Unchained - The Chopping Block: Was FTX a Scam From the Very Beginning? - Ep. 433

Episode Date: December 17, 2022

Welcome to The Chopping Block! Crypto insiders Haseeb Qureshi, Robert Leshner, and Tarun Chitra were joined by Laura Shin to chop it up about the latest news. Show topics: the details of the SEC and CFTC complaints how crypto traders have always speculated about Alameda's preferential treatment whether many people knew about the mismanagement of funds and alleged fraud why Haseeb thinks SBF was a "f*cking psycho" how helpful Tarun believes a testimony from Sam Trabucco, former co-CEO of Alameda, would be why Alameda and FTX lost billions of dollars, and the poor diligence of SBF's venture investments Sam's "ineffective altruism"  why a bull market wouldn't have solved the insolvency problems of FTX whether SBF will fight extradition and how long it would take how Sam's consistent use of Facebook and his anti-Maker stand shows he was not a crypto-native why Laura thinks that The Block CEO's undisclosed loans represent a "total betrayal" Robert's take on the ineffectiveness of the government's control of information why Binance is under scrutiny and whether it's the "next FTX" Hosts Haseeb Qureshi, managing partner at Dragonfly Capital Tarun Chitra, managing partner at Robot Ventures Robert Leshner, founder of Compound  Guest: Laura Shin, author, host of Unchained Episode Links FTX: Unchained:CFTC and SEC File Damning Complaints Against Sam Bankman-Fried and FTX SBF Denied Bail in The Bahamas, Will Remain in Fox Hill Prison Former FTX CEO Sam Bankman-Fried Arrested Amid US Indictment Bahamas Asked SBF to Mint Hundreds of Millions of Dollars’ Worth of New Tokens After Collapse, Say FTX Liquidators SBF Directed $8B Alameda Liabilities to an FTX Account He Called ‘Weird Korean,’ Says CFTC Forbes: Despite Boasting Of Big Profits, FTX And Alameda Lost $3.7 Billion Before 2022 Bloomberg: FTX Bankruptcy Standoff Heats Up as Bahamas Challenges US Case Sam Bankman-Fried’s Harsh Bahamas Jail Could Shift His Stance on Extradition Fortune: Sam Bankman-Fried indicted on multiple conspiracy and fraud charges by U.S. officials Previous coverage of Unchained on Sam Bankman-Fried and FTX:How Much Prison Time Is FTX’s Sam Bankman-Fried Facing? Why the Legal Process for FTX and Sam Bankman-Fried Could Take Years The Chopping Block: SBF Wants to Win in the Court of Public Opinion. Will He? Jesse Powell and Kevin Zhou on How FTX and Alameda Lost $10 Billion Is the Collapse of Crypto Lending Over, or Is It Just Starting? Did the Bahamian Government Direct SBF and Gary Wang to Hack FTX? The Chopping Block: Why Lenders Didn’t Liquidate Alameda When It Was Underwater  Erik Voorhees and Cobie on Why FTX Loaned Out Customers’ Assets The Chopping Block: FTX: The Biggest Collapse in the History of Crypto? Sam Bankman-Fried on How to Prevent the Next Terra and 3AC Binance: Unchained: Binance Passes Withdrawal ‘Stress Test’ After $3B in Daily Outflows Forbes: Kevin O’Leary Points Finger At Binance For FTX Crash In Senate Testimony The Block Unchained: The Block CEO Steps Down After Revealing He Was Secretly Funded By SBF Learn more about your ad choices. Visit megaphone.fm/adchoices

Not a dividend. It's a tale of two-quan. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. D5 protocols are the antidote to this problem. All right. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day. The quick intros. First up, we've got Robert, the Cryptoconistur, and Captain of Compound.

Next, we have Tarun, the Gigabrain and Grand Puba at Gauntlet. Joining us today, we've got Laura, the CEO of the show, and you've got myself, Haseeb, I'm the head, hype man at Dragonfly. The four of us, well, other than Laura, we're early-station investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Okay, so the FDX story is the gift that keeps giving. Unfortunately, we cannot stop talking about it.

