Unchained - Another Bad Week for Sam Bankman-Fried in His Criminal Trial - Ep. 558

Starting point is 00:00:00 I would agree with your assessment that this is not going well for SBF. The evidence is utterly overwhelming. I don't think there has been a cohesive theme or narrative to the defense. It is hard for the defense sometimes to have a theme when they are basically only have cross-examination. Hi, everyone. Welcome to Unchained. you're a no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago,

Starting point is 00:00:36 and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the October 20th, 20th, 23 episode of Unchained. Thinking of launching your own stablecoin, start with the open source stablecoin studio toolkit on Hedara. Start your journey at hadera.com slash unchain.

Starting point is 00:00:55 Shape tomorrow, today. Vault Crafts by popcorn is your no-code DeFi Toolkit for building automated, non-custodial yield strategies. Learn more on VaultCraft.io about how you can supercharge your crypto portfolio. With the crypto.com app, you can buy, trade, and spend crypto in one place. Download and get $25 with the code, Laura. Link in the description. Today's guest is Sam Enzer, partner at Cahill, Gordon, and Rindell.

Starting point is 00:01:22 Welcome, Sam. Thanks for having me again, Laura. It's a pleasure to be back. For frequent listeners of Unchained, you will know. that Sam has repeatedly come on the show to discuss the SVF trial, and he's here to discuss the events of this particular week. Sam, I'll have to say at this point from my experience in the courtroom, I continue to feel that the prosecution is winning in a pretty overwhelming way. This week we had Neshaad Singh, the head of engineering. We also had some technical and legal

Starting point is 00:01:49 experts, including the General Council of FTX. And you and I had previously talked about how, at least last week, after the end of the second week, it wasn't totally clear what the defense's strategy was. And I wondered if now after this third week, if you're seeing, you know, anything useful that they can use in their closing or, you know, just your read on how the trial's going for both sides. I would agree with your assessment that this is not going well for SBF. The evidence is utterly overwhelming. I don't think there has been a cohesive theme or narrative to the defense. It is hard for the defense sometimes to have a theme when they are basically only have cross-examination. They haven't put a case on. And we do know from the comments earlier

Starting point is 00:02:37 today in court that there's going to be a break in the trial. The parties are going to come back on October 26th. The government will wrap up their case. And the defense is saying they're going to put a case on. And it's expected that the testimony will last through November 3rd. So it is possible that whatever the defense case is going to be will see it when they put their case on. I don't think they've landed much of anything significant. A smattering here, a smattering there, a question here, a question there for, you know, we'll get into it. But, you know, there was some questioning of Nasad Singh, the former head of engineering at FTX, where, you know, they've but got him to admit that he had a hazy recollection of some of the events in the summer of

Starting point is 00:03:25 2022 that were pretty important to the government's theory of the fraud. Is that going to win the case for the defense? I don't think so. He's not the only government witness. I think that the fact that he didn't remember all the details is not that all that significant. He remembered the important details. There was also, I think, a moment that got some fanfare in the press.

Starting point is 00:03:46 the government put on an FBI forensic accountant this week who testified that the FBI had traced transactions and was basically purporting to show that customer funds from FTX had been used to pay, for example, political donations. And it seemed from cross that some mistakes were made in the analysis. Yeah, mainly one that I remember, but I don't remember if there were others. That's not that uncommon. I don't think it's all that big a deal. The press reported it. They said that the agent's lip was quivering. Okay, fine. A mistake was made. I'm sure they felt bad about it. But this isn't material to the overall arc of the testimony. The overall arc of the testimony, you've got multiple witnesses now confirming that customers were told their funds were theirs, would be segregated. from proprietary assets of the company, that FTX was separate from its trading arm, Alameda.

Starting point is 00:04:51 That Alameda would not have special privileges beyond those of other customers. And in fact, according to multiple witnesses now, they did have all kinds of special privileges. And, you know, it's hard for me to see how the defense is going to overcome it. We do need to see what their case looks like when they put a case on.

Starting point is 00:05:11 And I think the biggest question is, is San Bagman Fried going to testify? Yeah, and we're going to talk about that in a little bit. So I did want to ask, you know, Nishad's testimony seemed to me to take the most aim at Sam's character. For instance, he relayed to meetings in which Sam became extremely angry with him for even bringing up the fact that Alameda owed money to FTCS. And at the time of the discussions, the amount owed was $13 billion. And the most memorable part of the testimony to me was when he described the second meeting where he asked Sam for the plan to fill that hole. And he described what he called physical tells for when Sam is upset.

