or somebody who has the knowledge base that exceeds yours and can take your money from you effectively. True. But the thing is, at least we've got the the the ability to find out what's going on and then obviously if we make the mistake and still invest knowing what's going on now a lot of the information could be complex but there's always agencies and groups that will analyze this information um and they didn't for they didn't for anchor watch or excuse me anchor protocol

but there's been people there's been there's been people who are critical about anchor for a long time now obviously they ended up being right and whether anchor was a fraud or not is different is a separate discussion but like it's not perfect but it's still better than happening behind the scenes dan yeah i just want to chip in on this point a little bit i mean even if you've got a perfect protocol where no fraud can happen within that ecosystem, there's still a potential of fraud when you go outside of that ecosystem, right? On the on and off ramps, on your custody solutions, or if there are features that we can't have

or not accessible, such as like in DeFi right now, if you want to have a long-term loan against your crypto, then you have to go to a loan provider. You give them your funds and they give you dollars or some other tokens or whatever it is that you want, and they can commit fraud there. So even if the internal economy is fraud-proof, when you want to transition in and out of that economy or use services that that economy can't provide for technical reasons,

regulatory reasons, whatever, you're then exposed to fraud. So I don't think it ever goes away. Yeah, it's probably, you know, in the end, we hit an intersection where regulations are coded. And that's probably where we end. And yeah, you know, and but, you know, it's a process to get there. And there's all sorts of fraud. And you can never change that. You know, we're not going to suddenly

change the fact that humans want to steal money and you can take a blockchain and you can put a paper contract on top of it you don't know what's being you know what liabilities those funds on chain have against them through paper contracts and i think this is exactly what we're seeing with all the movements with um hobby right now and the different exchanges. We don't quite know who actually or which entities are behind those. So I completely agree that it's a great preventative knowing that when you make a transaction, there's going to be an immutable record of that transaction. That in itself is a great preventative um and makes everything harder but you're never going to change you know the the people want to commit

financial fraud um john i mean i think i think there's one other big part to this too which is the vast vast majority of consumers want regulation and the protection that it provides um there's a reason that the vast majority of people have not moved into pure algorithmic defy one we still have a lot of lessons to learn on it and you see that with just the number of times that you know new uh and novel protocols you can either call them getting hacked or exploited or whatever. But basically, like the developers don't understand all of the dynamics and the code of what can be executed by the code. But the simple thing is like part of the reason that FTX was successful is that it did look more regulated and looked safer for that. And people want that they want

to be able to make the bets. And so if you're going to onboard, like billions of people into crypto, it's, you're not going to do it just by saying, oh, yeah, you can just go like, look at the code on chain, you're going to have to have some sort of more accessible and understandable layer for the vast majority of people. And that means either figuring out a way to work right with the regulators that exist now or creating some sort of new regulatory scheme that works even better than that and instills more confidence in people. Yeah, thanks. Thanks, Mario. I totally agree with that. I think the intermediary is so critical for the consumer and they expect it. You know, the people that woke up in the morning, Voyager, FTX, BlockFi, Celsius, you know, this whole normalization of the word pause, that your withdrawals have been paused today, is insane to me that any consumer would accept that possibility.

And getting to the other, the sort of whataboutism that has been floating, I get it. Enron was a terrible fraud. You know, so was Lehman Brothers. So was Bear Stearns. But let's just look at this in its totality. First of all, that doesn't mean that decentralization is the answer. But more importantly, there are about 1,000 staff in the commission's, whatever, 11 regional offices. There are over 13,000 investment advisors, over 10,000 mutual funds and exchange-traded funds, over 3,800 broker

dealers, maybe more than 4,000, 330 transfer agents, seven clearing exchanges, 21 national exchanges, 600 municipal advisors. They're between 4,000 and 5,000 public companies. You can pick out, you can always find a few where things have gone wrong. And I like the point that Alex was making, that there's always going to be someone who commits some horrendous fraud. And in hindsight, you're going to try and fix that. Like they set up the public company accounting oversight board after Enron. They set up all sorts of new rules and regulations after the subprime collapse. So yeah, there have been

problems. But that doesn't mean that for the most part, U.S. capital markets, at least the ones that I'm familiar with, have functioned really well for people. And this idea of trust, that if something goes wrong and you wake up in the morning and you see a sign that says, like, you know, me, I'm approaching retirement, you know, all of a sudden you have no access to your money. It's been paused and you don't know who to call. Do you call your local police officer? Do you call the FBI? What do you do?

Well, if it's an SEC-regulated entity, what happens the next day or maybe within an hour is you send an audit and examination team, you do a forecast, you find out exactly what's going on, if it's a regulated entity. And if it's a public company where something is going on, you immediately issue subpoenas and you begin the investigative process. But most importantly, you're using these regulated entities and you're enjoying that protection, that consumer protection. You're taking it for granted if you give it away,

because it's very critical. Just like any transaction, like a credit card transaction, like a transaction on eBay. You can file all sorts of objections with eBay, with PayPal, with the bank behind your PayPal, with the credit card behind your PayPal. All of these intermediaries are critical for the consumer. And putting them aside, to me, it's certainly something I would want. And then you learn the hard way that you become an unsecured creditor. That's the hardest part, Mario, is that it's not even that since your assets aren't segregated, you don't even get your assets back. You're an unsecured creditor. So there's no insurance, no licensure, no conflicts of interest, no cybersecurity requirements. You're just at the mercy of these entities. Joe? Yeah, I was just going to follow up on that. When you think of the entity like Voyager, right? 3.5 million customers, any one of them could have gone on their website, read the

terms and conditions, they had access to that information, they knew that their assets were being rehypothecated subject to the terms and conditions that they signed up to when they downloaded the app or filled it out. Does that make it appropriate? Regardless of whether it's fraud, does that mean that we shouldn't have regulations in place to prevent what they did from occurring? I think so. I mean, I think it makes perfect sense to think just because it's not, even if it's not fraud, it's not an appropriate setup for someone who's putting significant amounts

of money in there. And I guarantee those millions of customers did not realize the risks they had when they were trading on that platform. I had direct access to the CEO and I didn't know about those risks because he was lying to my face. Yeah, I mean, I've got like 300 lawsuits against Coinbase right now, closed behind in arbitration. And every single one of those cases, the defense is you signed the terms of service. Yes. When I opened up my account, I clicked the box. You understood when you signed that terms of service that you have no rights if any of your crypto gets stolen from your account. No, I did not understand that. Well, you can read

English, can't you? And you read the terms of service. We owe you nothing. Even if our employee steals from your account, you've signed the terms of service that limits our liability that says we owe you absolutely nothing. Guys like me would be homeless and living in shelters if I had to be held and my clients had to be held to the egregious, egregious terms of service of all of these crypto exchanges. And I go back to the ICO days where I did probably 100 lawsuits. And they said, well, your client signed a document that you were going to the Seychelles, you were going to Switzerland, you were doing this. And it doesn't matter. These guys, they believe once they get your hands on the criminal thing,

once they get their hands on your money it's their money and it's just ridiculous i agree with what yago was saying there's crime all over the place this is not limited to just crypto at the end of the day all i remember in there's a video and i'll give anyone ten dollars if they can find this of a really fat david in 2017 at some conference and all i said was if people ask me the number one thing people in crypto had to do to make it legitimate, all I said was stop stealing your people, your clients money. That's all that had to happen. We could have had some legitimacy. I'm like 400 pounds wearing a white T-shirt and a jacket. And all I kept repeating,

and there were these lawyers from Perkins and C Coie who were telling me how wrong I was. I'm like, like all your clients are just stealing money in these ICOs, ICOs and turning to NFTs now. And at the end of the day, I agree we're moving, but progress is slow and the slow progress is getting better and eventually we'll get there. But right now we are not there yet. And the progress we're making is good and it will eventually happen but just stop stealing money is all these people have to do and we have to stop having these interesting spaces uh brian yeah i just wanted to just hop in and kind of agree with the point uh that joe was making earlier i think that david was making there is like you know customers already have enough time with these legalese documents.