We really wanted to. We were so looking forward to this story, just slowing down. and people were speculating that it was going to be months until Sam was charged. It's very common in investigations of this kind of, of this sweepingness that they take a long time before any charges are filed because everybody's got to get their case in order before they actually filed charges. This has been incredibly fast. So basically yesterday, it was finally announced that Sam was arrested in the Bahamas, and we had, actually I believe it was Monday night that he was arrested. and then file charges were unsealed, first by the Southern District Attorney of New York for wire fraud

and a bunch of other stuff, campaign financing laws and a bunch of other stuff that they charged them with, as well as complaints, civil suits from the CFTC and the SEC. And so the Southern District Attorney of New York didn't give a whole lot of details. That was pretty sparse, but the CFTC complaint and the SEC complaint have an enormous amount of detail that I want to just quickly kind of skim through. for people who didn't actually themselves read the releases. So the first thing, and I'm kind of cobbling together from both the SEC complaint and the CFTC complaint, which both go through a full storyline of what happened with

FTX and Alameda. So first is the claim that FTX was knowingly commingling funds with Alameda from the very beginning in May 2019 when it was originally founded. And from the very beginning, Alameda had an effectively unlimited credit line from FTCS. And at one point, in the programming, they explicitly set a flag in the codebase called Allow Negative, which basically allowed Alameda to go negative and prevented them from being margin called in the liquidation engine whatsoever. Alameda also had preferred API access to FTX. They didn't have to wait in the usual order queue with everybody else.

And because their account didn't enforce certain checks in the liquidation engine, they had lower latency compared to any other trader. And so there was a special fast lane for Alamata to trade relative to anybody else. So apparently when Alameda had an $8 billion hole in the summer after Luna exploded, their liabilities were moved from Alameda, which at the time, you know, customer service within FTCS could see, ah, this is the Alameda account. After that summer, the liabilities were moved into a separate account, which they called their Korean friend. And presumably this was to obfuscate, even from customer service at FTX, that this was

an underwater account that belonged to Alameda research. Sam claimed in many of his public statements that users were wiring money directly to Alameda because FTCS didn't have a bank account. But FTCS opened the bank account in 2020, but users kept wiring money to Alameda, and those funds were never moved over into FTC. One of the most fascinating things, actually, was that there was a blog post that Sam wrote. This was detailed in the CFTC complaint if you want to read it. It's actually really interesting. So he wrote a blog post and kind of prepped a tweet storm about winding down Alameda in September of 4. 2022. And this clearly after Elamata was already very deeply in the hole. And they had a blog post

title, which was, we came, we saw, we researched, announcing that Alameda was shutting down and unwinding, and that, you know, it just didn't make sense after, you know, Alameda lost so much money for them to keep Elamata going. Now, it seems to, it seems to imply, at least even this fact that they were thinking about winding down Alameda, seems to imply this idea that they thought that this was even possible to unwind Alameda without, you know, basically destroying FTX, given the fact that Alameda held customer funds, that, of course, there was no way realistically to recoup them. But perhaps at that time he thought that there could be a way to liquidate the books of Alameda, you know, all the serum, all the FTT, all the locked tokens that they had at something

resembling par. So we got a lot of details here, and I'll talk a little bit more about his arrest in a little bit, but just going through the CFTC complaint, the SEC complaint, and what you saw from the southern district attorney of New York. Curious if you guys have thoughts, reflections on everything that we learned, just from what came out over the last 48 hours. I mean, the interesting thing, right, is like almost everyone who's been in crypto since 2019 has always kind of heard the like rumor of like, I mean, almost at some point it wasn't even really rumor.

Like there was some like timing data you could see of like certain trades where it was like clear someone else was getting liquidation preference. But there was always the rumors of like, hey, Almeda always had this like extra low latency thing. I think the question of them having this unbounded account was never. That was actually something no one ever said. Everyone was like, oh, well, you know, if they're allowing cross-margining,

they have to be extremely aggressive on liquidations, including to themselves, because they were the first exchange to offer cross-margining, which is like, I can put up that and ZRX and Sol and like use that as my margin asset instead of putting up stable coins or BTC, right? So like BitMex

only let you do BTC. Finance at that time, I don't remember. I think they do cross-merging now, but I don't think they did then. And so that was their schick of like they were the first ones, like whatever, they supposedly had better risk management, they'd always brag about it. That's why

listening to the sob story tour of Sam of the last couple weeks, like oh, like I was just bad or risk I'm like, well, you were telling everyone in the world publicly the exact opposite for years. You think people are going to suddenly like, just be like, poof, that didn't happen? No, no way. I think, like, it's interesting that, like, crypto people who are traders, like, knew half of the story, but, like, never could figure out the other half, which I think that was kind of the impressive part of it, right? It's like everyone, like, I mean, if I asked both you, Robert and Haseeb, you guys have both heard that, right?

Like, the Alameda front of it. For years, for years. People, yeah, to be clear, people always speculated that Alameda had some special money. Not even speculated. People had some pretty good data of like latencies of timing, like, of like transactions they sent and stuff. Like, there was like quite good evidence of it. Like it was clear they weren't even really hiding it that much. No one thought they had unbounded accounts, though. That that's, yeah. And to be clear, I doubt that even really came into play for a long time, right? Like, I mean, Alameda, especially last year, had the ability to borrow whatever money they were borrowing, you know, de facto on FTCs. And so I think there was no way to really even see what the consequences would be until Alameda blew out as they did, you know, when FTCS ultimately imploded.