Starting point is 00:05:52 He'll just quote a little bit of it here. He said, puffed out his chest, had his hands back. He was grinding his finger, closing his eyes, grinding his teeth, tongue in his mouth. And when he opened them to respond, he would sort of glare at me with some intensity. Then he said, I ended up apologizing to him at the end for. asking for the meeting because I could tell it was so unwelcome. A lot more additional emotional moments like that. For instance, he talked about how in the lead up to FTCS collapse, he had felt suicidal and then he remained suicidal for months afterwards. He also talked about things like attempting

Starting point is 00:06:24 to cut spending, but by his telling, it seemed to be sort of like nominally supported by Sam. And he just wondered generally, like how you thought all this kind of pretty charged testimony went over with a jury. To my mind, actually, it almost felt like he was. he was more emotional than Caroline and definitely way more emotional than Gary. Yeah, I mean, I think when I was on a previous time, we talked about how Caroline, when she cried in her testimony, how that is something that will stick to the jury's ribs. And what made her cry, she was testifying about the relief when the fraud was starting to unravel and, you know, just how much of a release it was. because it had been such a burden to keep it secret prior to that, right? So similarly, I think Nishad, as you've pointed out, there are several emotional aspects of his testimony.

Starting point is 00:07:18 There was also, I think he used the words that he had felt betrayed by Sam. He characterized this dynamic. Nishad sort of said the way he comes into this, he grew up with Sam's little brother. So you can sort of see this dynamic, right? Nashad is pals with Gabe's Bankman-Fried, Sam Bankman's younger brother, probably looked up to Sam Bankman-Fried. Then he's given the opportunity to work at Alameda and then FTX, although worry whether that was an opportunity.

Starting point is 00:07:54 But, right, we'll call it an opportunity. And he's, in his eyes, Sam is larger than life. He's older than him, right? He's on a pedestal because he's the big brother, the friend of the big brother. got this huge company. And he said he was intimidated by Sam. And he, unlike some of the other cooperators, it sounds like he was read into the fraud much later. So, you know, Gary and Caroline, I think, were aware of what was going on much earlier in the scheme. And Nishad, for a much longer period of time is just sort of in the dark about what's happening, starts to figure it out

Starting point is 00:08:36 in June of 2022 when they discover that there's this bug in the software that is concealing an $8 billion hole in customer assets that have gone to from FTX to Alameda. Yeah, but just to clarify, he didn't actually really understand what had happened until September, I think. You're right, he kind of got clued into some of the details, but he was still in the dark about what was actually happening. Agreed. September is when he's really starting to get read in.

Starting point is 00:09:07 And I think him describing that he looks up to Sam, he thought this was a good company. Now he's discovering that in reality, they're ripping people off, that he literally is feeling suicidal at some point. These are things that the jury is never going to forget. They will relate to, Nishad, at least some of them. And that begins to make them feel, so part of convicting a person in a

Starting point is 00:09:37 trial, one aspect of it is the evidence you need for the elements. But there's also an aspect of condemnation. The jury has to feel motivated that this is a person who deserves the condemnation of a guilty verdict and the consequences that they know will follow from that. And in some cases, This is what some folks call, some trial lawyers call this jury appeal. Like you can have a case. The U.S. Attorney's Office has cases where somebody commits a technical crime, but a jury isn't going to care about it. And so the government will sometimes not prosecute that case because it has no jury appeal.

Starting point is 00:10:16 You have the facts to meet the elements, but it has no jury appeal. This is the opposite of that. Neshad gives the jury, I mean, he's not the only reason. This is why they also call investors and people who are victims of the. the fraud. But Nashad in some ways presents as a victim, right? I mean, he, he is collateral damage. He thought he was helping to build something. In reality, he was aiding and abetting a major fraud. And he benefited from it and he went along with it. And he's accepting responsibility for that. He's going to have consequences for that. But he does, in a way, present like a victim.

Starting point is 00:10:51 And that is giving you that piece of, okay, we got to condemn this person. Well, one thing that I did want to ask, though, too, is in the cross-examination, the defense definitely went after Nashad's own character a lot harder than they did with the other witnesses, at least in my opinion. Some of the stuff, though, that happened, I didn't fully understand. They were questioning about the quote-unquote loans, which, you know, as he pointed out, because there was never any detailing of, like, him having to pay them back. He didn't even know if they were actually loans or what.