And to Yago's point about, well, you know, all we've got to do is just use this DeFi exchange. Everything's transparent. I think the reality is they're not going to read English legalese, their own native language. Most of them cannot read or care to read the code that's in there, number one. And then number two, that code is also, you know, it tends to have its own bugs and its own quirks, even really well thought out code. There was a great article in 2019 that examined the 50 biggest ICOs of the 2017-2018 ICO bubble. And it found that essentially every one made, you know, kind of disclosures in, you know, natural language disclosures that did not match the code of the ICO. And that was tens of billions of dollars of ICOs. So I think crypto is just sort of learning, unfortunately, the reason behind these, these painfully, you know, difficult to comply with regulations is the result of just human behavior. And we can put that,

you know, you can decentralize that human behavior all you want. But I don't think it goes away. So I don't think saying, oh, you know, well, DeFi is the solution is really going to cut it because you're still going to have people who really just do not live up to their end of the bargain. I don't think decentralizing solves that necessarily. So there's always going to be this sort of backdrop. I'd like to make two points. Yeah. One is at no point can we expect a silver bullet that is going to stop people from losing money or solve all the problems but what we do have is a tool for transparency and transparency is a narrow wedge into this but extremely powerful one and we can build a lot on that and we we tend to fail at that. As an industry,

as a community, as users, we fail to put our money towards those projects that are focused on building transparency, that are focused on building security. And instead, we are driven primarily by greed, short-termism. And the second point is related to that, which is we keep on talking about the bad people who are running the exchanges or running the ICOs committing fraud. I've been in crypto for 12 years now. I've

never suffered from a bad ICO or a fraud or anything like it. And the reason is because I'm very careful and conservative and I participate only in things where I have a decent understanding of what the risks are. And I think that's a responsibility

that every single person with money has. But you can't... Hold on, sorry. Let me please finish. I think we, in these conversations, tend to ignore that people, everyone, users have a responsibility themselves. And we can't expect things to really improve unless people start taking responsibility for their own funds and their own action. And it's not a comfortable thing to say, but I think it's an extremely important one. But I agree with most of what you said, but you can't expect every person to have your knowledge, to have your expertise, and to have the time to review every investment decision.

You've got to protect people that don't have that capacity. It's not even that, though, right? It's like when there's a bull market, people mortgage their houses and ape in on some NFT NFT coin and then it's a rug pull. I mean, okay. Hold on. I'll go a step further. You can't have a market that works like that. So, like, I would argue the number one crypto innovation that has had product market fit is stable coins.

Right. And the reason is because it gives people who are blocked out of the US market in particular, access to the US market. And why do people want access to the US market? Because there's incredible liquidity flows, incredibly even playing field, at least relative to a lot of other countries. And people want access to that. If you have a system where every single market participant has to do an unbelievable amount of research to be safe, and every time they're sending money everywhere, you have no market, you have no liquidity, nobody can do anything. And again, this goes back to why trusted intermediaries like your bank or Venmo, or why

regulation is a big deal. One of the most offensive things to me about the whole thing is Voyager literally got sued by the FTC for deceiving people into thinking that they had FDIC insurance on their investments. Why? Because people wanted to put their money in the FDIC insured things because then they're not going to lose it. And so Yago, I'm totally with you. I'm a big believer. People should be allowed to do with their money what they want to do. You know what? I don't like accredited investor rules around

angel investing. But the flip side to that is it's ridiculous to think that most people can get access to the high quality deal flow that like, you know, VCs do, but it's still your money. You can do what you want with it, but ultimately you can't, you're not going to have a viable market and economic system where people, the vast majority, 95% of people can't just stick their money in something safe and be confident about it and just be able to do it because they just they'll hoard it under their mattress and never use it. Alex, I think that's a really great point. But look at what we've done, right? So Bitcoin came out and it placed what it tried to do was create a safe system where you could transact and hold funds without intermediaries. And Bitcoin succeeded extremely well in that because it focused on it.

And since then, we've had a whole bunch of systems and projects that have come out and they have tried to be faster or have more features or more bells and whistles. And so, you know, we've got NFT platforms and we've got smart contract platforms and we've got fast platforms and we've got scalable platforms, et cetera. But where are the platforms that are taking this question of safety and security as their core principle? And that's the technology, that's the technological solution they're trying to build, right? I think we see that only in the Bitcoin space.

It means that development is slower, but it also means that you see far fewer of these kinds of frauds and hacks and exploits emerge. Guys, should we take it back to SPF? Because I reckon a lot of people are tuning in to get court updates. Is there like any latest there we should? Yeah, yeah. So to kind of bring that back to SPF, there's like a very high degree that I at least perceive.

There's a high degree of complexity worship in crypto. And, you know, SPF played right into that, that complexity worship mentality where everyone just goes, you know, this is quirky, nerdy guy. You know, he's got this really great platform to handle all these complicated trades and things like that. And he used basically venture capital money to gain the public's trust by either associating with people who seem trustworthy or buying advertising space and just getting into the public eye, in part because people believe, well, how could he screw it up because it's so complex and he's able to handle it.

He's not going to mess it up. But the reality is when crypto sort of banks on all this complexity to add to the features that Bitcoin set down. I mean, Bitcoin was elegant in its simplicity, right? Like eight page white paper, a couple thousand lines of code, nothing crazy, trying to do really just one thing, prevent double spending in a decentralized manner. As you start going out on the complexity curve, it starts to become you can disclose it all you want. You can disclose it in the code all you want, but the public is just not going to grasp it. I try to have conversations with people in my job at my law firm or elsewhere about just Bitcoin. And it is still so far beyond. These

are smart people, but it's still so far behind what they can grasp. And when you have that degree of complexity, it's really right for fraud and exploitation. I think that's what happened with SBF because, you know, people just trusted them because it was too complex for them to understand. And it was exploited fraudulently. Maybe if everyone could give a summary of the last three days, I think people would love to know, because from what I can see, SPF has an awful case. Is anyone able to give a summary to people on what's been happening? Yeah, I think, Carlos, Alex, have you been following the case closely?

Yeah, I've been watching it pretty closely. I think, you know, if you look at it at a high level, there's a couple things that have been remarkable. One, the judge is clearly very committed to keeping this thing on track and moving the case along quickly. Like, it's already going to be at least a four to six week trial. And the judge has repeatedly tried to keep the lawyers on track, moved through jury selection really quickly, is really trying to move things along. I think the prosecution's case is also being very straightforward. So they've got Gary Wang on the stand again this morning uh they had matt wong

from paradigm up yesterday and they're just trying to go very methodically through showing that s that svf basically was lying when he came out and said all of these things right because like the underlying acts what has happened with the money it speaks for itself there is money missing um you know the the the there were these fraudulent accounts open there was wire fraud committed there was bank fraud committed um they're just going very methodically through this whole thing because sam's already telegraphed that his whole defense and his lawyers if you look at the cross-examination is like you know it was an oopsie daisy and know, we didn't mean to actually do it or something like that. Right. It's, it's, he didn't know what he was doing. He really thought this was okay.