Well, I think the idea of an unbounded account that can have negative value and negative value in the billions of dollars was, is so outrageous that nobody would even create a rumor of that. Whereas everybody in like their guts sort of would always suspect that like Alameda might get their orders to the exchange a little bit faster. because that's like an advantage you would expect to exist on an exchange that, you know, doesn't have a wall separating the entities that are owned by the same owner. But like nobody would have expected or guessed something so outrageous as, oh, this one account has been given extremely beneficial unique permissions. So it can violate the laws of financial physics whenever it feels like. Well, well, it's also crazy that most of the companies,

saw like Newton's equations of financial physics, like looking normal, there was no negative accounts, like everything was fine. And then there was this like multiverse that you hopped into that was like, I guess the Gary and Sam show that had, you know, like the crazy huge negative balances. The crazy thing to me, though, there's no way Sam did this alone based on all of the allegations and the real question to me is like who else and when will they kind of like will it be on earth that like they conspired because like I think even this like polykill conspiracy thing this seems a little too big for just like the eight people well so there was a I think a Reuter story yeah there was a roiter story that broke that that Reuters got the codenace or FTS and they found the

code commit I think that Gary I think Gary wrote the code commit Nishad had a comment but but I just can't believe it's just two people. people who did it and also rewrote all of the front end interfaces to like hide this from everything like it does seem like there's certainly other people who have to have yeah yeah yeah for sure for sure at least in that meeting from like right after everything collapsed Caroline or at least the reporting from that meeting said that what she said the meeting was that only four people knew and it was Sam Gary Nashad and herself do you find that credible or do you think it has to be more beyond those four? I think it's possible. I mean, I agree that it's possible.

I think it depends on like, you know, all the things you had to know at the same time to have a clear picture, right? So in the way the code base was written, it didn't say, you know, Alameda specifically is not allowed to get liquidated. It's the PMM, which is the primary market maker, right? And so like the primary market maker could change. Except the new account that was just discussed through the leak of the code base, which was our Korean friends account. Like they made up an account for a mysterious Korean whale. So given the same special privileges as Alameda to hide billions of dollars of losses of Alameda. But instead of tagging it, the PMM are tagging it Alameda.

They just called it like, oh, it's a Korean whale. Yeah. It's like don't, there's a no liquidate flag on the Korean whale. Engineering wise, it's just really hard for me to imagine all of the systems that this touched that had to have been rewritten. There must have been some set of engineers who had run into some QAing bugs when they ran things against prod where they found that there was like this thing. And they're like, oh, that must be just a bug. And like, it's just like hard for me to imagine conceptually, like given how they made so many other mistakes that they could have like perfectly hidden it in the entire engineering work. So like I recently did a show with Jesse Powell and Kevin Joe.

And Kevin was saying that Sam was often bragging about how few engineers he had, something like a team of 30 or something like that. I don't know when he said that. So it could have been that later on he had more. But do you guys remember anything like that? And maybe that was part of the reason is they were trying to hide it from as many people as possible or limit the number of people that might figure it out. Well, part of the mystique of FTX for years was it wasn't 30. He used to go around bragging that there was four engineers. right and that they were like and like everyone's like how can you run an exchange with four engineers it just seemed superhuman

that was the pitch deck i think the pitch deck would literally have the like we only like coinbase has thousands of engineers we only need four right and then later they were like you know oh we have 30 engineers and everyone still was like you've 30 and coinbase has like 4,000 like this doesn't compute but they were running a lean ship and i actually think that it was possible in that structure for Sam and a small group of his lieutenants to actually deceive the rest of the employees or the engineers. Like I actually don't think it's that hard to, especially now that the information broke about how Nishad coded this Korean whale account for one or two people just to like, with probably a few lines of code difference to say, oh, Korean whale can't get liquidated. Right. And then like when someone asks, they're like internally, you know, when they run the query on the analytics, it's like, how come this account? is so different, you know, Sam or whoever, like, oh, that's a Korean whale, we'd just treat

them extra well. They have $8 billion in our exchange, you know. Yeah, yeah. So like if there's some VVIP account, right, like, I'd say, okay, well, that only goes through the key lie lieutenants, you know, normal computer, normal customer service doesn't touch those accounts. I think it's pretty easy to imagine. I kind of can buy it. I just feel like there's so many ways you could slip that up and like make mistakes in the code base. It just feels like too perfect. Like, I feel like someone else. I mean, if they only have like 40 engineers in their heads. Turin, you've been, you know, convinced by Sam's apology tour that like, like, everyone's an idiot and they're all like so like.

