Unchained - Did Sam Bankman-Fried Have Intent to Defraud FTX Investors? - Ep. 553

Episode Date: October 6, 2023

The blockbuster trial of Sam Bankman-Fried wrapped up its third day, with multiple witnesses, including former FTX software developer Adam Yedidia, Paradigm co-founder Matt Huang, and FTX cofounder Gary Wang, taking the witness stand. Joshua Ashley Klayman, Senior Counsel, U.S. Head of FinTech and Head of Blockchain & Digital Assets at Linklaters, discusses the main takeaways from the trial so far, the surprising testimonies given by former close associates of SBF, and how the prosecution and defense plan to paint a picture of who SBF is to the jury. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: What Josh's biggest takeaways from the trial are so far Why Josh felt that the jury had “a lot to take in” in order to understand the basics of the case Whether the different backgrounds of the jury will affect the outcome of the trial Why the prosecution is arguing that regardless of the technical aspects of the case, the key issue is fraud How the defense plans to argue that SBF did not intend to defraud investors Why the selection of the first witness, a former FTX customer, is an "interesting" choice, according to Josh What is the [e-mail] account and how it contributed to FTX’s undoing How they discovered the $8 billion hole in the FTX balance sheet and SBF's reaction at the time What an email revealed about the lack of corporate governance in FTX and Alameda Thank you to our sponsors! Crypto.com Hedera Popcorn Network Guest Joshua Ashley Klayman, Senior Counsel, U.S. Head of FinTech and Head of Blockchain & Digital Assets at Linklaters Previous appearances on Unchained: Gary Gensler vs. Crypto: What Will the SEC Attack Next? How Crypto And Blockchain Technology Should Be Regulated Links Previous coverage by Unchained on the trial of Sam Bankman-Fried: SBF Trial, Day 1: Possible Witnesses Include FTX Insiders, Big Names in Crypto, and SBF’s Family SBF Trial, Day 2: DOJ Says Sam Bankman-Fried ‘Lied’ While Defense Claims His Actions Were ‘Reasonable’ Here’s How Sam Bankman-Fried’s High-Stakes Trial Could Play Out SBF Trial: How Sam Bankman-Fried’s Lawyers Might Try and Win His Case The High-Stakes Trial of Sam Bankman-Fried Begins: What to Expect In the SBF Case, Elite Corruption Is What’s Really on Trial Learn more about your ad choices. Visit megaphone.fm/adchoices

But I think for the prosecution, I mean, what they're trying to show is, no matter that it's a highly technical area, the allegations are this is simple fraud, right? This is untruths. This is misstatements. And this is, you know, inducing people to trust or to invest or do other things on false, you know, pretences. Hi, everyone. Welcome to Unchained. You're no hype resource for all things cryptic. I'm your host Laura Shin, author of The Cryptopians. I started covering crypto eight years ago and as the senior editor of Forbes was the first Main Tree Meterporter to cover cryptocurrency full-time. This is the October 6th, 2023 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 unchained. Shape tomorrow today. Vault craft by popcorn is your no-code defy toolkit for building a 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 Joshua Clayman, Senior Council, U.S. head of fintech and head of blockchain

and digital assets at Linklators. Welcome, Josh. Thanks, Laura. It's great to be here. This week saw the beginning of the criminal trial of the United States versus Sam Pinkman-Fried. We are recording on Thursday afternoon and you and I were together in the courtroom, or at least in the overflow room, I guess. So what are your biggest takeaways from the trial so far? Wow. Well, that was a lot of information. I mean, that's one of the big things that comes to mind. So one of the takeaways, and I'll say nothing is legal advice, investment advice, nothing like that, just personal views only, as usual. but there was so much to hear and so much detail to understand.

Now, one of my takeaways was the judge, in his own respectful way, you know, was saying, okay, this is too much repetition. Let's not keep going over the same thing. He said that on several occasions. But as I was sitting there personally, hearing about all of these sorts of things from, you know, depositing your stable coins, your fiat and the methods for that or your crypto, things like that, all the way to, okay, VC investments and due diligence and financial statements and coding and developers and traders and all the sorts of things. I kept thinking to

myself, you know, we've been in this space a long time. You know, for people who may not have any technical background or legal background or have not been in the space as, as you have, right, as like reading journalists and things like that, this is a lot to take in. And so that was one of my big takeaways was that it was information. What is the saying? Like drinking from a fire hose. And I was trying to, I mean, we talked about this earlier. My hand was so sore from taking furious notes, you know, and I just kept wondering, you know, how much of this is sinking in and what will the jury remember. Yeah. And so I happen to be there during the jury deselection. as one of my guests called it recently,

because even though it's typically called jury selection, he's right. It's actually a process of deselecting people. And what I ended up noting was the different professional backgrounds of the jury, our physician's assistant, social worker, Metro North train conductor, librarian, United States Postal Service Vehicle Maintenance worker, special ed teacher, a nurse. There was a Ukrainian woman who worked in advertising. And then there was a retired investment banker.