And so they're just going one by one, putting up all these witnesses, like his co-founders who are admitting and saying, no, Sam, like told me to do these things, right? Or Sam knew that the money was in this place, but put out tweets or had conversations with people that said, where he said the opposite, despite the fact that he had said something different to me the day before. And they're just laying the fundamental groundwork for, that's fraud. If you know one thing and you go out and you tell people a you know, that's fraud. If you know one thing and you go out and you tell people a different thing, that is fraud. Sure. I think the biggest part of the trial for me watching it is the unprecedented access the prosecutors have to witnesses and to information.

If you look at the three primary government witnesses, it's not just that they have, they don't have just immunity agreements. It's not people like that. They have plea agreements where they have said that they better perform, they better do a great job, or they're not going to meet the demands of their plea agreement, and they're not going to get reduced prison time. So there's that, where these incredible, extraordinary senior executives are going to be really explaining specifically in very, very clear and simple words, very well rehearsed exactly how this fraud took place. And it was interesting to hear the prosecutor literally say to one of the witnesses, hey, can you point to who you committed this wire fraud with?

And he stands up and points to Sam Bankman Freed. So those kinds of things are very unique. You don't usually have that many senior executives of the companies involved who have become your informants, your whistleblowers. How, John, how does it work? How do the authorities get them to become informants? Very easy. Let's say, yes., what's the process like if you look at Sam's ex? Yeah.

So obviously Sam will be talking to her in the early stages of an FTX collapse. They'll be talking behind the scenes. So will she be arrested and said, you're not allowed to talk to Sam and then authorities talk to you or will she be taken to a room like in movies? Yeah, it's a lot like the movies, I think, the ones that I've been involved in. And certainly I've been involved with a decent number. You say to someone, hey, you can cooperate now. I got a list of 20 people here that are going to be willing to cooperate. You're at the top of my list. You got a minute to decide if you want to cooperate and sign a plea. If you don't, I'm just going to move on to the next name. And it's terrifying, especially for these

white collar, you know, these consultants, attorneys and professionals. I'm sure there are a lot more cooperators than we even know about because and again, remember, these cooperators, they aren't just testifying and, you know, explaining things to the jury. They've also spent the last 11 months walking the prosecutors through every single document. And where did the prosecutors get the document? Well, that's when you get to John Ray, Mario. John Ray has spent over $200 million at FTX, over $200 million hiring the best forensic accountants, attorneys, technologists that he could to go through every iota of data. And what do they spend their time doing? They bill their time to go over to the U.S. Attorney's Office probably every single day

to take this evidence over and explain it to them. So the prosecutors have at their disposal true insiders at FTX and Alameda, true senior level insiders who were there when it all happened. And they also have access to every single document and email and text and signal chat that occurred that is at all on record at FTX. And John Ray's people have every incentive to provide that information and build their time along the way. So it's really and then you have this crazy witness who is his own worst enemy and won't stop talking. And when you look at his texts, where the most inculpatory texts I saw that really bothered me, which I'm sure will come out, is about how this whole effective altruism was just a front,

and he admitted it. He said it's just a way for Westerners to somehow make themselves feel better, but he was just using it to gain influence. So I think he was pathological. That's my opinion. And the text shows that. John, I want to ask one question about what you said earlier. When you take a witness or someone involved, you take him to the side and give them a minute to decide. Obviously, not really a minute. So is that just a bluff or do they really have a bunch of minutes or hours to decide? No, it's not a bluff. You know, I mean, here's the thing. And I tweeted this the day that SBF was arrested. I said they're all lining up at the prosecutor's office right now

to sign plea agreements because they all hired former SEC enforcement and former criminal prosecutors who tell them right away, let's get in there early, let's cooperate, and let's reduce your jail time because what obviously happened behind closed doors was egregious. You've obviously committed certain crimes. Let's get in there early. Let's help them.

Let's try and show them that, hey, this was a lapse in judgment. We got caught up in something that we shouldn't have. And we want to make amends by really helping the prosecutors through this. I saw this a lot in some of the microcap stock cases I did and the penny stock cases that I did, where you find someone inside to give you insights into everything that's going on. It's critical. And in this case, you could also approach all those lawyers. Because look at the lawyers. Look at that Solomon and Cromwell lawyer who four days before the FTX collapse sends an email to one of the Voyager bankruptcy lawyers who was concerned about FTX's stability and was hearing all sorts of bad things about FTX,

says they're solid, they don't use customer funds, they don't have any liquidity issues. You know, so you approach someone like that right away and you say, you know, what's the story here? And if they're well represented by counsel, the counsel is going to tell them some terrifying things like, hey, you might go to prison or you're certainly going to spend the next two or three years defending yourself. Let's get in early. Let's let's try to get immunity. If we can't get immunity, let's get a plea agreement and let's cooperate. And if you read those cooperation agreements, they are onerous. I mean, they own you once you sign one of those.

Sorry, John, did I hear you right? Did you say the lawyers at Voyager or the who at Voyager said to that everything's OK? Or was it that there was a lawyer at Voyager during the bankruptcy who sent an email to a lawyer at FTX from Sullivan and Cromwell and said, look, I'm hearing some bad things. This is four days before the collapse. I'm hearing some bad things about what's going on over at FTX. And the lawyer, the Sullivan and Cromwell lawyer said, oh, they're totally solid. They don't use customer funds. There's no liquidity issues. So, and that was four days before. So you have all sorts of extraordinarily inculpatory or at least suspicious evidence that would that where the FBI brings you in. And, you know, look, I was an instructor at the FBI

Academy conducting a lot of in-service classes. And I worked with FBI agents for about 20 years. And no matter it, it never changes. It is terrifying when they come to talk to you. And the consequences, just process related. If you say something to them that's at all misleading, then they own you even more. That has nothing to do with the crime. Remember, Martha Stewart didn't go to jail for insider trading. She went to prison because she misled the FBI agents and the prosecutors who were investigating her by, I think, changing a calendar entry or something like that. But when you get that cooperation agreement that owns you, do you have the ability to work with your lawyer to make amends? Or how strict is it? Like,

this is it, take it or leave it? Well, it depends on the circumstances. But you negotiate it, it depends what sort of evidence they have. And remember, they have everything from John Ray. So they have boatloads of inculpatory texts, emails, all sorts of memoranda. And you never know who they're talking to or what the evidence is that they have. 99% of the questions they're asking you, they might already know the answer to. So you're really flying blind. You just know about what you've done. You consult with your lawyer. I mean, look, Caroline Ellison hired the former director of the SEC Enforcement Division, one of the former directors, Stephanie Avakian, to represent her. I'm sure, and I know Stephanie, I'm sure she was telling her right away, you are in trouble here. Let's get in. Let's get in early. Let's cooperate. And that's our best chance at reducing your prison time don't think that you can somehow get out of this because you can't last question that i have and i'll go to tom

and how long yeah go ahead tom no david i was just gonna jump in on what john just said it's so incredibly important who you hire and watching the process of who got hired to represent who in all these these crypto cases. What John is saying is so critical here. I don't think that matters. That there was so much winking and nodding between who hired who and how this was played out by who pled out by who they hired and whether or not they were fighting or whether or not they were walking in and saying, help me, I'm going to help you.

So we have such a fantastic array of legal minds on this call whether or not they were walking in and saying, help me, I'm going to help you. So we have such a fantastic array of legal minds on this call and a number of folks who are insiders. So I'd love to hear just kind of handicapping what you guys know and anyone, I think, feel free to jump in. What you think Sam's chances are? Is it 95% he's guilty? And then how long do you think he's going away for? Carolyn, same thing. The other sort of cooperators, do we think they got full immunity? Did they get partial immunity? Like, what does the whole body of this case look like for this whole cohort of people who did all this stuff?