Okay, okay, fair. Right. Like, this is the apology tour getting paid. I think there's more co-conspirators because, like, I, that's more my claim is like, I actually think there's probably more people who, who have known for a while than Jeff. These are, yeah, these are evil masterminds and they're not idiots and they didn't make all of these, like, like, like, oops, I made a boo-boo. Like, we somehow lost $10 billion. It's like, no, they like specifically wrote code to hide $10 billion of losses. Like, yeah, I mean, I think the main thing that I keep wondering about is like, first of all, what was even the motivation? And like, because this appears

to have really started so early on. Like, there wasn't even much of an attempt to create a legitimate exchange. And so, and then, but then on top of that to like make yourself so public. to be, you know, like hop-nobbing with the lawmakers and to be on Capitol Hill all the time and to have these partnerships and, you know, sponsorships with like Tom Brady and Naomi Osaka and just cell punch it. I mean, this is like, you know, Larry David, the Super Bowl. It's just like so risky, like beyond even just a normal. There's something like kind of deranged about taking that level of risk to do that kind of a fraud, but then also be that public. Like, you would, you know, it was like, it's just like,

you would just imagine that if someone's like really doing something bad, they're not going to try to call attention to themselves. You know, that's how that's, or at least that's, that's how I think the vast majority of people think, right? Well, I think it's the opposite. I mean, he was essentially one of history's greatest con men. And I'm using that in the traditional definition of a con man in that his whole scheme ran on confidence that FTX was powerful and like worth like a lot of money and doing everything and having built a great business. That Alameda was an incredible trading firm. Like his whole like game was to inspire confidence in himself Alameda and FTX.

And part of that is being as public as possible and like spinning as good of a yard as as possible because that was part of the con. I guess what I'm saying is that, like, so many crypto exchange owners are extremely wealthy. So he didn't need to do all that. And that is so risky. And now he's most likely going to be in prison, kind of on the order of, you know, somewhere around the rest of his life. So do you don't, do you know what I'm saying? It's like the calculus is so odd. It's like you can kind of get in the ballpark by doing it legitimately. So why would you risk the other thing that's going to lock you away forever? I think the linear wealth thing comes into play here.

literally each time he had to double down on this right like alameda took a double size of loss you need to double the customer funds what's the only way to get it you got to spend a lot on marketing because like at the end of the day they had no real organic volume like most of the time people used ftx was like it was some coin binance didn't list because they were slow or it was like you wanted a margin with some shit coin that like every other exchange wouldn't let you post this collateral So it's like they had this like built-in adverse selection in the beginning and they were able to front run all those people, but there's only so much you can do. And if you have even bigger losses to cover, you need to get new fish. And how do you get new fish?

You get Tom Brady to tell them they're like. Yeah, yeah. Okay. So, okay, hold on, hold on. So take a step back. Take a step back. When we first started talking about this story, right? We were talking about this idea that like Sam had this like vast empire that he decided to gamble on for seemingly just like a crazy reason to.

try to save a marketmaker, right? And now we're getting an increasingly crisp picture that that's not a good reading of what actually happened here. What actually happened here is that the whole thing from the very beginning was bullshit. And every step of the way, he was lying to people. He was lying to investors. He was lying to customers. He was lying to counterparties about the state of all of this, right? About his involvement in Alameda, about Alameda, about Alameda's position on the exchange, about, you know, their ability to, you know, go ahead of other customers, their ability to get liquidated, treated as any other marketing, all that stuff. It was all fraudulent.

And so the one, I think, trying to frame this in terms of like a calculus of, okay, he was doing this in order to get that, it seems very clear from the beginning that if he was actually thinking lucidly about any of this, it was very clear, eventually this was all going to hit a wall, right? He stated publicly, so previously, I think on a previous show, we said that, or at least I said, I think at some point, that Alameda probably made billions last year. We learned they didn't make it. They didn't make billions last year. They made, I think Samson's like in total, I believe he said somewhere they made, between FDX and Alameda, they made a total of like $1.5 billion, which means that Alameda made a billion dollars last year. I think Forbes reported that Alameda lost money.

Yeah, I think John Ray also reported that they had net lost money, like when the post-bankruptcy file it. Yeah. After the bankruptcy file. Yeah, obviously after the bankruptcy. No, no, no. But he said last year they also lost money. Yeah.