He's actually born in Hong Kong. and he's retired now. But, you know, it was also, by the way, I think three quarters women and one fourth men. So like given, you know, this kind of, you know, background basically of the jury, what are you, what are your thoughts on, you know, how this is going over with them or how this could affect the trial? Well, one way I think it has affected the trial is we went over in painstaking detail, step by step, watching videos of, again, how to you know, deposit money, how to withdraw money, all these things, step onto FTCS. Yes, as though you're actually doing it. We listen to the video. And so I think that was done

to get to level set, really, to bring everyone up so that when they start talking about, okay, well, what was the balance in the account? Right. We had the tutorial of how to pretty much create our account, right, and what to do. And things like, okay, you're going to send wire instructions to this named beneficiary, you've got to get it right. And then, lo and behold, that named beneficiary keeps coming up again and again because it's actually an account owned by Alameda. Right. So I think that's part of it, just the building blocks, the constant building blocks.

But I think for the prosecution, I mean, what they're trying to show is no matter that it's a highly technical area, the allegations are this is simple fraud, right? This is untruths. This is misstatements. And this is, you know, inducing people to trust or to invest or do other things on false, you know, pretences. And I think, so that is the message on the one hand. From the other side, you know, the defense, and certainly we saw this with the opening statements, but also throughout in some of the cross examinations today, which I'm sure we'll talk about, but trying to say, like, look, this case is based on hindsight. just because FTC1 bankrupt, just because all these things happened,

that doesn't mean that there was fraud involved. That doesn't mean that there was conspiracy because guess what? The whole digital asset space was going through crypto winter. And we had all of these other events. So maybe we'll go into some of the statements about, you know, bulletproof and things like that that popped up. But there were some notable quotes and some of them were pretty surprising today. Yeah, so just, so I know you weren't there the day that they gave the opening statements, you know, which was Wednesday.

But I know you did read, yeah, a little transcript that I was able to send you. So just from that, like, what was your take on the opening statements of the prosecution and the defense? I think, I mean, as I kind of said, like, they're trying to simplify it, right? They're trying to say like, look, SBF was larger than life. He was living in a $30 plus million penthouse, right? You're talking about the prosecution. Yes, exactly. Sorry.

The prosecution was trying to show this, you know, this is a person, you know, this being broadcast into your living room, you know, the person who positioned himself as being, you know, the face of crypto and you can trust him and the adult in the room. And yet in the prosecution's view, it was all a lie. So trying to give that kind of simple message without going into so much detail. For the defense, as I mentioned, a lot of it was saying this is looking, this is a backwards looking thing, but also saying like, look at who is testifying. Look at who these alleged co-conspirators are.

They're people who got deals, right? And you need to think, jury, about why they might be testifying in a certain way. And I think another thing was, and this has been something that the defense has been trying to show is, look, there was no intent. Like, there was no, there was no fraud. And there was no fraud also because there was no intent to defraud, right? Like, the things that are being alleged by the prosecution, the defendant thought were legal. For example, loans from FTX to Alameda, things like that, where there was reliance upon other people who were more knowledgeable in that area. So I think that's what I really took away from both of those, the opening statements.

They were both compassionate, of course. Yeah, and just one thing that I wanted to clarify, because I saw some of the other media accounts didn't have this nuance, but about whether or not there was ever a plea offer to SPF. I saw some of the other media were saying that the government never offered a plea deal. However, there was a nuance there, so it's not quite accurate. Basically, at the beginning, government said, we would like to put on the record kind of like what happened with a potential plea deal. And they said that basically shortly after SPF was charged, the prosecution did raise the possibility of plea discussions with the defense and the defense refused. And so therefore, no discussions ensued, which is why there was never a plea offer that was made. So it's really,

it really sounds like Sam was the one who decided, no, I'm not going to do a plea deal. I'm pleading not guilty. So it really is more his decision than it was the government's, at least from their recounting of it. That is what I took away. Let's now just jump to the first witness, which was a customer of FTX. He said that he had lost, like I think because he was a British, well, he's actually Parisian, but he lives in London. And so all of his, I think, or not all literally, but some, his account balance was likely in British Pamela. and converted, I think it was like between $140 and $150,000 that he lost. And he cited things like the fact that Sam had tweeted in the days leading up to the collapse of

FDX that, you know, FTCS assets were safe, customer assets were safe. And so he didn't try to even attempt to pull his money out until November 8th, which was, of course, the day that its insolvency became apparent. So I wondered what your thought was about the selection of this person as the first witness. So I thought it was an interesting choice. Part of the reason I think it's an interesting choice is that today, and I'm sure we'll go into this as well, we talked about, or I wasn't doing any talking. None of us were doing and talking. We're listening, right? But some of the testimonies centered on what kinds of efforts and methods were implemented by FTX to exclude U.S. customers. Right. So I thought it was interesting that they have someone, whom the defense established in cross-examination had never met SBF, had never emailed him, had no contact with him, and was not a U.S. person, right, or a U.S. resident. So I think it is an interesting choice because he, in fact, appears to have lost money.