I can go ahead. So I think Sam gets life. I think he's got... Life? Who said life? Hello, Martin here. Yeah, I heard... Life? Who said life? Hello? Martin here. Yeah, I heard you.

Did you say life? Yeah. Oh, wow. I didn't see you come up. Sorry, Martin. My bad. I thought it was a new voice. That's crazy.

Go ahead. Sorry. Yeah, no, I think he gets life. I think there's less than 1% chance he would be acquitted on all counts. He's maybe less than 5% chance he gets acquitted on any count. Yeah, I mean, I think they have him kind of dead to rights and

whether it's the practicality of the law, the reality of the law, he's guilty and yeah, I think this is one of the most substantial fraud cases in history and life would be pretty appropriate. I can't say exactly what he gets or not. I think Martin, I've read your analysis is on it and I've been enjoying those.

I will say the DOJ does not lose in federal court. Like they win 99% of criminal trials when they take them there. And I think the fact that you saw every single other person in this case, plead out, friggin overnight, like that, I think that goes to how strong the case was. And like, you know, john was talking a lot about how the negotiations go. The thing I've talked to people that is like, it's just like any other business negotiation. I mean, that's, that's literally all it is. Yeah yeah and i think the reason you saw everyone plead out like they did is that every doj was holding all of the cards like they knew how many how clear the case

was how much evidence there was going to be against them and so this just makes it that much harder for sam but i i mean i cannot fathom how he walks away with less than decades in prison from this. I mean, Mario, I'm interested to hear your view because we had this discussion, I think, before the trial started. And I think I'm pivoting a little bit. I actually do think he'll spend some significant jail time. Interested to hear where your head is in terms of how many years do you think he's going to be spending behind bars yeah i'll let you know i'm just gonna martin i know you're jumping in give us updates and i'll kind of give my thoughts at the end round but it's for martin to say he expects it to be life in prison is a bit surprising even to me but martin

i know you were just jumping in so i'd love to get more thoughts and updates from your end um and then i can make up my mind yeah so i So I get the transcripts from the court reporter in real time. And, you know, the biggest testimony yesterday was basically this, you know, Gary took the stand. But I actually thought that the highlight of the day was Adam Yadidia, his former college friend and developer at FTX. And I'll try to be as brief as I can here. But basically, they find this bug in the system. And Sam tells him to fix the bug. And by fixing the bug, Adam unwittingly gets to see that Alameda has been spending FTX's money. And this is a huge problem for Sam, because I actually think that Sam could confuse the jury and sort of try to get around some of the other issues.

Like, was there a gigantic margin loan to Alameda? Sure. Is it a bad idea? Yeah. Is it illegal? Maybe not necessarily. Whereas here you have Sam basically telling Adam fix this bug and Adam tries to fix the bug and it's there's a 500 million dollar hole. And then six months later, he fixes the bug and there's an eight billion dollar hole. And so the point of what I'm making here is that that Sam definitively knew that there was an eight billion dollar hole. One of Sam's defense mechanisms here is, I didn't know. You know, I didn't run Alameda. I didn't know they were borrowing all this money.

And obviously, it sort of gets that idea gets blown out of the water. And that's what he told the public as well. Not that that matters that much. But, you know, I just point that out as like a chain of evidence that's really damaging. I think Carolyn gets three to five, which will be, I think, a miscarriage of justice. I think our police system needs deep reworking to be able to fall on your sword and get

90% less jail time. It's ridiculous. No other country does it like this. Yeah, it's a shame, I think. You think Caroline gets 3-5? And what about Garyary wang gary might get like five to ten something like that i think you know anything in that range nobody's getting more than 10 i think on the plea team what's surprising about caroline is she she negotiated terrible terrible deal so i don't know if uh her former care of the former sec

counsel did her favor there but she pled to she pled guilty to every single count in the indictment, which in plea deals, you never do that. I was offered to plead guilty to one count. Was it a plea deal stop loss? Yeah, you're supposed to plead. If you're charged with eight counts, you negotiate, I'll plead to one. I'll plead to this count of wire fraud. And you get some kind of like cap on on the way. You know, there's a number of ways to do it. But you can cap the amount of

points, you know, there's various ways to do it. But usually these as I think, was it john was saying, you know, usually you take years to negotiate a plea deal, you draw it out. I mean, there is some advantage to going first, but you try to convince the prosecution, look, I didn't do anything wrong, et cetera, et cetera. And you kind of keep, you know, I'll go to trial. You keep threatening that. They don't want that. They desperately don't want to trial. Martin, how long is life?

When you say life, how long will he actually sit in the jail cell for the rest of his life? Will he sit in the jail cell for the rest of his days? Yeah. And Martin, two questions i have on my end first in terms of the plea agreement with um caroline she did have a really good lawyer and john was talking about that that uh that lawyer who he knows personally i think he's like ex-enforcement officer at the sec um so my question for for her to to plead guilty to all accounts does that mean that they just have a lot more evidence than all of us expect no i think

it's one of two things and it's hard to know exactly what happened and by the way in the annals of great defense attorneys that that person does not rank in them i mean uh they're a new defense attorney there's a lot of really talented criminal defense attorneys um most most of the people that leave the sec or doj to become a criminal defense attorney don't automatically turn into a trial winner um you know the i'm sure that person's a lovely person. But you know, that they're in the annals of criminal defense attorneys, there's there's people that that actually do win cases. And it's very rare. But anyway, so one of two things happened, she either basically just completely said, Look, I'm ready to like, give my life over to the

government. And I don't care what happens, which which I think is really foolish thing to do because they don't care either. And they very well could give you a life sentence and, you know, you can do nothing about it. So, you know, that is sort of and remember, this plea agreement is filed on PACER. So you can read it. And there's nothing in this agreement to my to my shock that says we will stipulate to 35 points of, you know, on the sentencing guidelines, which is like 10 years, let's say, or 22 points or 27 points. Usually there's an agreement where we'll say we'll seek no more than 10 years or something like that. It's not in the plea agreement. You know, maybe there's some weird side letter or something like that. But it normally would be in the plea agreement that she's basically at the mercy of Kaplan now. And Kaplan may say, you know what, after seeing this trial, I think Carolyn's just as guilty as Sam, you know, let me, let me give

her 30 years or something. And, you know, they generally don't give women huge sentences for what it's worth. I've seen thousands of these and they just always seem to give women a really, really light sentences relative to men. And, you know, I'm not saying that's a bad thing, but I can't see a world where Carolyn does more than 10, probably no more than five, no matter what. John. Yeah, Martin may be right about all that. You know, you really can never tell about sentencing. I think what happens during sentencing, remember, during the allocution, you get three different stories.

You get the prosecutor who gets up and says, you know, here's what I think. And the prosecutor then parades a whole group of victims up to provide victim impact statements, either submitted to the court or can testify to them. You know, usually I would bring the victims up and have them talk to the court directly and take whatever questions or really present themselves. There's that side. Then the defense counsel will get up and provide their defense and maybe have all kinds of submissions as well. And then there's also what they call sometimes they refer to it as a probation report. have different names for it, where really the court independently will interview everyone and do their own analysis and sort of present their own recommendations with respect to sentencing.

And then after all that's done, like Martin said, the judge could just disregard all of it and say, nope, I think it's a lot worse and here's what I go. And remember, the sentences can, they can also, they can run consecutively, but sometimes judges will say, well, all of these counts kind of relate to the same conduct here. So I'm going to sort of press them all together and I'm going to look at it and make my determination based on that, or they can separate them. And remember, there's also going to be another criminal trial once they figure out with respect to the extradition agreement, the Foreign Corrupt Practices Act, the Chinese bribery charges. There's also potential political charges.