Starting point is 00:11:23 But then also they brought up the fact that he had bought this apartment. on Orcus Island in Washington State that he purchased for $3.7 million in October 2022. So after he knew of the whole, but before the collapse. And, you know, they kept going back to things he had told prosecutors in previous meetings and trying to draw out, you know, inconsistencies with his testimony in court that day. Like, for instance, I guess he had told them that he thought FTX would last for years. And also, in trying to get his loans unwound as it was collapsing, he, like, wanted to do a backdated trade. Oh, and then there was one last thing where they seemed to try to get in a question there about

Starting point is 00:12:01 like a moment when the government seemed frustrated by his proffer, which was like, I guess, part of the negotiations for, you know, getting him this agreement where he would plead guilty for the letter to the judge. So that got objected to and that objection was sustained. So we don't really know anything about it. But I just wondered, first of all, why do you think they went so hard after his character? And do you think any of it landed with the jury? So I think, why they went hard. There's a few reasons, right? One is he is giving this story that not only was I a participant in a fraud and Sam was part of the fraud, but Sam is a bad person. He betrayed me. And so I think some of the, some of that is to show that he's hypocritical, to show that maybe he's

Starting point is 00:12:50 gilding the lily when he says, you know, goes that extra layer. and says Sam betrayed me and I was a babe in the woods taking advantage of, well, you know, while you knew about it, you're buying a multi-million dollar house or getting these loans or whatever, right? There's that aspect of it. Do I think it's going to matter? No. There's too much corroboration. You've got two other witnesses.

Starting point is 00:13:15 You've got documents. We know, I mean, there just really can't be much doubt that what he's telling you about the core facts is true. It's corroborated by multiple other sources. And I expect the government will say in closing, did Nishad Gill the Lilly, were there times when he was trying to get a cooperation agreement where he made a misstatement or made statements that were inconsistent? Perhaps he's a criminal. He pled guilty to that. He told you he's a criminal. We don't ask you to like him. The question is, was he telling the truth about what matter? Now, the defense argument will be, listen, if this guy lied to you about anything, you should not trust. anything else. You don't know what he did or didn't lie about. And you should throw out the whole thing.

Starting point is 00:14:03 That's what their pitch will be. Wait, I'm sorry. The defense is going to say he lied, but about what? That he must be lying. When he says, oh, I was betrayed, this must be a lie because he clearly knew more than he let on, right? Now, in terms of like the government was madded at him one time or there were inconsistent and statements, this is part of the sausage-making process of getting somebody to cooperate.

Starting point is 00:14:32 And the truth is in our system, the jury doesn't get the best look at it. Basically, very frequently, and it's changed over history. There was a time, once upon a time, when prosecutors would not even take notes in the first meeting with somebody who was going to cooperate. Why? Why? Because the person's a criminal, and it's very common that they're not going to tell you the truth, or at least not the full truth, until they have an established relationship of trust with you, until they know and are confident that them sharing and incriminating themselves will benefit them and not hurt them. And so it used to be many, many years ago, it was not uncommon for prosecutors not even to take notes during that first meeting. Today, the modern practice is the agent, the FBI agent, will sit with the prosecutor.

Starting point is 00:15:24 They will question the person who's trying to cooperate in what's called a proffer meeting. And in the proffer meeting, the witness is given what's called a queen for a day or proffer agreement. And the idea is this meeting, they can say things, including things that incriminate themselves. It will not be used against them in their case. and that is so that they can be candid and the government can see if they're telling the truth and their information is valuable in investigating or prosecuting somebody else. And if they're telling the truth, then the government will move to the next phase of, okay, we'll give you a full cooperation agreement, you plead guilty and you testify for us,

Starting point is 00:16:04 and then at sentencing will give you a letter that helps you get leniency. But in the pro for process, it is not uncommon that people will either lie or make misstatements. That can happen for a variety of reasons. It can happen because the person doesn't trust the prosecutor yet. It can happen because the inconsistencies, at least, can happen sometimes if a witness is not well prepared or if they just have a bad memory, right? The government has documents. They have the benefit of a full record. It's like a full archaeological record. Whereas a person coming in who isn't at a company anymore may not have their old emails, may not have a journal, and may not remember every specific detail. But the government

Starting point is 00:16:46 takes notes of this. They turn those notes over to the defense shortly before trial. And here, you saw the defense at least somewhat more effectively than they have in other parts of the trial, make use of that on cross. And we've talked about this on some of the prior episodes I've been on here. You know, I think part of it is this witness is later in the trial, meaning the defense had more time with his material. Shortly before trial, right. Shortly before trial, the government would have given over the witness statements, which are called 3,500 material because they are required to be turnover under Title 18,

Starting point is 00:17:26 U.S. Code, Section 3500. And the early witnesses, the defense doesn't have as much time to read it, pour over it, figure out what they're going to ask. But now they've got a better sense of what the government's doing. They know what matters. They know what plays, what doesn't play. And they've had a couple days, a few weekends, to really pour over it. And so you probably saw a more aggressive cross just because they had more time to do an effective job.