Yeah. Yeah, I believe someone said they filed like a tax return showing like billions of dollars losses. How was that possible? Yeah. My old colleague at Forbes, Jeff, I'm just pulling up his article. I'll skim this while you guys talk, but I'm pretty sure, yeah, they lost money last year as well. But how could they have lost money last year? It was like December was like pretty close to all-time highs. As far as I recall, I skimmed this article. Pretty sure it said it was 2020. Let me just keep going. Okay. That's, that's fascinating. Anyway, well, regardless, clearly like the story, now of Sam is getting completely reformulated as more and more facts are coming to light.

That in fact, he was never very competent. This whole thing, this whole idea that like, wow, he did this like, I mean, Tarun, I'm kind of pushing back on you. This whole idea that like, oh, Sam like did this effect of altruous calculus to like bet this thing to win this thing. It seems like actually the better reading is that Sam was just a fucking psycho and that there was no way that any of this was going to eventually work, right? He was just getting deeper and deeper into a hole of lies that eventually he was going to,

that was going to spit him out one way or another. There's an interest rate phenomenon where you could keep doubling and hope to get more cash company. Like at the end of the day and like, did inflation kill SBF? Are you saying that really we can trace this all the way back to inflation leading to higher interest rates? Unbelievable. collapse of FTX?

It was Biden. It was Biden in the end. Wait, wait, wait, wait, wait. Can we, can we, can we, since we're on the conspiratorial bent, I think I want to start indulging some of the conspiracy theories right now. Yeah, let's do it. Which are, who do you think the cooperating witnesses are in this trial? Because like, there's no way they, they pull this off so fast.

Oh, yeah. So like everyone's got to be Caroline. But I'm wondering if Trubucco, who is, you know, he's, he, I could imagine he's actually secretly. But why would Trubuco cooperate? He's not anywhere near the epicenter. I mean, he might just for the level. So that letter that like, hey, maybe we should shut down Alameda research.

Notice that happened like a few weeks after Trubuco left and probably that they're very closely timed together. I think he probably knows a lot more about skeletons in the closet that other people might not. And if I were the government, I would definitely try to go get him this thing. But I mean, Shrbuko, I mean, look, fair enough. But Trubuco was not pictured as being in the inner circle, right? he was a traitor. And from the perspective of Alameda, he probably caused all the losses,

though. Maybe, right? But that's not illegal. Yeah, but that's not illegal. No, no, no. So he knew that there was some bracket going on to cover those, right? Like, I feel like... Sure, but yeah, as far as I understand, Trouca didn't have ownership in FTA. He wasn't one of the core team. He was a trader. He was, you know, at Alameda from the beginning and he kept, you know, there's nothing illegal with making bad trades, even if it was someone else's money. Now, if he knew that, you know, this money was illegally being funneled from FTCX. But I think in principle, like FTX making a giant loan, I doubt Sam was like, hey, Trubico, these are customer funds.

Please treat them carefully. I think, though, if you're trying to pin this idea that, you know, Sam's been trying to be like, oh, like, I was not involved with Alameda whatsoever. Tribuco can be extremely valuable there to basically say, actually, no, he was really still the CEO, basically, even though he's, like, claiming he didn't know anything. And, like, I think that's actually going to be extremely valuable for. for this case, like proving that he actually. For sure.

Yeah. So wait, before we keep going with the conspiracy theories, let's go back to, you know, how much money Alameda lost. And so I was pulled up the wrong article, but now I found it. So the entity's 2021 tax returns collectively showed a net operating loss carryover of $3.7 billion. And so this is from something filed in the Delaware District Court, which is where the bankruptcy is happening. And it said, that means SPF's businesses, which primarily consist of Alameda and FTX,

had posted a net loss of $3.7 billion since their inception. Since their inception? I didn't even have that much to lose. How can you lose that much since inception? If it's since inception, they never raised $3.7 billion. They raised a lot of money, but they didn't raise $3.7 billion. It meant that fundamentally they lost money that didn't belong to them. Oh, no, this math doesn't make sense.

This must be like they acquired things that had tax losses that they were then able to carry. There's no way they acquired anything with billions of dollars of like tax loss carrying from it. Just look at their, look at their balance sheet, right? They had FTT, they had SRM, they had Seoul. They had all of stuff. How could they have lost that much money? They were marking everything to market. So like there is some weird fudgy thing that could be going on where like it really,

they were marking things that they claimed they lost a billion on. which were marked incorrectly to whatever. But if you have an asset, let's call it, let's call it FTT or CRM or maps or any of these things. If your starting cost basis is zero and then it goes up to be worth $5 billion and then goes down to be worth $2 billion, right? I don't think you have like a cumulative loss of $3 billion. Yeah, you can't have a cumulative loss. Yeah, exactly. Yeah, yeah, yeah.