He could speak very saying he relied upon Giselle and others, right? And feeling confident that because these investment firms, rather, BCs and others had invested hundreds of millions of dollars that they must have done their due diligence. So I think it was interesting to hear for the jury to think about what someone might have had in mind, why they might have trusted FTX. At the same time, I do think, and I don't know how much the jury is, how much this is being. communicated to the jury or how much the jury is taking this in. But if the people who, if the people who are harmed that are being shown are outside the U.S. or they are multinational companies that have invested from vehicles outside of the U.S., query whether that will matter to the jury, right? Maybe it won't because these are people who are harmed. Certainly

alleged wrongdoing is there. But it's just really interesting. to meet in the context of today's KYC, AML, geo-blocking sort of discussion about methods to keep U.S. residents and those located in the U.S. outside of the customer base for FTX. What I also thought was interesting is that my recollection is that the witness had described, and I wasn't there for the testimony, but just my recollection based on what I read, was that the witness had said something like it was an unregulated industry. And on cross, it was very interesting because the defense had said, well, you were able to invest in this because it was unregulated. Now, holding aside whether it's regulated or unregulated from a legal perspective, but what essentially the defense had said was,

look, if it had been regulated, if it had been, then you would have had to have reported it, reported those investments to your firm. Yeah. And just to clarify for listeners, it was because he was a commodities, was it trader? I believe so, yeah. Yeah. And he traded Coco. And so I guess if he was to invest in anything regulated, he would need to report it to his employer. But because crypto fell outside of, you know, whatever the existing rules were, then he didn't have to report that. And there was another exchange where the defense, I believe, said something like, you know, you knew that that crypto was risky, that investments in crypto were risky? And then were you relying upon, you know, these folks when you were investing crypto? And so the witness, Mr. Juilliard, I believe,

he basically said, well, no, I was relying in order to use FTX, right? So that kind of a distinction. But yeah, I think it's interesting that, and I'm sure litigators out there, I'm not a litigator, full disclosure, but I'm sure folks may have a reason why he was the best opening witness, but it's interesting to me that the prosecution didn't call a U.S. resident or U.S. person who was harmed. So I wonder why. Yeah. All right. So in a moment, we're going to talk about the more heavy-hitting witnesses that testified later on Wednesday and then through Thursday. But first, a quick word from the sponsors who make this show possible. Looking to venture into the world of Staplecoins, explore the open-source Stablecoin Studio toolkit on Hedera. Whether you're building

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Canada Shore. New original series, now streaming on Paramount Plus. Back to my conversation with Josh. So the second witness was a longtime friend of SBFs, Adam Yadiddea, and they met each other at MIT, and Adam later became a soft. for engineer at FTX. He also, I think, spent a short time as an intern at Alameda. And he talked about the fiat at FTX.com account, which it was discovered, had a bug. Tell us what happened here and what your takeaways were about this incident and why they brought it up. Sure. So it was,

this came about after we had the building block videos saying like, here's your balance. Here's how you get your money into your account, right? And so lo and behold, as we're going through all this, we don't quite realize that this one account is owned by, that is the beneficiary account, is owned by Alameda. Why does this matter? Well, we find out later. But at the time, when we're just watching the videos, you know, we say, okay, customers putting their money in there, it's going to update their balance. Great. And it turns out that actually that was what was being done, generally speaking in terms of updating the balance, and it was being done manually by a settlement team. But apparently, due, at least as was testified, due to the tremendous growth of FTX and the customer base and the deposits, the settlement team was getting overwhelmed.

So SBF at one point requested of Mr. Edidia that he create code that would allow the automation of these deposits. Now, he created that, and I should step back for a moment. So the account held by Alameda was held at Silvergate Bank, at Silvergate. And so he created API, right, to have the Silvergate and FTX computer systems talk to each other, right? So it could be an automated update. What he didn't realize when he was creating this code, which evidently everyone was extremely busy when working on these things, was that there was a bug. And let me just stop. I think I should stop here to say why initially this account was in the name of Alameda. It was in the name of Alameda research because FTX was having trouble getting a bank account.