Starting point is 00:17:52 Well, honestly, my theory was that because Gary and Sam used to be so close that Sam, like, didn't want them to go so hard after him. And then also saying like Caroline was his ex-girlfriend, but that, you know, Nishad is like his younger brother's friend. So that's what I thought. But clearly it's probably not. It would be an interesting question, but he's on trial basically for his life. So I don't think he's going to hold any punches. Yeah, and everybody's turned against him. All right.

Starting point is 00:18:23 So in a moment, we're going to talk about the kind of more technical witnesses that appeared after. But first, a quick word from the sponsors who make this show possible. Looking to venture into the world of stablecoins, explore the open source stablecoin studio toolkit on Hedera, whether you're building the name. next big thing in Web 3 or an enterprise banking and payment provider, Stablecoin Studio simplifies stablecoin issuance and management, keeping you at the forefront of on-chain finance. With seamless integration into commercial custody providers and KYC services and built-in proof-of-reserve functionality, Stablecoin Studio streamlines development and time to market. harness the power of stablecoins by visiting hedera.com slash unchained.

Starting point is 00:19:05 Popcorn just made defy way easier with VaultCraft through no-code defy toolkit for building, deploying, and monetizing automated yield strategies in a few clicks. Forget spending months of R&D and capital when you can instantly launch your crypto fund with VaultCraft on any EVM chain. From wallets and institutional service providers to non-DefiDGens, anyone can use ValkCraft to supercharge their crypto portfolios with custom-tailored cross-chain yield strategies. Go to volcraft.io and start building. With Amex Platinum, almost every purchase made with your card can be covered with points, including

Starting point is 00:19:42 new tastes, new fits, and virtually everything in between. That's the powerful backing of Amex. Conditions apply. Back to my conversation with Sam. So one quick question before we actually go into the different witnesses that showed up afterward, I just wondered, why do you think they had all the heaviest hitting witnesses testify first and then finished with the time? technical and legal ones because I've heard people say like it's best to go out with your strongest

Starting point is 00:20:07 witness at the end. Any thoughts on that? Yeah, I mean, I think generally it's good to have a good cooperator at the beginning of the trial to give a narrative that does two things. One, puts all the other evidence in context and two, corroborates your opening statement. You know, you get, the government gets up, they give an opening statement. They say you're going to hear all this stuff, they're basically making a promise about what the evidence will show. And it's powerful somewhat close to that to have somebody say a lot of it is true. And so the jury starts to give you credibility. Okay, the government's telling the truth. What they say is correct. I see when they say something it's right. But you also do, it's good to have a cooperator or a powerful witness towards

Starting point is 00:20:51 the end because for two reasons. One, you want it near closing so that it's in the jury's memory when they're going to hear your arguments in closing and then ultimately deliberate and make a decision. And two, you know, if you think a witness could be banged up on cross, saving them towards the end can give you an advantage depending on how things go in the trial. Sometimes you want to put them early so that the defense has less time to prep it, but sometimes you want to put them at the end when the defense may be busy preparing their closing and doing other things. So there's some element of that to it as well. Why did they do two very important witnesses back to back here, Gary and Caroline Ellison? I don't know. It is odd. What I speculate is there was a

Starting point is 00:21:43 scheduling issue. I speculate that there was some issue where they, for scheduling reasons, you would normally want to have non-cooperators who cannot be impeached aggressively in between cooperating witnesses as a pallet cleanser. Okay. So I now would have definitely talk about this accounting professor from Notre Dame, Peter Easton, who did this financial flows analysis. For me, you know, I got to see all the charts and graphs and everything that accompanied his talk, but it seemed very damning to me. I mean, he was someone who had done Enron and the world, you know, similar analyses for Enron and WorldCom. And, you know, he basically described in detail how the customer funds was spent on, VC real estate and political and charitable donations and even for like specific expenses could say like roughly this percentage, you know, a minimum was spent on this or that. And sometimes it was 100%. So I just wondered what you thought about his testimony. Yeah. So I think it is damning. What he's establishing is a few things, right? So one thing he's establishing, even before you get to,

Starting point is 00:22:55 how is the money spent is that customer, funds must have been used. Whatever they were used on, this was customer money. And that's an element of the fraud. The representation that we have enough assets to cover our customer withdrawals is false if in fact all this money is going out the door, or it's at least part of the way to proving that that statement is false. So that's one aspect of it. And the other thing is, you've heard cooperators say it, right? You've heard Ellison say it. You've heard Gary say it. You've heard Nishad say it. And they've been backed up by some documents. But now you have an independent expert with no stake in the case who says, I looked at the records and this is what they show.