I don't think any of those cases are going to somehow go away just because whatever he's sentenced. So that could also throw a big wrench into it. So I love it how, Mario, your team, your people, you always want to handicap it. You always want to give percentages. The only thing I can say is, to me, the chance of him getting off are slim and none and slim just left town. The other question I have for you, Martin, I've got two questions.

First one is we had a debate a few spaces ago, and I think some of the panel here was on that panel as well. And the debate was whether all the donations that Sam done, all the connections he has and the money he probably has stashed away could get him a shorter sentence. Now, I tend to be more naive. Like, I don't think corruption is as big as people make it out to be, even though I think it does exist. Is that a possibility? I don't think so. You know, I'm an expert in these dark, dark arts. The best way to accomplish something like this, if you really turned your mind into the gutter and you wanted to be the most depraved, like horrible person in the world, I'd go corrupt the jury.

You know, that that's basically the only way that I do. And I would never advocate somebody do that. It's a federal crime. You'll get deep trouble etc etc but if you're already facing life jury tampering is not you know some charge that's going to you know change your sorry what do you mean by corrupt what do you mean by corrupted jury sorry for us non-americans who don't understand the system yeah so in the history of criminal justice you know one of the one of the ways certain mob mob figures have gotten surprising acquittals, I should say, or surprising deadlock juries and gotten mistrials is through basically paying the jury. And this is a wildly illegal thing to do. Obviously, you cannot approach a juror. Jurors are instructed to immediately turn to the judge or the clerk if they are approached by anyone. But having said that, they walk in and out of the same courtroom. And it's not hard to know exactly what they look like and who they are approached by anyone. But having said that, they walk in and out of the same courtroom.

And it's not hard to know exactly what they look like and who they are. And I think with the right psychological profiling, you could find the right juror. Again, this is a really bad idea. Nobody should do it. I would never do it in a million years. No matter what I do. I'm asking for a friend.

I'm asking for a friend. Yeah. And is it common? And that friend is caught. Is it common, Martin? It's friend is caught um is it common martin it's not common at all thank god um you know i think that you know i in the cases where i've seen it in and again you have to go back into the history largely of so-called la costa nostra the italian mafia but it does work and i think that remember one of the things that's important here

and getting the conversation maybe back to reality from from from a John Grisham novel is all you need is one. So if you have one juror who will fight for you and be your champion in that in that jury room, you have won the case because it can be 11 to one. And and that person doesn't give up. You have a mistrial. You know, they have this whole process called Allen charge and other things like that to deadlock a mistrial my my jury was deadlocked i had one woman i thank my lucky stars for her who fought like hell for me and she got me acquitted of five charges and compromised on the other three with the rest of the group who was annoyed what would have happened to you if that if she wasn't there i probably would have gotten double double the sentence how many years did you how many years i got seven what do you what do you mean she she stood up for you like just like maybe walk us through like what she did that was unusual or how did you pick it up it was unusual but i mean you

know i i maintain my innocence right so like ultimately we we made a very very strong argument we we contradicted enormous amounts of evidence. And, you know, we should have won on the charges I was acquitted of. And I'm glad we did. But she she really believed it. She she bought it and bought into our explanation deeply. And she was almost outraged at the whole thing. And she convinced every other juror in that courtroom. She said, I'm not leaving here until until we're acquitting him on something because because he didn't do all this. And, you know, I was really proud of her. And I think Sam, again, getting back to like this case, Sam has to look the look into the eyes of one of these jurors. This is what I did and start to connect emotionally with them.

And again, I'm like a quantitative guy. Like, I don't do this kind of stuff. But like when your life is on the line, you sort of have to take the tea leaves and anything you got and run with it and through some weird like psychic power almost like some osmosis some energy in the room you have to like convey physically this this feeling of innocence a great criminal defense attorney somehow can do this they are magicians and uh my lawyer, Ben, was able to do this. He was able to transfer this innocence from his mind and his gestures and his voice into the jury. And again, it sounds so hokey, but it's all you have to go on. And this is a persuasion game. This is theater. This is almost nothing to do with the law. It's this just theatric performance. And I got to say, SBF's

lawyers are very dull. They're not emotional. They're not interesting. They're not going to win everyone over. You know, they say the election of the American president is about who would you have rather have a beer with? And that's the person that wins, you know, in the in the courtroom, you know, it's very stacked against you. But but to some extent, sort of the same is true. And you have to kind of go above and beyond just that. But I think that, you know, SBF's lawyers are actually very dull, very one dimensional. I actually kind of and I can't believe I'm even saying this. I kind of like the government lawyers like that. They're kind of passionate. They're there. And it's usually the other way around where the only advantage the

defense has is you hire these really expensive showmen who are like really talented at like think Johnny Cochran, right? Like going in front of the jury and like, you know, raising their voice and being outraged. There's one famous lawyer at Paul Weiss who cries on the stand. And it's like one of his like hallmarks. He like literally is crying for his client. You know, you're not going to see

the government doing that. And so like, you know, that kind of like thing can backfire. Obviously, it could seem like a little artificial. But, you know, I don't think Sam's got a great shot here on that. In terms of his money he's hidden away you know i i think you know he may have some a lot of people feel like there was a hack at the end of the process that that stole

some money um a lot of times the doj just doesn't care that much at the end of this thing they bag their they bag their prey you know they put the elk up on the wall and uh that's it you know they just you know they they know that there's going to be some things lost to the game they move on to the next case you know there isn't this permanent lifelong like passionate you know i'm going to make sure sam bankman every day every dollars you know gotten back they just kind of move on and so if sam does have some money on the outside maybe he can access it maybe he can't you know it's it's it's sort of up in the air, but I think in general, like, you know, once they get their thing in the wrong. Martin, why do you think that, I mean,

you say you don't really rate Sam's lawyers at this stage. Why do you think that Sam's chosen those lawyers? Do you think it's an affordability thing? Do you think that he's done the research? I'm interested to hear like how you think that connected the lawyers? Well, there's, there's two ways to do that, to do it. Like, you know, i had this law firm arnold and porter uh before i got indicted you know kind of working with uh the government to try to figure out if i was going to get indicted and of course i did and i fired arnold porter and got like more of a courtroom creature uh sort of a bulldog um and there's a number of these guys and like jose beas is probably the most famous one uh who i didn't hire but that would have been sam's i think best bet. So if you want a technical lawyer that actually knows the law, which is usually a good thing to have, you know, you can go with those lawyers,

but they tend to be pretty, pretty flat and not, you know, great jury lawyers. And so if you want a trial lawyer that really knows how to convince a jury, that's great, but they don't know anything about financial engineering or anything like that. Like my lawyers couldn't do a net present value or, you know, calculate any of that, or like they didn't, they've never read private placement memorandums or anything like that. They're not security lawyers. You know, they've, they've gotten a murder acquittals, you know, they've gotten things like that. So you, you kind of, and the egos are enormous. So I asked my lawyers if they'd work together and they generally kind of didn't want to, you know, so it's hard, you know, I think Sam probably just got a recommendation and went with that.

When you're when you're under arrest, you tend to, you know, just sort of find anyone who will help you. And, you know, he you know, it's hard. Second, Martin, is there any point where he can tap out and maybe take a plea deal or is he in the in the ring now, so to speak? Oh, yeah, it's over. I mean, they're going to finish this trial. If he goes to the government tonight and says, I'm ready to plead guilty, they'll definitely entertain it. You know, but it won't be a good deal.