And we later learned in later testimony that actually Alameda Research allegedly was named Alameda Research. We learned in Gary Wong's testimony to have banks not realize that there was involvement with crypto and trading. I think there was, we can go into that in a little bit. But basically, so they were using this bank account. And the idea was that when the money came in, it was the customer money was going into this account held at Alameda. And there was an account in the internal, you know, workings database of FTCX that was called Fiat at FTX.

And so what would happen is when the balance went into the Alameda account, for every dollar that balance that showed up on the customers. So a customer would send him money. it would appear in the balance on the screen for the customer's account. Many I'm sure have used this for FDX in the past, so probably no, but we just saw it on the screen today. So it would go up. But then this account at Fiat at FTCS would show a negative number, right? Because it would be a liability of Alameda to the FTCS customers.

And so what this bug did, we still don't know exactly how it went in there, but it was some kind of We presume error. It actually didn't show that when money was withdrawn, that number should have gone up. It should have become less negative because the liabilities from Alameda to the FTX customers should have lessened. So it would be less negative of the number.

But the bug actually didn't update. So when these automated changes occurred, that never updated. And what we learned actually was that I believe, and I'm just trying to look, quickly to see if I can pull it out because I have way too many notes for this. When they first discovered the bug, there was a 500 million. So six months after the automated situation was created, it's not a situation, but

you know, once it was created, it was at 500 million. It overstated the liability. So it actually looked like Alameda owed more to FTX U.S customer. I'm not FTCS, just FTX customers. all the side of FTX than it did. So it actually looked worse than it was. But by the time, the witness actually fixed this bug later, six months later, the bug had overstated the liabilities by $8 billion.

So it looked at the time like Alameda owed $16 billion to FTC's customers. Now, interestingly, we learned. that there was a, the bug was fixed. A report was created and allegedly was sent via disappearing signal message to the defendant. And the report did say there was an $8 billion overstatement, but it didn't say, hey, guess what? Alameda still owes after the bugs fixed, $8 billion to customers. Are you saying that Adam didn't relay that to anybody? Because I think he did.

Oh, he, yes. Yeah, he did. He said there's an $8 billion hole. Alameda owes $8 billion to FTX. Exactly. And then there was a conversation. Exactly. And actually a lot of time, yes, he absolutely did say that. It was just brought out by the defense that that wasn't in the report that.

Right. Okay. The remainder. But yes. So the prosecution and the defenses came up in both instances was focused. We even saw a picture of this paddle tennis court, you know, in where the, they had this discussion where basically, I guess after discovering that there was this $8 billion owed, Adam Yidditya, he was concerned because as he said, it was like an extremely, you know, large amount.

He said basically, are we, are we okay, right? About about this $8 billion to which it was reported that SBAF said, well, we were. We were bulletproof last year. We were bulletproof last year. bulletproof this year. Not sure that we're bulletproof this year. And it was later phrased by what it was refraised in other tests when he was later phrased as we're not bulletproof anymore. And so Adam Yudidia asked SPF how long until we're bulletproof again. And SPF reportedly said six months to three years he thought. And so this, you know, they made a lot of, a lot of detail about this, you know,

and the demeanor of SBF and that he seemed concerned and that Adam, who had known him for many, many years, said it didn't seem like his normal demeanor. Now, later on, what's really interesting is that the defense revisited this and said, you know what? Do you really know? Do we really know what bulletproof meant? Could it have meant? Like, look, we had the collapse of Voyager. We had three arrows capital. We had all this stuff going on. crypto lenders were in distress, could that have meant, like, could anyone have been bulletproof? I'm simplifying this because there were like many, many objections that were sustained and things like that. Yeah, I think that was objected and sustained. Yeah, exactly.

Yeah. But there were a lot of things like that where they were trying to plant that seed. And then on redirect, this was brought up again. And the prosecution had, Adam, make clear that actually, no, this was, this was, this was right after I asked specifically about the $8 billion. And so there were a number of things like that and a number of like really surprised statements. There's so much to talk about. Like I don't even.