Starting point is 00:23:39 They confirm what those cooperating witnesses told you. I expect the government will lean into that in closing and say, this is one of the ways you know the cooperators are telling the truth. If they were lying, you would expect the records to betray or belie what they're saying. But what they did is these three people who haven't coordinated their stories gave you similar accounts and their accounts line up with what the independent records show as demonstrated by Professor Easton. The other thing is it is not an element of the crime that funds be misappropriated. That is not something the government has to prove, but it gives the case jury appeal, right? it gives it this aspect of, wait a minute, this isn't just a paper loss. You know, they're stealing money.

Starting point is 00:24:29 They are lying and then taking the money and stealing it and using it on this other stuff. In addition, I think it goes to intent and motive, right? Part of what's implied in Professor Easton's testimony is that so much of this money is coming out, it has to be custom money. And therefore, if that's true, if that's the volume, a CEO who was as involved in the details as SBF was must have known that. Right. So it goes to the criminal intent aspect. Yeah. I definitely have just been thinking, like, why was this such a motivating factor for him?

Starting point is 00:25:13 Because Martin Screlli has been doing some tweets where he says, like, Sam did all this just to like make. some VC investments, which it's so confusing. Who knows what was in his mind? But anyway, let's move on to the testimony of Can's son, which happened Thursday, the day before this comes out. This was pretty interesting because, you know, he was the person sort of in charge of legal affairs at FTX, and he did not know anything about what was going on until November 7th. Well, I guess he learned about something in August, but didn't think it was being used, which was the ability for Alameda to go negative. But anyway, I was curious, like, you know, what stuck out to you from his testimony? So I think two things. In terms of, like, the basic elements of the case,

Starting point is 00:26:00 this is the general counsel that's what the second in command lawyer at FTX telling you, he thought, in other words, he was lied to. He was told by Sam and others at the company that customer funds would be, in his words, ring fenced, which is to say that, FTX would not be able to dip into them to do things like fund or loan money to Alameda. And we know from other witnesses that's not true. So it shows you that Sam was lying not just to customers and investors, but his own lawyer. And you heard from Cass Sun that he made representations to regulators, such as the CFTC on behalf of FTC. And that the representations, he was making, he now knows were false. Why did he make false statements? He was being fed lies

Starting point is 00:26:55 to convey to the regulator. That is evidence of intent to defraud, right? That is evidence of a criminal scheme. So, for example, one of the things he said that he misrepresented to the regulators, and now knows was not true, was this concept that he told regulators that Alameda was no different in terms of this self-liquidation feature, in fact, they were not subject to it. This is an example of a privileged or preferential treatment for Alameda, contrary to what investors, regulators, and customers were told. And he also described misrepresentations to investors that FTX and Alamator were separate. And we heard another witness from third point, an asset manager called Third Point,

Starting point is 00:27:43 who connected with that and said, I thought Alameter was separate. We were told that it mattered to me in making an investment. But the other thing about Sun's testimony that I think is very interesting is ordinarily you would expect conversations between the CEO of a company and the company's lawyer to be privileged, to be protected by attorney-client privileged and confidential. I'm not sure the theory of how this was not privileged, but there is a concept in the law known as what's called the crime fraud exception, which is to say when a criminal who is committing an intentional deliberate criminal scheme uses a lawyer unwittingly as a puppet in a fraud,

Starting point is 00:28:29 the communications that the defendant, the criminal, tell the lawyer in furtherance of the fraud are not privileged, even if they thought it might have been at the time. And it looked to me from reading the transcript, the nature of the information that the government was probing here would fall squarely within the crime fraud exception. The government in recent years has been getting much more aggressive about being willing to pierce attorney-client privilege when they can show a crime fraud happened and using lawyers as a weapon against the, the, the, client of that lawyer. In other words, if you lied to your own lawyer, you must have been committing a crime. So it has that aspect to it as well. Yeah, one of the parts of his testimony that really stuck out at me was on the evening of November 7th when they were looking to raise extra money from Apollo. And Apollo had asked them for financial spreadsheets. And

Starting point is 00:29:36 when Kansom saw it, he just could see there was the $7 billion hole. And he kept asking them, how did you guys calculate the spreadsheet? Like, where is this cell populating from? Like, you know, he was like, is there a mistake here? You know, but the point is that afterward, SPF said, hey, I'm going to get in a call with Apollo. Are there any legal justifications for why this money could be missing? And, you know, can walk through the three theoretical ones and why none of them could apply in this situation. And, you know, he said that.