That's fair. They made up all this shit, right? It has to, no, it has to be acquired. Like if you just look at their June 30th ballot sheet, right? There's enough on there to show that clearly they had a bunch of stuff last year. They only acquired rent as far as. Like they have like two or three other like aqua hire acquisition in 2020 and 2020. Well, okay, either way, look, I don't think we'll be able to get to the bottom of the accounting on a podcast.

Actually, let me just read the last bit on this or the meat of the article. It says the leading theories on why Alameda lost so much range from big bets gone wrong. to having god-awful accounting records. Those theories might explain why Alameda lost money in 2022 when crypto was crashing, but its losses through 2021 remain a big mystery. From an accounting perspective, it's unclear whether they were realized or whether they represent a snapshot of his businesses and their asset values at that point in time, says Steve Rosenthal, a tax lawyer and senior fellow at the Urban Brookings Tax Policy Center.

Then it says, if Bankman Freed was using a mark-to-market approach to accounting, then it would represent paper losses at that point in time, which would still be stunning. Yeah. How could you have had that loss when, like, you're at all-time high, like, marketing? It doesn't make sense. I don't believe these numbers. You don't make sense. They don't pass smell tests.

No, but it's the tax. It's a tax return. I mean, there might be other things in there that are explaining that, like them acquiring some tax losses. Yeah, I would be surprised if SBF lied, not just on those tax returns, but in many other places. Yeah, I sure sure. That I agree. It feels like there's something else happening.

There's something else happening. I don't think it's that simple. Someone on YouTube has one of the best comments. Unfortunately, you know Tom here, otherwise you could highlight it. But it was Quickbook license costs $3.7 billion. So one of the other news items of the week was that it turned out they did all their accounting

in QuickBooks, which notoriously doesn't support any like crypto or even like mildly advanced equity accounting. So, you know, maybe that's the source of their. In fact, this QuickBooks thing, actually, by the way, a tiny aside, I'd actually talk to some, like, people who worked endowments.

And they were, like, the way that funds and invests in FTX might actually be liable to LPs who could sue them, is that this QuickBooks and Excel thing suggests that, like, they didn't even ask for, like, real accounting statements. And, like, people could actually go after some of the investors for, for, like, as a fiduciary, not even tracking this. So. Wait, wait, wait. but what they kept for their own internal books versus what they were given as financial, audited financial statements.

Like, I don't think they, like the investors would have gotten the audited financials from that shitty accounting firm. Even if they were doing their own internal books with quick books, like the auditors need independent verification. But you should also be checking how, what software and control mechanism they have for, how they keep their own books before they send them to an auditor.

That's a form of liability of like a fiduciary should be checking that. So there was some interesting, there are some interesting claims from people who are LPs that like there are like rooms for room for more lawsuits from some of these things that keep coming out. Yeah, but this goes back to my earlier comment about how just the more details that come out, the more I'm like, whoa, this is like a scan like right from the very beginning. And then this goes to that thing about how he loved to get people to invest by having that spreadsheet where like the earlier, you know, it's just like a race to the bottom kind of situation where or he's creating it where it's like the early.

earlier that you are, the cheaper your terms and all that. And like, you know, people are just like, oh, he loved, loved, loved this way of fundraising. And then that just is a way of being like, don't do your due diligence. Just get in right now, you know. And for anybody who actually took the time to like make sure that everything was on the up and up, they would be punished by having bad terms. So, you know, it's like all those things that's like, you know, Alex Pack talked about it. I think it was on my show. Or I don't remember where, anyway, sorry, that he,

you know, that's one of the reasons that ultimately he didn't invest. It was just like this weird, you know, situation where he could feel that anytime he was trying to do his job, he was getting this pushback. So anyway, so, yeah, just every time I'm learning more and more about all this, I'm just like, whoa, like.

There was tons of stuff also, though, historically you could have found. I mean, Haseeb's partner at Dragonfly, is the other person mentioned in Alex's story who was also just like I had all this kind of like they both got different like accounting stories and like oh like we're spending all this money on like this type of trade but then it was actually funding the exchange being built and stuff like that so yeah

Sam very clearly thought VCs were idiots and to be fair like maybe he was right because the VCs who invested in Sam he definitely was right kind of like idiots. But he had just a tremendous disdain for the entire VC process. Then you can also see it from the way that he ran FTC Ventures, is that he thought VC was super easy, and you just like, you know, fire up your guns and you start shooting in the direction of things that look interesting. And as a result, they have this ridiculous web of investments of just random stuff.

They have no idea about anything. Like, the FDX Ventures diligence is some of the most ridiculous diligence I had ever seen. And so I think it carried all the way through. When you're using stolen money to make venture- You have a very different attitude than when you have a fiduciary duty to people that you've raised money from. Yeah. That you're generating. If it's stolen customer money, like, yeah, you're going to be like shooting it everywhere.