I don't know if it's just me. No, we can hear you. I'll bring it down and back up. Yeah, go ahead, Martin. Yeah, I think they'd entertain it, but it won't be a good deal. And I think, you know, this whole idea that they didn't give him a deal before,

that's kind of a little squirrely because, like, if you don't ask for a deal or you don't engage with them, they don't necessarily call you either. It's a bit of a game of footsie where, you know, you start to approach each other. Typically, there's a deal. But, you know, I think if Sam was offered, say, 20 years or 30 years, he should have jumped on it. But my guess is the only plea available to him was the whole indictment because Carolyn pled to pled to the whole indictment gary pled to the whole indictment so you know he's got to plead the whole indictment if he's the mastermind so he's really screwed i mean i i love to see all these conspiracies because i'd put i'd put money on sam's conviction i mean i hate to do that because it's guy's life but at the end of the day if somebody wants to donate their money to me i'll take it martin you've i think the first time you've been on our space i think it was your other account it was on the ftx story and um you've been covering

this as well with tiffany who's had a few conversations with sam first question have you had any conversations with sam or his team or any other witnesses that you can share or has tiffany um and then that kind of leads to my next question yeah i would just say that we we have a very very intimate knowledge of the situation um and part of the reason we do is we keep confidences so you know i i just assume we we've talked to everybody and um you know it's it's it's a crazy case you know there's there's a lot more okay so my next question is as well okay go ahead no i mean i think that some of it may come out, some of it might not, you know, but but ultimately, you know, Sam, Sam has been his own worst enemy in a lot of ways. And, you know, I think that, you know, I sort of went through the same thing where you are more or less helpless in this situation, you know, and the more faster you resign yourself to that, the better off you are.

And it's very challenging to sort of believe your lawyers and believe the world that, you know, basically, it's over, you're gonna lose, and you want to fight and you want to resist. And, you know, this, this trial system we have is more or less performative. I mean, there's, there's no way out. And I think Sam, you know, still isn't a bit of denial around that. And, you know, we'll see what happens. So my next question is, can you, now that you've seen things unfold, especially the trial and Sam getting jailed, why do you think he was so open in the early stages, coming in our spaces and answering questions and saying things he probably shouldn't have said? I think it's that denial, that refusal to believe that all this has happened.

Remember, this is a guy that's shaking hands with heads of state, dealing with billions of dollars, and all of a sudden all he's got is a Twitter account. You know, that's a big fall. And the whole world pointing a finger at him. You know, I had a friend who lost $100 million in the case. He's a top five creditor. And I just DMed with a witness who, we'll say,

just took the stand this week. I'll leave it at that. And yeah, there's a lot of people pissed at him. And I think he wanted to sort of explain his side of the story. But the problem was that his side of the story is just a bunch of bad acts. Whether they rise to the level of a crime is a whole other story that, again, I think people, like I was arguing with somebody on Twitter, said, my money's gone. He's a criminal. And it does not work that way. Lehman Brothers guys, you know, everyone at Lehman Brothers had their money stolen or whatever lost. Doesn't mean that the people at Lehman Brothers, that every single person in the management team is a criminal. You know, crime is a very,

very funny thing. You have to sort of look at the statute and see exactly what the requirements are. And in this case, like Sam may actually be be innocent of a counter to, but ultimately, he will hang by think the worst piece of evidence of all, which to your point was his tweet on I think it was November 9, where he said the funds are safe. You know, he should never ever made that tweet. You know, that is the tweet that sort of kills him because he knew the funds were not safe. And, you know, he, he sort of told the world, which is basically his depositors hey the funds are safe they're not going anywhere we don't and he said we don't invest our clients assets meanwhile he had just made like a 400 million dollar investment with his clients assets

so it's it's just like such a you know terrible piece of evidence for him i think like the actual machinations of financial institution are fairly complex and And there's one guy on the jury that I think is Sam's only hope. This is 69-year-old cancer patient. He has non-Hodgkin's lymphoma. He's from Hong Kong. He was an investment banker. And if Sam can somehow get this guy to be on his side, that, hey, look, you know, and I know

these financial institutions are complicated. We made a very big loan we shouldn't have made, but it's not necessarily criminal. That's a story that maybe that guy can buy. And because he has cancer, because he's 69, if he tries to convince the rest of the jury that this guy is no different from Silicon Valley CEO, he's no different from Lehman Brothers CEO, he's no different from Bear Stearns CEO, he's no different from Merrill Lynch's CEO, why should he go to jail for life possibly when all these other guys are sitting in a country club somewhere? It's not fair. And I think you should acquit him again, slim chance. And, you

know, as John said, you know, slim is about to leave town. And I think that, you know, it's unlikely, but that's that's his Hail Mary, I think. And if that tweet didn't exist, would the case be very different? Or there's enough evidence? I personally think so. I mean, I know a lot of people would disagree. And I think the case, the legal case would very different or there's enough evidence? I personally think so. I mean, I know a lot of people would disagree. And I think the case, the legal case would be different. The practical outcome won't change. You know, they could they can literally put put put put evidence, a photo of Sam eating a ham sandwich and say, see, this is evidence of wire fraud. He's eating the sandwich. And, you know, this whole parade and dog dog and pony show is going to result in a conviction regardless.

Like they barely have to put on a case. I mean, the feds always win for a number of reasons we don't have to get into. But it's just impossible for them to be. But if you want to be a legal purist, I do think there's actually, you know, an argument that that he that all these were sort of normal business dealings. They were unethical. They were stupid. They were reckless. But whether they rise to the level of a crime, I'm not 100% sure. I think the easiest one on the depositor side, the easiest one to see, though, is the investor side. The investor's got lied to.

And in most securities fraud, you don't have to prove scienter. So as long as there's a lie or an omission of material importance, it doesn't matter if his mental state was not criminal. In fact, that was the only convictions that I was convicted of because ultimately your mental state, if the jury says that this guy wasn't trying to fuck anybody over, he's not trying to rob anybody, then you can be acquitted of every count. But in securities fraud, it's like, look, I didn't tell everybody that we were recklessly borrowing

or lending, depending on the side, to Alameda. And of course, these firms would have liked to have known that. And of course, they would have not invested if he had told them that. And he hid that disclosure. He prevaricated an omission of material fact while offering a security is illegal. It doesn't matter if your mind state was positive. It doesn't matter, quite frankly, if it was done in error. You know, you're basically cooked on

that. So I think he's guilty of sin on that one. But in terms of like the depositors, you know, as ironic as it is, like these big hedge funds and mutual funds, like you don't feel them as victims necessarily. It's the guy with a thousand dollars or one hundred thousand dollars to put his life savings. And I think he's slightly less guilty of that, which which, again, I don't love saying, but I think that's a tougher case, I think. And would you say that Sam did have a criminal mindset? Was that all intentional or that was just being reckless? That's a really tough one because he's super hard to read as a person. And I think that just in terms of like our dealings with him and like others, like there's two camps.

Like one is that he's just this insane sociopath and that if you read Lewis's book, there was enormous revelations there where he says things like, I don't feel pleasure. I'm never happy. Even when great things happen to me, I don't feel happiness. And that's the kind of thing a sociopath says. You know, you should feel happiness after you've made some big achievement, right? Who wouldn't, you know, feel a little giddy creating this big, successful firm. And, you know, there's a lot of signs of that. So I think that may be the case. On the flip side, I don't think he wanted FTX to implode, right? I don't think he was Bernie Madoff or someone like that that said, I'm setting this up where I know basically it's going to fail. And my hope is to prolong it as long as possible.