Starting point is 00:30:08 SPF said, yep, yep, to all of them admitting, like, yeah, okay, that doesn't apply, that doesn't apply, that doesn't apply. And at the very end, he said that Sam's response to all that was just very muted. And he was expecting like a bigger response, but SPF just sort of said, got it. And I don't know, just even listening to that, it sort of made me wonder if like at that moment SPF really understood like, oh, wow, like, I don't know if I'm going to get out of this, but clearly we're here at the trial. So maybe it didn't really sink in. And one last thing I wanted to ask about was, well, a couple of things. So first of all, I find it kind of very, very interesting that we're going to have this almost week-long break. And then, yes, okay, we have to finish like the prosecution, but it's, they said it's going to be like an hour and a half or something. And then we're going to start in on the defense. And so I just wonder from the jury's perspective, like to have that long break between hearing the prosecution and then hearing the defense, like does it give an advantage to the defense? It seems like it would to me. But then also, like at this point, you know, what do you think? Oh, because by the way, I wanted to ask also, during Kansan's testimony, they ended up playing a clip from the Good Morning America interview that SPF did with George Stephanopoulos, where George Stephanopoulos really pins him down. He doesn't let him kind of pull the wool over his eyes with like language around. Oh, but you know, we had this margin thing and da da da da da da. It's like he clearly, you know, says no, no, no, but that's only for a certain subset of customers. They have to opt in for that.

Starting point is 00:31:38 that. Like, what about the rest of the customers? And even in the interview, he, like, has this moment where he doesn't really know what to say, and there's, like, a silence. And he sort of seems like he's like, um, so anyway, point is that when that happened in the courtroom and also because the, that reason that he gave was, was one of the three theoretical ones that Kansett said said, said, said, would it work? But he had said it in this interview. And so the juxtaposition of Kansans saying like that it doesn't apply here. And then to see the SVF used it in this interview, it sort of felt to me also because you hear it in his own voice that it gives a preview of what it might be like if he ends up testifying in the case. And frankly, I was a little bit like,

Starting point is 00:32:21 oh my God, if I were SVF right now, I would be feeling like I don't want to testify. But anyway, I was just curious. Like at this point, what do you think? Do you think he's going to testify? Do you think he's not? And yeah, how could all that affect? how the rest of the case goes, including with the break. On the testimony issue, I think he's likely to testify. I think that's just who he is. I think that's, you know, there's a reason he went to trial despite all this evidence. There's a reason that he spoke publicly when he shouldn't have many times before.

Starting point is 00:32:52 I think that he will testify. And I don't really think he has any hope of an acquittal if he doesn't. I still, if I was his lawyer, would encourage him not to testify. I think that he probably is getting convicted either way, and testifying could hurt him very badly, make his situation worse for sentencing purposes. But I think my gut is that he testifies. And you raise a good point about Cass Sun. I forgot, but you're right that one of the important parts of his testimony was going over the terms of service. One of the defense themes in their opening statement was they tried to plant the seed for closing that customers.

Starting point is 00:33:33 Customers must have consented to the use of their funds for loans and other things, rehypification of their assets. And Casson was very clear. He wrote the terms that were updated and used for a key period. They were crystal clear that the funds could not be used that way, which means customers were being told this. And another witness who testified was a customer who said they didn't read the terms, but that was that was their. understanding that their funds would not be loaned out, wouldn't be re-hypothicated. So you see there the government is closing off this defense. They're giving themselves the ammunition to say this defense has no holds no water. Yeah. All right. Well, I guess we'll have to see what happens.

Starting point is 00:34:21 They are anticipating that they'll still do like a weak-ish defense. So yeah, we'll see what happens. Anyway, Sam, this has been a pleasure. Thank you so much for coming on on and change. Thank you very much for having me. Don't forget. Next up is the weekly news recap. Today presented by veteran crypto reporter and Columbia University Night Budget Fellow Michael Del Castillo. Stick around for this week in crypto after this short break. Join over 80 million people using crypto.com, one of the easiest places to buy, trade, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly,

Starting point is 00:35:01 plus 100% rebates for your Netflix and Spotify subscriptions and zero annual fees. Download the crypto.com app now and get $25 with the code Laura. Link in the description. Hello and welcome to this week's Crypto Roundup. From a bug lawsuit and false Bitcoin ETF approval rumors to the crypto community's backlash against Uniswap and Reddit and what appears to be a huge victory for Ripple, there was no shortage of drama this week. I'm Michael Del Castillo, a Knight Badget Fellow at Columbia University, and this is your weekly crypto recap. In a sweeping legal action, New York Attorney

Starting point is 00:35:41 General Letitia James has filed a lawsuit against cryptocurrency firms Gemini, Genesis Global Capital, and its parent company Digital Currency Group. The lawsuit alleges that these companies defrauded more than 230,000 investors, including at least 29,000 New Yorkers out of over $1 billion. The core of the case revolves around an investment called Gemini Earn, which was promoted as a low-risk venture. However, internal analysis revealed that Genesis was financially unstable, a fact that was not disclosed to investors. On Thursday, New York Attorney General Letitia James alleged in a statement that, quote, these cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses. And it was middle class investors who suffered as a result. The lawsuit also