Well, forget about even the venture and, you know, I love, I take any chance I can on this show to take a pot shot of EA. We're going to go to it. Okay, go for it. No, no, no. Back at the FTX Future Fund. There was a Forbes article. about how the FTX Future Fund was also just trying to spray money at people. Like people who didn't even apply for a grant, it's supposed to be a nonprofit grant that's supposed

to get like McCaskill's supposed to like have some thesis of like why they're investing in some particular thing. They literally just sent people money who didn't even want it and people sent the money back. And like they like basically kept sending them money. And if you read this article, it's unreal. Basically the FTX Future Fund was like how do we ship, give out money as fast as possible? And it's like, wait, this supposed to be a nonprofit like. vetting these organizations because they're effective.

And it's like, if you want something that, like, is the biggest egg on McCaskill's face, it should be this. Like, that is just embarrassing for anyone, for that entire ideology that you did that. Ineffective altruism. Ineffective. Not data driven. Well, I guess that's one other thing that's so confusing to me. And maybe it shouldn't be.

Maybe the effective altruism thing was just a front as well. But, you know, if his goal really was to make a lot to give it away, then again, you would have expected he'd actually like literally try to make the money rather than just take it because it really almost feels like it was more of a campaign just to like burnish his image. Because, you know, when you read this whole thing about it, it's the sports sponsorships and the political donations. And, you know, and then like the supposed like philanthropic things are, yeah, like really bizarre, weird, not impactful things like the anthropic thing or, you know what. So it's just like I just don't understand.

The more that I'm kind of looking into at the more, I'm just like, what was the point of doing this? Like, you're risking all this stuff for what exactly? Like, if he was actually doing something, like buying, you know, a gazillion, what are those, malaria bed nets? Like, okay, then kind of, maybe. How many mosquito nets do you buy with a Tom Brady sponsorship? I see a lot. Yeah, yeah. You could, like, probably eradicate malaria with that.

Yeah. You know? Yeah. You can actually house at least 50 houseless FTX engineers in the violence. Right, exactly. Homelessness. Exactly, the 50 houseless FTCS engineers. So, but I just, this is why like psychologically, I'm just like, what was in his brain?

Like, that is so confusing to me. Because just any other person, like, if you were, so let's say that we were all at like some party and we were drunk or something. And one of us was like, oh, you guys, like, I have this idea for how to, you know, kind of just swindle people or whatever. And you, you spun up some idea of like what Sam actually did. Like, everybody would be like, you would be found out so fast you will end up in prison for the rest of your life. It's not worth it. Like, do you know what I'm saying? And so that's why I'm just like, how did he think this was a good idea?

Well, here's my read on this is that he thought he was going to get away with it first and foremost. I think everyone who's caught in this web of lies and digs deeper and deeper and deeper thinks that if they just lie a little bit more and steal a little bit more, eventually they'll make it all back. Yeah, but that's what I'm saying. Like, how did he think he was going to get away with losing $8 billion of money? That's, it's just weird to me. If you're betting bigger and you keep on doubling the size of a wits, you just need one of the

Yeah, yeah. Yeah. It's, I mean, Bernie made off. It was ultimately a martingale. Between Chibucos' tweets and Sam's tweets about. betting bigger all the time. I mean, they did tell you what they were doing. Yeah. It's true. It's true. And look, like, the, the, the implicitly, right, like, if the, if FTCX was a levered long exchange, which is like, why the hell is an exchange levered in any direction? But if FDX

is a levered long exchange, that means that if prices went up, they would have been in the, they would have been in the clear. They would have been solvent again. And so that's, I mean, it was the same thing that three arrows was doing at the end of the day, which is that they were levered long. And if prices went in the right direction, they would have been okay. Wait, are you serious? But, like, Like, they don't, they don't, they still don't fundamentally have. Wait, okay, but wait. This only makes sense if you can, like, somehow double the number of units that you have. Because the light, like, what you owe your customers is also going to go up at the same time.

Like, so let's say that I put two VTC on the exchange. And then put it into Solana and SRM and all the shit that they were buoying in the markets, right? They were buying all these same points. And so the same coins had to go up. Right. But the amount that they owe customers also goes up in dollar terms because, like, Well, a lot of the liabilities were in dollars, right? A lot of people just had dollars, something like Bitcoin.

The liabilities were in like Bitcoin and Ether and whatever. They're not in dollars. But the $8 billion that was wired to Alameda's bank accounts in order to deposit money on Fx, there's very clear $8 billion there, right? Right. But those people, when they wired the money, it's to buy, you know, whatever. They're not like literally just like, I'm going to part my dollars. Yeah, yeah.