So let's skip to Gary Wong because he's the co-founder and CTO of or former of FTC. And I was really surprised by one particular thing in the beginning, which was literally in the first like, I don't know, one or two minutes of his testimony. the presser Keter said, did you commit financial crime? And he basically just right out of the gate said, yes, wire fraud, security's fraud, and commodities fraud. And then I did get one quote, which was, he elaborated and he said, we gave special privileges to Alameda research to allow it to withdraw unlimited funds from the platform and lied about it to the public. So, you know, that just really set the tone for his testimony. Talk a little bit about what your main takeaways were about, Gary Wong's testimony. So one was his demeanor. He seemed kind of happy. I mean, I don't know him,

but it didn't seem like he was like, oh, like, this is horrible that I'm up here. I mean, when he had to identify the defendant, he was standing up and looking, you know, and I just think it was, that was surprising to see just his demeanor was, in my view, quite calm unless he was projecting something otherwise. I think some of the takeaways, like you said, the preferential treatment, he emphasized, you know, it was written into the code. And when he talked about the different kinds of preferential treatment there were, he mentioned, for example, they had the ability to make unlimited transfers and withdrawals regardless of what was in the Alameda bank account, so they could have a negative balance. And they also said, he said, by the time of the FTX bankruptcy,

see, Alameda had withdrawn $8 billion, right? There's that number again. And then with a line of credit, this was another thing in terms of the preferential treatment. So I was asked, you know, what would a normal line of credit be for a market maker? And he answered, it would be in the single or to double digits of millions, right, for a line of credit. And what was Alameda's line of credit? 65 billion. Okay.

And then also, so Alameda didn't need to post collateral. Evidently, Alameda had slightly the ability to trade slightly faster than other market makers. And yeah, there was just really interesting things. And of course, he said the advantages were not disclosed to the public. Yeah. Yeah. And you talked about they could even see into the order books, I think, a little bit to get ahead of people for trading. Yeah.

Actually, one other thing, I mean, just, I mean, talk about drama because Gary, Gary actually spoke rather quickly, I found. Yes. And so this point about the $65 billion line of credit versus for the other market makers, initially what I heard was that Alameda had a $65 billion credit and the other market makers had lines of credit that were in the single digit to double digit billions. That's what I thought he said. And so they have, yeah. And I remember thinking, wow, like, like, that's crazy. But then when it got clarified, I was like, oh, okay, that makes a lot more sense because I was like, why would you just allow?

Anyway, so the point is, yeah, but then it became, you know, I remember writing in my notes, like, wow, in all capital letters when it got clarified what that really meant. So one quick thing I wanted to do also because I totally forgot to mention this about Adam Yuditia. But the final point, so basically there was the cross-examination. and then the prosecutors got to go again. And, you know, because I think the cross-examination was like, hey, you found out in June that Alameda owed $8 billion to FDX.

Why didn't you leave them? And so then when the prosecution went back, he revealed that the reason that he finally resigned in November was that because he found out that Alameda had used FTCS customer funds to pay back its lenders. And back in June, he had thought Alameda had. the money to pay FTCS customers, but upon realizing that they had to use the FTCS customer money to pay their own lenders, that's when he realized they didn't have any money. And so that was why he didn't leave right away because he thought they could still, he thought they had the ability to pay it back,

but they just hadn't they had borrowed it. And then he realized, oh, they don't have the money. So any last thoughts that you want to make? And we, you know, we can throw in anything about Matt Wong here as well, if you want. Sure. So there were, there were, God, there were so many interesting points of the day. But one of the things I thought was really a strange choice was that on multiple occasions, the defense counsel for SBF was trying to get Adam to agree that FTCS was like the New York Stock Exchange. And given, I realize this is not part of the case here, because we're not questioning whether it's securities or like what these mechanisms are. But I just thought that was a really interesting choice to, given the backdrop of, you know,

of market structure and other types of conversations that are going on to continue to draw this distinction or this comparison to the New York Stock Exchange. I think also the witnesses today struck me as, I mean, I'm not a juror, but they struck me as really credible. I mean, even in one instance where Adam Yadiddea apparently misspoke during the first day of his testimony when he said he had not received a subpoena, when he had the chance to correct that, he did. And he said, I'm really sorry. Right. And it was, it was credible. And frankly, the way, I don't know if it's because he's a developer or he just is a really naturally great witness, but he was really parsing the answers to the questions, but it didn't come across, at least to me, as though he was trying to be difficult. It literally seemed like that was his

personality and he was trying to, you know, give the exact right answer. And I think that, you know, he struck me as a credible, a credible witness. He did have a pretty shocking statement that was, stricken from the record, so I don't even know if I should mention it what it was. But it related to whether, you know, what, why did he change his view about FTX? So I'll just hold aside with that same. No, no, no. I think you and I could discuss it. Okay.

But yeah, like the jury can't know it. But. Oh, I guess. That's true. Right. So when, when during redirect, after, because the defense had tried to say like, okay, so really, after having a conversation with this other trader. about a conversation that she wasn't even at about, you know, the use of customer funds. That's when you decided to quit, right?

And not when you found out there was $8 billion owed. And that's when it went into the part that you were talking about, Laura, where he said, well, I thought they were still available, right? Yeah. He was later asked by the prosecution, you know, why his opinion of FTCS changed? And because he had thought it was, you know, a great company. and he said, FTX defrauded all of its customers. And of course, the prosecution said something, we weren't aware that that was going to be his answer.