But it's very unlikely that I have an exit plan of some kind. And I think he sort of set it up in earnest. But I do think he eventually went kind of bad, as they say, because ultimately one of the things that isn't clear here that we know from firsthand, for second and third hand, that Lewis got wrong is that he did lose most of Alameda's money trading. And Lewis sort of has that wrong. So at the very beginning of Alameda, he did lose most of Alameda's money, which is something that is heretofore not been disclosed and not been understood. And Tara McCauley is kind of the expert here. Tara started Alameda with Sam. In fact, five people did. And all four of them left. They even threatened him. They demanded severance. They told their anchor investor that they should not trust Sam, even though they're all still partners in this firm. They said, stop trusting this guy, take your money out,

he's going to lose it all. And he did. And that was all sort of covered up and swept under the rug. That alone would have been a significant fraud. And quite frankly, if it was acted on quickly, that could have stopped this whole massacre of massacre of fdx right so so usually people who can do these do these types of things they do them throughout their life they're lying and cheating and stealing throughout their entire life and in sam's case he was doing it early in alameda and he could have and should have been stopped right then and there but on a small level fraud uh you know it sometimes doesn't get caught doesn't get reported doesn't make its way to the to the authorities so he was able to kind of keep doing it and uh you know it it sometimes doesn't get caught, doesn't get reported, doesn't make its way to the authorities. So he was able to kind of keep doing it. And, you know, it blew up into basically the

biggest fraud in American history. And what would you say is the biggest misconception, people? I thought in the early days when we covered Sam, I think people were just very unfairly critical of Sam. We didn't have a lot of the evidence that we have now. Obviously, most of it turned out to be true. But do you think there's any still major misconceptions other than the one that Sam, the fact that he donated so much money will probably get him out of jail? Any other misconceptions worth pointing out? I'd say the biggest one is his lifestyle. So he portrayed this lifestyle of being really frugal and so forth. The feds just took two of his private jets. I know some of the frugal took two of his private jets. You know, I know some of like the

frugal billionaires and stuff like that. And then I know people who live way beyond their means on small amounts of money. Sam was Sam was living in a lap of luxury. You know, the idea that he was like this like guy with a backpack, who's napping in the office every day, completely all eyes, you know. And I think that's that was sort of the biggest misconception sam was jet setter expensive stuff all the time you know he didn't care for fashion but that doesn't mean he wasn't living in the lap of luxury just because he doesn't doesn't have an expensive watch uh or gucci you know suit or something like you know he was still sort of like loving the celebrity loving the the life 35 million dollar apartment. And he had many of those

constantly using users funds, and investors funds for for insane, lavish stuff, that just because luxury to him meant something a little different than what luxury means to us. You know, it's typically a yacht or fast cars and like that Sam built this like, you know, he was paying using that money for a Super Bowl ad, he was using that money to meet bill clinton these were luxuries to him that he cared about example another example is his insane uh he wants to maria would you remove me and add me i can't hear anyone okay i'll do it now again hey go ahead martin yeah he was he was very obsessed with video games as you guys may know And he actually bought using his customers money. He bought his childhood best friend's video game company.

It has nothing to do with crypto and is not authorized in any way, shape or form by anyone. And he used his customers money to basically buy his best friend's video game as a video game he liked. And I think actually like kind of helped design. And so this was like a major, you know, thing for him to do. And then he tried to sponsor a League of Legends team. I was actually, you know, I've done that in the past many times, actually. And he was willing to pay maybe the largest amount of money ever for League of Legends teams. When I did it, you know, first of all, it was with, you know, hard-earned good money.

But second of all, you know, you're doing it because you like the game. You think it's fun and you kind of are flexing and it's a luxury. It's a nerds luxury. You know, the same way a very rich man might buy sports team, like like the NFL team or something like that, you know, a very rich nerd of the of the millennial era wants to buy and sponsor League of Legends team. And so for him, his luxury looked quite a bit different from what we're used to. But make no mistake, it was luxury and excessive, and excessive you know you know extravagant spending that nevertheless and how involved were his parents

because we've seen a few uh i think one of them got one of them was sued another one is i think he's been subpoenaed or something along those lines can you give us a bit more clarity they haven't been following it uh closely yeah so i think that if i was the feds and I won Sam's guilty plea, I would have just said, look, let's, you know, are you ready for your parents to be indicted? And I think that's like one of the easiest ways the feds do this. And they typically do it with your spouse, but I've seen them do it with mothers, grandmothers, whatever it takes. And there's very few people in the world who will say, yes, take my take my parents to jail. And I think that, you know, they very well easily could could indict his parents. And I think that as much as I don't like prosecutors, you know, if they actually wanted to go after every single person culpable in this case, there'd be like 50 or 100 people in this indictment.

And I think that, you know, how you define that culpability is the art of prosecutorial discretion. And I actually think they've done relatively good job in this case where they're not indicting 200 people. They did that with Madoff. They basically said anybody that worked in that office was a criminal. And, you know, in the case of FTX, they kind of took a light hand, you know, and they easily could have indicted every single person and just still made it perfectly fine case. And so I think the parents, you know, are going to skate on a criminal charge, but I do think they were heavily involved. And, you know, it's not surprise, right? I mean, their pride and joy of their life is, you know, one of the biggest businessmen in the world.

And, you know, they wanted to, they were active in politics, they're active in business, they were lawyers. You know, it's the height of irony, of course, that, you know, the son of two lawyers would commit a heinous crime. And again, what's so unusual and captivating about this case, and again, having spent a few years in prison myself, you don't meet people from MIT in prison, right? You don't meet people whose parents were law professors in prison. You meet people who come from broken homes. You meet people who didn't go to high school. You meet people who maybe went to some college. And if they did, it's not MIT, you know, and it's just such a remarkable thing for somebody so privileged to sort of go through this. And I think Kaplan's going to be annoyed by that. You know, I think he's going to say I sentence largely minorities to drugs and gun crime.

That's the majority of the cases in Southern District. You know, it is a famous district for bringing big cases, but most of the cases are things like that. And I have to give these young men 10 years because they felt wrongly that they had no other choice but to sell drugs and do stuff like that. They broke the law for sure. But I have to give them these big sentences due to mandatory minimums. genius who could have worked in hedge funds quietly made a million dollars a year just shut his mouth and and done done what everyone else did and lived a great life but instead you had to go and commit this horrible crime shame on you you know it's insane but you said you said they can easily indict his parents why is that how involved were they and that's the first question second question like you said they can indict 100 200 people like they did with madhav can they indict anybody that was involved even though they were even though they didn't have the knowledge that Sam was conducting criminal activity? Well, I'd turn this to John for a second. But basically, my preface would be that, again, the practicality of it is, you know, it's their

choice who's going to jail. The purist would say that, you know, if you ignore the kind of like metagame here, the purist would say no, that that they have to have knowledge, they have to by the letter of the law, you know, the law has to be followed. But at the end of the day, if they want to indict his parents, they absolutely could make a case. You know, it would not be hard for them to make a case of wire fraud. The second that Joseph Bankman Sr., he received, I believe, $10 million. I mean, that's a crime right then and there. You know, that's a gigantic crime. And, you know, again, technicality of the law and then the practical effect of the law, you know, he's not going to sit there and fight that.

He'll plead guilty and so forth and so forth. And again, they showed a tremendous amount of restraint. If it were me, and I can't even dream of being a prosecutor, but if it were me, I would say, you're pleading guilty right fucking now, or your parents are going to go to jail too. Do you want that, Sam? And they play those dirty games. And here they kind of like exercised, I think, a bit of restraint. John? Well, I think Martin's making a lot of really good points. I think it is always a matter of prosecutorial discretion as to who you can add. And if you feel like adding everybody, you can. I think they made a conscious effort here to keep things simple, like Martin said.