Starting point is 00:36:33 implicates Soichiro Michael Morrow, former CEO of Genesis, and Barry Silbert, CEO of Digital Currency Group, accusing them of attempting to conceal over $1.1 billion in losses. The legal action being pursued at the same time, James is prosecuting former U.S. President Donald Trump for alleged fraud, seeks to ban all three companies from the financial investment industry in New York and is asking for restitution for defrauded investors. The U.S. Securities and Exchange Commission has dismissed all allegations against Ripple CEO Brad Garlinghouse and executive chairman Chris Larson. The company said in his statement on Thursday afternoon. This marks the third consecutive victory for Ripple following a July 223 ruling that the

Starting point is 00:37:20 programmatic sales of XRP tokens to retail investors through exchanges are not security transactions. The SEC had previously attempted an appeal, which was also denied. While many saw this as bullish for Ripple, crypto lawyer Catherine Kirkpatrick offered some caution. She wrote, quote, The SEC has voluntarily dismissed the case against Ripple execs. This means they can proceed to appeal the Ripple decision much sooner. Otherwise, they would have had to wait until the inclusion of that trial in late spring. The crypto community experienced a roller coaster week beginning with heightened optimism last Friday. The U.S. Securities and Exchange Commission chose not to appeal a court ruling on Grayscale's Bitcoin Trust conversion to a spot

Starting point is 00:38:06 ETF, fueling investor confidence. Bitcoin saw an immediate reaction narrowing Grayscale Bitcoin Trust discount to 12.5% according to Y charts, meaning there are more shares in the market than people who wanted to buy them. That's a far cry from the 43% premium GBT was trading at in July 2019, also according to Whitechards, but a 74% increase from the all-time low last December of a 49% discount. However, the jubilins was short-lived. Early Monday, a tweet from NewsSight Coin Telegraph, falsely claimed that BlackRock's Bitcoin ETF had received SEC approval. The misinformation propelled Bitcoin from $27,900 to over $30,000 within minutes, only to revert to $28,103.80 after the tweet was first edited to read reportedly and then deleted altogether.

Starting point is 00:39:05 In the meantime, $136 million worth of short contracts liquidated as the price rose, according to data from Coinglass, and another $51 million was lost when it dropped. Coin Telegraph later issued an apology, claiming an internal investigation was underway, and that their standard procedure for verifying sources was not followed. The false news led to some on social media to wonder if the market may have been intentionally manipulated. On Monday, Uniswap Labs, developer of the open source Uniswop Protocol, announced a 0.15% swap fee on the user interface it built for the Uniswop marketplace, including those on trading pairs, ETH, USDC, USDT, and Rapt ETH, or WETH, among others.

Starting point is 00:39:55 Founder Hayden Adams wrote on social media that the fee aims to, quote, continue to research, develop, build, ship, improve, and expand crypto and defy, end quote, and is separate, importantly, from the UNISWAT protocol fee governed by unit token holders. The fee applies only to trades made through Uniswap labs, web, and mobile interfaces, which account for about 35 to 40% of all trades on the platform. Notably, the move comes after a failed governance vote earlier this year to activate fees to use the Uniswap protocol itself. The Unitoken holders were promised governance rights and the ability to propose and vote on code changes to the Unisop protocol that now ties together a network of three. 300 applications built on the open source software. Importantly, each app is able to monetize how its developers see fit.

Starting point is 00:40:53 Despite their role in governing this ecosystem, Unitoken holders won't benefit from the new revenue stream. The gray area that arises from Uniswap labs both building the protocol itself and the largest app on the protocol has sparked a heated debate within the crypto community. supporters like AJ Warner, chief strategy officer at Off Chain Labs, commend the fee as a positive step for Uniswop's continued development. Critics, however, argue that the fee neglects Unit token holders who originally acquired their tokens through the liquidity provision,

Starting point is 00:41:28 purchase on exchanges, or via AirDrops. Investor Adam Crockeran went so far as to joke that thanks to the shift and focus on rewarding app users, the 24th largest token by market cap, unit token with a market cap of almost $3 billion should now be featured in the meme coin section of coin gecko. Speaking of meme coins, this week, Reddit announced the discontinuation of its community points program that sought to help hosts of Reddit communities called subreddits create their own tokens. The decision caused immediate market repercussions. The Ethereum-based