Like, we can strike that from the testimony. But, I mean, it was really quite heartfelt when he said it, it appeared to be. And so that was one of the shocking points. I think with respect to Matt Wong, I think he was very, in my view, very well prepared. It was really interesting that they had identified as risks, some of the very things that are coming out now about the relationship, the interconnectedness between FTX and Alameda and that he allegedly had received assurances from SBF and others that that relationship would be moving apart more, right? Yeah, there was a whole email that paradigm sent saying we have concerns about the relationship between Alameda and FTX and, you know, talked about lack of corporate governance at FTX. there were issues around, yeah, whether or not different investors could have a board seat, there wasn't a board, all those kind of like just corporate governance standards were discussed

in an email that they showed to the jury. Yeah. And actually, I have, I wrote down what was in that. Do you want me to read it? Sure. Okay. Okay. Yeah.

So what was identified, it said governance and because it was a bullet. And it said, as we understand, FTCS is effectively owned less controlled by Sam, lacking more traditional corporate governance model rights, etc. One example where this can negatively manifest with crypto companies is through unintended value leakage via FTT, Alameda, or some other mechanism. Like you, we place asterisk, heavy asterisk emphasis on alignment. As a shareholder, we'd want confidence of the value FCX creates accrues directly to equity holders. We're not suggesting that this is.

the case today, just that candidly, we aren't sure how to think about it yet. So these concerns were raised, and I think it was very, it was very compelling that ultimately, I believe it was, how much was the investment? 278 million was the total investment in multiple rounds and that it is now worth zero. And oh, you know what? Just one other thing about Adam Yadiddea for a minute. You know, we heard about how he had, you know, he received a salary and then he got a bonus and then he had a, obviously he still is a salary, but then he got larger bonus and he was investing it back into FTX, right? And that then at the end of the day, you know, it's worthless. And now he is teaching high school math. He said that he was teaching two sections of geometry, one section of

algebra and one section of AP statistics. And I wonder how that hits home with the jury, right? That might be much more relatable. And I think that was drawn out to show like, this is a person just like you and me, right? Or something by like contrasting that from the opulence of the condo and things like that. So yeah, I can't wait to see. I know. There's so much to discuss. And the last thing that I just have to mention about the condo was the defense, because, you know, he lived in the same luxury apartment with SBF. And I guess there were eight other roommates aside from those two. At some point when the defense, like, mentioned this, because like pictures were shown of, you know, this luxury apartment. It was a penthouse.

And the defense said, oh, well, you know, wasn't it kind of like dorm living? And he was like, it was like a dorm in some respects and like a dorm in like a dorm in other room. respects. And then so when the prosecution got to ask questions one more time, then he clarified that it was like a dorm in that you were living with other people, but not like a dorm because it was much nicer than it was. Yeah, he's like, it was much more luxurious than it was in college. Yeah. It was, I mean, they were actually, you know, for, in case you can't tell, there were actually a number of moments of levity, at least for those of us in the overflow rooms, there were numerous points where people left. So anyway, okay, Josh, this was amazing. Thank you so much.

Where can people learn more about you and your work? You can look on linklators.com or you can go to LinkedIn and find me. It's Josh O Ashley Clayman. And I'm also on Twitter at Josh underscore blockchain. Is it okay if I just say like one little other thing? Very quick. Yeah, yeah. Go ahead. There were things that I wonder if it's teasing for later. So we were shown a photo of Sam Bankman-Fried eating. And next to him was a woman, and then who wasn't Caroline Errol's elephant. And then next to that was Adam Yiddia. I wonder, we couldn't see exactly what, or I wasn't paying attention to what he was eating,

but I wonder why they showed that, like whether what he's eating comes up. Because interestingly, one of the questions for Adam Yudita was, do you recall Sam Bankman Fried sleeping on a beanbag chair? And he was like, well, he used to occasionally nap there. I don't call him sleeping with any regularity. So, you know, these little pieces, I think ultimately credibility. And, yeah, I think if you can get a chance at home to watch this, those at home, I shouldn't say like at home to watch this. I think it was really a lot, but really, really compelling today.