And I don't know whether it was a matter of restraint. I think it was a matter of this could be a complicated case. Let's not muck it up. We have other trials down the line where we can deal with mom and dad. Let's just deal with Sam right now. I've never been in any kind of situation where I've said, you know, hey, we're going to go after your parents unless you sign this piece of paper. But I can't say that that hasn't happened. But I think with respect to the parents, again, Martin makes a good point about the $10 million. Remember, think with respect to the parents, again, Martin makes a good point about the $10 million. Remember, again, you have John Ray, who's sitting there, has filed this mega lawsuit against the parents that reveals all sorts of scathing information. And it always

kills me when I would take the testimony from big-time corporate senior executives, and all of a sudden they don't know anything, and they're complete idiots. Gee, I didn't know. I don't know how that works. I didn't realize this was going on. I had no idea. But meanwhile, you're expecting to be paid $10 million like his father was. His father sends an email that says, gee, I'm really disappointed with this $200,000 salary.

What's going on here? And then a day or two later, he gets a $10 million gift from his son and says, this is great. Now mom can retire. That's evidence that's actually in writing. So when you're talking about his dad, who also claims to be a senior advisor, who people, I think, will testify that his dad was around during a lot of the things that were going on. This wasn't a company with that many employees. And there's no compliance mechanism, no board, no chief financial officer. And all of a sudden, you're this very celebrated Stanford law professor who has all these, every Friday has all these meetings with all these.

And remember, I've been a law professor adjunct, which, you know, of course is Latin for not a real, but I've been a law professor for 20 years, 15 years at Georgetown and five years at Duke. And this idea that, hey, law professors get together like they do on Friday nights and they all discuss all these really critical thinking ideas and try to come up with ways to make the world a better place. And then all of a sudden, when you're confronted with the fact that all these outrageous crimes were going on right in front of you, and whether you want to call them crimes, but whatever you want to say, the conversion of funds was going on right in front of you. And you say, well, gee,

I just, I don't know. I don't know what happened. I guess I wasn't paying attention like I should have. And then you look at the house, you know, what about this mansion in the Bahamas and all of this real estate that Sam Bankman Freed was buying up in addition to the planes and the other things, the real estate in the Bahamas. He clearly was trying to curry favor and build himself a little empire there. And he picks up a nice $16 million mansion for his parents, and they start living there. And they sign documents that identify them as the owners, I believe that's alleged by John Ray. It was an accident.

Pardon me? It was an accident that they signed it. Exactly. I'm a Stanford law professor, and both my wife and I are, and I'm confronted in this closing, and I just signed something blindly, and I didn't know. You don't have like three or four $10 million contracts in front of you that you accidentally signed? No, exactly. And how about the – and also, I don't want to pay any of these bills with respect to the maintenance of the property. So I'm going to charge them all to FTX while I live here. And then the mom sends an email because she clearly was behind all this effective altruism, the way that they really co-opted what sounds to me, at least

from people to be a bona fide exercise to try to make the world a better place. And this is a classic affinity fraud, where you take a grip of that and you use it to exploit. And I think that that part of it where the mom says, oh, well, gee, Sam, make sure no reporters find out about this, that you're really behind any of these political donations. And she's supposedly this expert, and she's spearheading, quarterbacking all of these efforts with respect to their effective altruism plans. So you have incredible things going on that are quarterbacked by the parents and then they all of a sudden say, gee, we had no idea of any of these things. So I think, again, we have another trial coming up after this one. The investigation will continue and continue. And the SEC, one thing that I used to do when I was at the SEC, when I had people like had a case where the relatives had gotten involved and received ill-gotten gains.

And I wasn't sure whether they were part and parcel to it, whether they enabled it. But you could certainly name them as what are called relief defendants in the SEC action. And remember, the SEC action will be around after the criminal actions are done, and they'll start really going after whatever assets they could find. Because like Martin said, you have different classifications. You have the depositors. You have the investors. You have the lenders. You have different constituencies who are all going to be – who are all unsecured or secured. And they're going to want – it's not just John Ray that's going after that.

The SEC is going to be going after that too. So I would name them typically as relief defendants right off the bat and just say, you know, they have ill-gotten gains and that makes it easier to deal with them during the litigation because there's still parties to it. You just haven't accused them of wrongdoing. So I think the parents raised lots of questions. Who knows what sort of evidence the prosecutors have, but they're certainly not finished when it comes to the mother and father. And you can bet that John Ray's team is providing every bit of evidence they have pertaining to the parents

directly to the prosecutors and the FBI. Martin, last question, and then we'll wrap up the space. I know you've been following the case closely, any highlights over the last three days you can mention for the audience? Anything that caught your attention? I think next week's the big week. You know, I bet you see Carolyn,

whoever you've been sort of waiting to hear from. I think there has not been any bombshells or anything totally unexpected. You know, it's more or less been, you know, fairly, you know, as expected. So, you know, it's I think the biggest surprises to me would be would be Sam's defense attorneys not really coming out swinging. Very nonchalant. You know, Cohen's just repeating nothing wrong with that. Nothing wrong with that. wrong with that we even abbreviate it nwwt uh he keeps saying it um there's nothing wrong with that and and you know

he's trying to sort of just nonchalantly dismiss this as just you know it's it's normal business there's nothing to see here and i think the problem with that is so we the reason we leaned into our case is when the jurors walk out of that courtroom and they see 5 000 cameras and they see this guy's face on the news and they see you know they can't avoid it it's like wait maybe this is a big deal you know and i think that the the the the defense should have said you're coming after this guy because he's so successful he's so big and and he made a mistake and now you're coming after him for his crime. And instead, they're just sort of start trying to say, oh, well, you know, with the B, they think they understand that's a lot. You know, that's not normal in business. This isn't a small time thing.

And when they heard Bill Clinton and Tony Blair and stuff like that, they they get the picture. And I think that the defense is doing a real injustice by not bringing the fire and storm. And again, I kind of kind of like I'm a drama queen. So like for me, you know, I kind of prefer a trial like that. It may be very smart for them to do what they're doing. I don't know. But I think that in the juries that that in the rare events of acquittals, it usually comes from this like huge drama dust up that kind of confuses the jury and says, oh, I kind of believe this this crazy lawyer who's going to bat for his client. And it's very easy to dismiss Mr. Cohen as just kind of like this ineffectual attorney that I don't really believe. And when faced with extraordinary evidence, one must basically symmetrically provide some kind of extraordinary response. And I think that his response is just very flat dismissal of it all, which is a hell of a risk to take, in my opinion.

I would meet the government face to face with an aggressive demeanor. Kaplan, I would say that the judges reveal what side they're on within a couple of weeks, and it's the side that pays both the prosecutors and their bill. And you sometimes say there's two prosecutorial teams here, and it almost always starts to come out within a week or two. Kaplan's, you know, clearly, you know, on the on the prosecutor side here within a day or two, which is really surprising. He's had it up to here with Cohen and his legal team on on cross examination. They're constantly repeating lines and the direct testimony over and over again. And he's told them to stop, you know, a dozen times and they won't stop doing it. It's just the way they do cross examinations and he hates it. And it's just so clear as day that this guy

just does not like Sam, does not like his defense attorneys and is ready to throw the book at him. So that's sort of the only surprises that I saw. All the testimonies kind of come in as expected, I think. Cool. On that point, Martin, appreciate you jumping in. We'll continue to cover this live and you're welcome to jump in. We do this show every morning. I'll probably be getting updates Monday to Friday on the trial. So you're welcome, you, John, and everyone else, David, to jump on anytime. Everyone else, make sure you follow the red logo that's co-hosted next to Scott, Ran dropped out. So follow that.

We'll be hosting shows from there very soon and we'll see you again on Monday at 10.15 a.m. EST. Thanks, everyone.