Starting point is 00:42:07 tokens Moon and Brick, specific to the R. Cryptocurrency Subreddit and our Fortnite BR subreddit, saw their values plummet by 84% and 40% respectively. The abrupt end to the Community Points program has left many questioning the platform's commitment to its user base. The decision has been met with strong backlash from the Reddit community, with users expressing sentiments like, quote, a rugpole is not taken lightly, end quote, and quote, and quote, You guys crushed thousands of people's dreams and fortune within seconds. This week, the crypto industry experienced a concerted effort to combat illicit activities. Tether, the issuer of the world's largest stable coin, USDT, froze 32 addresses linked to

Starting point is 00:42:56 suspicious activities in Israel and Ukraine, containing around $870,11818. $1, newly appointed Tether CEO and longtime figurehead Palo Arduino wrote in a blog post on the company's site, quote, cryptocurrency is a powerful tool, but it is not a tool for crime. As reports indicate that Hamas may have raised millions through crypto ahead of the attacks in Israel, U.S. Senator Elizabeth Warren joined over 100 lawmakers in sending a letter to the administration of U.S. President Joe Biden, expressing concern over crypto-financed terrorism. The letter urged, quote, strong action to thoroughly address crypto-elicit finance risks, end quote. The U.S. Treasury also imposed sanctions on Gaza-based crypto businesses for alleged support to Hamas, according to a Coin Dusk report.

Starting point is 00:43:49 FTX bankruptcy estate put forward a significant update in its ongoing Chapter 11 case. According to a court filing dated October 16, FTX aims to pay out an $8.9 billion, quote, shortfall claim, end quote, to FTX.com customers, and $166 million to FtX. US customers as early as the second quarter of next year. John J. Ray III, CEO and chief restructuring officer at the FTX debtors, described the settlement as a, quote, major milestone, end quote, adding that it, quote, created enormous value from a situation that easily could have been a near total loss for customers, end quote. The plan proposed to divide FTX's assets into three pools, one for FTX.com customers, another for FTX.U.S. customers and a general pool for other assets. Customers who withdrew over $250,000 within nine days before FTX's bankruptcy declaration, will see a 15% reduction in their claim value. While the

Starting point is 00:44:55 plan estimates that both priority and non-priority claimants could receive over 90% of the distributal value, it also notes that customers will not be fully reimbursed, with FTX.com customers expected to face a greater percentage loss. FtX's founding CEO Sam Bankman-Freed last year told Forbes he received, quote, bad legal advice when he filed for the bankruptcy. And as we learn more about Bankman Fried's failed management strategy through an ongoing criminal trial, this latest development does beg the question. If a company is capable of paying back 90% of its debts, did it need to file for bankruptcy at all? The official filing for court approval is expected by December 16. In related news, the FTX estate staked $122 million of Solana tokens, countering concerns of potential

Starting point is 00:45:45 liquidation, and impacting the asset's market value. Binance U.S. and now significant changes affecting its American users in an email posted on social media purportedly from Binance. The platform will no longer allow direct withdrawals of U.S. dollars, but perhaps more notably, the funds aren't insured by the Federal Deposit Insurance Corporation, or FDIC. While news coverage of the change to the terms of service has claimed the funds are no longer insured, a closer read simply says they aren't insured, leaving the door open to the possibility they never were. In the wake of Voyager Digital getting in trouble for falsely claiming its customers' assets were insured, it's worth taking a closer look at this now-deleted 2019 post from Binance and to a seemingly nuanced change to the terms of service. Across the pond, Binance has temporarily halted accepting new customers in the United Kingdom. The Financial Conduct Authority blocked Binance's compliance plan, which involve partnering with the FCAA authorized firm Rebuildingsociety.com.

Starting point is 00:46:57 Existing UK customers will maintain access to current services, but won't receive new ones during this pause. And that's all this week. Thanks so much for joining us today. Stay tuned to Unchained for unparallel coverage of the Sam Bankman-Fried criminal trial. Laura is in the courtroom delivering firsthand observations and in-depth analysis of this pivotal case. With daily podcasts, videos, and written updates, Unchained is your go-to source for all developments that could redefine the crypto landscape. Visit Unchained Crypto.com and never miss an update.

Starting point is 00:47:34 Unchained is produced by Laura Schin, with help from Kevin Fuchs, Matt Pilchard, Juan Aronovich, Megan Gavis, Shawshank, and Margaret Curia. The weekly recap was written by Juan Aronovich and edited by myself, Michael Dolkistio. Thanks so much for listening. and looking forward to chatting with you next week. Unchained is now a part of the CoinDesk Podcast Network. For the latest in digital assets, check out markets daily seven days a week with new host Noel Acheson.

Starting point is 00:48:07 Follow the CoinDesk Podcast Network for some of the best shows in crypto.

Unchained - Another Bad Week for Sam Bankman-Fried in His Criminal Trial - Ep. 558

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.