Yeah. And just to make clear, the only way you can watch it is if you show up at the courthouse. Exactly. Yeah. Yeah. All right. Well, thank you so much for coming on Unchained. Oh, my pleasure. It's always a pleasure. Don't forget. Next up is the weekly news recap. Today, presented by a veteran crypto reporter and Columbia University Night Batchett 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, 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. This week, we're all focused on legal battles, as always, and not just Sam Bankman Freeds. Ripple dodged an SEC bullet, Coinbase fights back, and Binance faces new scrutiny. Meanwhile, Ethereum, CFs make a lukewarm debut. Stay tuned for the latest in crypto. I'm Michael Do Gistillo, a Knight Badget Fellow at Columbia University, and this is your weekly crypto recap. This week, a significant

development unfolded as a U.S. federal judge, Annalisa Torres, denied the SEC's appeal against Ripple Labs, the company behind the Ripple blockchain and its respective XRP token. The SEC has sought to overturn an earlier ruling that found Ripple didn't violate federal security's laws in its sale of XRP to retail customers. In a 14-page decision, Judge Torres wrote that the SEC, quote, failed to meet its burden to show that there were controlling questions of law, end quote, thereby quashing the appeal. The decision appeared to immediately impact the market, with XRP's price surging nearly 6% following the news. However, this is far from an outright win for Ripple. Not only is the XRP cryptocurrency still down 80% since its all-time high

in the winter of 2018, but Judge Torres has scheduled a trial for April 23rd, 2024 to address the remaining issues. This ongoing legal battle began in December 2020 when the SEC filed its initial lawsuit against Ripple, alleging unregistered securities offerings. The SEC legal pursuits are not limited to Ripple. They have also targeted other major players in the crypto industry, including Binance and Coinbase, which we'll talk about next. Also this week, San Francisco based Ripple secured a license from Singapore's monetary authority to offer regulated digital asset services. In another legal twist, the SEC has urged the U.S. District Court in the Southern District of New York to reject Coinbase's motion to dismiss the ongoing lawsuit against the crypto exchange.

The agency, chaired by Gary Gensler, argues that its original complaint, sufficiently establishes that Coinbase operated as a broker through its wallet application and that crypto assets offered are indeed securities. Coinbase's legal team contend that the SEC has overstepped its regulatory bounds and claimed the SEC labels as, quote, backwards, end quote. The regulator also cited a judgment by Judge Jed Rakoff, which dismissed Terraform Labs motion against the SEC. Marissa Toshman-Couple, senior legal counsel for the Blockchain Association wrote about the issue on social media. Quote, the SEC ignores the realities of Coinbase's staking program and focuses entirely on a user's

expectation of profits. This can't be the case, end quote. She further explained that Coinbase needs to reply to the SEC's opposition by October 24, and a court decision will follow, which could take some time. Binance, the world's largest cryptocurrency exchange is under a new source of scrutiny. A Forbes investigation has raised questions by the company's 2017 initial coin offering, or ICO, of its Binance coin, aka BNB. Contrary to CEO Chang Peng Zau's claims of raising $15 million, Forbes suggests the ICO might have garnered less than $5 million. The report claims that Binance secretly amassed 65 million BNB tokens.

For context, that would be worth only $10 million at the time. of the ICO, now it's worth a staggering $14 billion. Comparing the role BNB plays in Binance's business model to the role the FCT token played at the defunct FTX, the Forbes report also cites forensic analysis that indicates that Binance controls nearly 117 million tokens, or 76% of the total BNB supply, a figure that contradicts both Binance's claims and previous data analytics. At today, Today's price that would make Binance's stash worth about $26.6 billion. Adam Zarazinski, CEO of Inca Digital, told Forbes, quote,

The dissemination of misleading information leaves the possibility for Binance to maintain an artificially high B&B price, end quote. One person who apparently didn't speak to Forbes, CZ himself, nor anyone else at Binance for that matter, which the Forbes report says did not reply to require. for comment. The legal complexities for the crypto industry don't stop with Binance either. Alex Mishinsky, the former CEO of the collapsed lending platform Celsius network, which filed for bankruptcy last July, is set to stand trial on September 17, 2024.

Moshinsky, who resigned following the company's bankruptcy, faces charges including wire fraud and conspiracy to manipulate the value of the native Celsius token. According to a Bloomberg report, Mishinsky's defense is looking at whether or not, a cryptocurrency can be considered security at all, given what the lawyers described in a hearing on Tuesday as the fluidity of the law on the matter. Simultaneously, New York-based Celsius is seeking court approval for a restructuring plan recently approved by stakeholders that would distribute $2 billion in Ethereum and Bitcoin to creditors by the end of this year. The plan also includes seeding a new creditor-owned entity Nucco, with $450 million in crypto, at least partially

provided by a group of stakeholders collectively known as Ferenheit LLC, including TechCrunch founder Michael Arrington. Speaking at the New York bankruptcy hearing, Celsius lawyer Christopher S. Koenig sought to frame the effort as more than just stakeholders trying to cover their butts. Quote, Fahrenheit believes in the business, he said, they are putting their money where their mouth is, end quote. Michael Lewis, the author of 2010 bestseller The Big Short, faced a wave of. criticism from the crypto community following a 60-minute interview about his latest book, about, of course, FTX. The interview served as a media kickoff for the book Going Infinite, which many believe portrays Sam Bankman-Fried, the imprisoned founder of the now bankrupt

FTCX Exchange, in a favorable light. Quote, Lewis has essentially become persona no grata within the world of crypto, end quote, said Daniel Lewis in a coin desk article, questioning the veteran author's role in the FTX saga. Coindes published the article that is widely credited with helping bring down the exchange. Among the controversial claims in Lewis' book, Jump Trading, a major market mayor, allegedly lost $206 million in the FTX collapse. Lewis writes that the source of this information is private documents from former FTX chief operating officer Constance Wang.

Among the more shocking claims of the book, Lewis writes that Sam Bankman-Fried was considering paying former U.S. President Donald Trump to not run for president in the upcoming elections. What's shocking isn't that SPF was politically active. We know he gave at least $40 million to both Republicans and Democrats. What's wild is the amount. Lewis claims SBF was a million dollar payoff to the former president. There's already at least one company denying some of Lewis's claims. A spokesperson for New York market maker Virtue Finlayer which was last month sued by the SEC for failing to protect investor information, denied Lewis claims that the firm lost $10 million with the downfall of FTX in a blocked report

or any money at all. This week, the U.S. market saw the debut of nine Ethereum futures ETFs, but the trading volumes were less than stellar. On their first day, the ETFs, which let investors bet against ether but don't directly track the price of the cryptocurrency, recorded. a combined trading volume of just $2 million. Bloomberg ETF analyst Eric Balchunis called the volumes, quote, pretty average, end quote, noting it's too early to declare a winner among issuers. Valky's BTF led the pack with $882,000 in trading volume, though that's perhaps not an apples-to-apples comparison, since it also trades Bitcoin futures, followed by Vanek's E-FUT at $312,000. For some

perspective here, pro-share's Bitcoin strategy ETF saw $1 billion in trading volume on its first day last year. Adding to the Ethereum ETF landscape, Grayscale Investments has filed an application to convert its Ethereum trust into a spot Ethereum ETF that would directly track the price of ether. Grace Gale's CEO Michael Sonnstein said in a statement, quote, as we filed to convert E-T-H-E-2-N-E-T-F, we recognize that this is an important moment to bring Ethereum even further into the U.S. regulatory perimeter, end quote. Speaking of ETFs, Michael Beddahl, a former BlackRock executive, said the SEC will approve a spot Bitcoin ETF simultaneously to avoid giving any firm a first-mover advantage at the CC-Data Digital

Asset Summit this week. Stephen Schoenfeld, CEO of Vanek-owned Market Vector indices concurred, suggesting approvals could happen within the next three to six months. Both believe this will be a significant catalyst for the crypto markets, that is, assuming it happens at all. An unknown group or individual allegedly behind the NFTX hack that occurred during last year's collapse of the exchange has re-emerged, moving a total of $17 million worth of ether to multiple. addresses. This marks the first activity from the exploiter's wallet since the hack in November last year. The funds were divided and sent to blockchain token bridge Torchain and privacy tool railgun. Interestingly, the movement of these funds happened just hours before the start of criminal trial against FTCFATI founder Sam Bankman-Fried. In one of Vitalik Buteran's monthly blog posts, the Ethereum creator warned of centralization risks in major staking pools Lido and Rocket Pool.

Buteran criticized Lido's Dow governance and Rocket Pool's 8th deposit requirement for node operators, writing somewhat ambiguously, quote, one layer of defense may not be enough, end quote. He urged ecosystem participants to diversify staking operators to mitigate system risks. He was perhaps alluding to the seemingly monthly thefts from poorly secured decentralized protocols, but didn't go into much detail. What he did elaborate on, though, was his reluctance to add more features to a theory. Ethereum's core protocol, what has somewhat derisively become known as protocol enshrinment. Buteran explained the reasoning behind the sparse original codebase and cautioned that while new

features could reduce centralization, they could also strain governments. And that's all. Thanks so much for joining today. Stay tuned to Unchained for unparalleled coverage of Sam Bankman-Freed's criminal trial. Laura is in the courtroom delivering firsthand observations and in-depth analysis of this pivotal case. With daily podcast, 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. Unchained is produced by Laura Shin, with help from Kevin Fuchs, Matt Pilchard, Juan Aronovich, Megan Gavis, Ginny Hogan, Shawshank, and Margaret Curia. This weekly recap was written by

Juan Aronovich and edited by myself, Michael Del Castillo. Thanks so much for listening and looking forward to speaking next week. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily seven days a week with new host, Noel Atchison. Follow the CoinDesk podcast network for some of the best shows in crypto.