So from the beginning, from the beginning, right, the assets that ended up on Alameda's malon sheet were dollars. And those dollars were supposed to be, basically, you can think of it as Alameda owed $8 billion to FDX, not $8 billion Bitcoin, not $8 billion ether. If there was Bitcoin or ether that ended up on FtX, it had to come from somewhere else. Right. No, but what I'm saying is for, so you're saying that you think that Sam probably thought he could make it back and give customers their money. But what I'm saying is when I thought about it, but okay. But I'm saying, so when a customer sends in money, the reason they're doing so is to buy, like, let's say a Bitcoin. So then they are owed a Bitcoin.

So if they buy a Bitcoin when it's $10,000 and then Bitcoin goes to $20,000, then they're going to be owed still a single Bitcoin, but it will be worth more in dollars, right? So that's why, like you're saying, oh, the prices just need to go. No, no, no, no, because then you still owe the, like the liabilities in dollars also increases. I understand the point that you're making, which is that, yes, the total value of all the assets goes up and the total value of all the liabilities go up. Yeah, exactly.

But the assets and liabilities that were on Alameda's balance sheet, as far as we understand right now, were dollar denominated. They were not crypto-denominated, as far as I know. And if, in fact, they were dollar-denominated, then that means that the assets and the liabilities that FTX had were probably more of the crypto, and the more of the cash was with Alameda. Right. So that meant that the cash was not going up and down in terms of its value.

That was on the FTX side. But they were giving so much of that. cash to Alameda that FTCS is ultimately in the hole. So that means Alameda is, you know, they are short dollars. They're not short crypto. Right. But FTX is short crypto. And so when you keep saying that if the value of the crypto goes up, then they can pay the customers. I'm saying, no, no, no, no, no, because the liabilities of FTCX also go up. Because if the prices of crypto are going up, then what FTX owes its customers also goes up. So you can't, it doesn't make, you still can't do it that way. Correct. FTCX, the exchange,

likely had liabilities to its customers in Bitcoin. There was literally no, when all was said and done and we peeled back to the thing, there was no ether, there was no Bitcoin left at FTX, and all the people thought they had balances of Bitcoin and Ether. FTX, the exchange was short crypto to its customers. Alameda was short dollars to FTX and used those dollars to buy stupid coins, like FTT and SRM and Maps and oxygen and all this stuff.

make venture bets that were extremely illiquid. Alameda was levered long on weird stuff. FtX was short on good stuff. And in a bull market, I don't know which one would win. Well, definitely the good stuff, not the shit coin. It depends on the ball market, right? In the last bull market, it was the weird stuff that outperformed the good stuff. Like Doge and Shib and stuff?

Yeah, well, but also SRM and, you know, Solon. Yeah. All the same coins were pumping last year. Because he was converting the customer of Bitcoin into the coins he liked, the fundamentals. So then the only way that it could have worked would have been if their shit coin strategy would actually work. But then also they would have had to sell at the top in dollars, but then also buy Bitcoin and the other good coins that were also then at that point at an all-time high and still

somehow make enough to send back to that. Like that's so convoluted. You have to do three things correctly. Like, do you know what I'm saying? It's like, that's really, really, really hard. This is why it didn't work. This is why Sam's in a Bahamas in a Bahamas in a Bahamas. That's right.

It didn't work. You are absolutely correct. You nailed it, Laura. This is why we should put you in charge of the next big exchange. I think you probably wouldn't make the same mistake. So hold on, I want to go back a little bit because we skipped one of the pieces of the story, which was Tarun alluded to. So, okay, first things first.

So Sam was arrested in Bahamas. He was then arraigned, brought in front of a judge and he asked for bail because he didn't want to hang out in a Bahaman jail while he was awaiting extradition and potentially he signaled that he wanted to fight extradition and he didn't want to be extradited to the U.S. So he's lived in Bahamas for last two years presumably.

So the judge was not very excited about the idea of him getting bail. He offered to pay $250,000, which supposedly was more than his net worth. He's claimed that he only has $100,000 to his name, but somehow $250K bail is no big deal. Has anybody done a search for hardware wallets? I'm a little bit like, you know, can they search his premises for that? They must be able to.

For sure. Of course, at this point, they can. Well, look, they had billions of dollars in rescue money coming in. I'm sure somebody, you know, often about $2.50K bail. I'm mysteriously went missing, like, in the middle of the night, you know, when they declared bankruptcy. Like, where is Gary? There's an aggregate, like, $10 plus billion of stuff missing everywhere. Like, I'm pretty sure Sam has more than.

$100,000. Right. Yeah. Sam didn't know a single Bitcoin to his name. Like, come on. Also, it is crazy that, like, they, they, they issued so much SOBTC. And it was, like, completely unbacked. They had no Bitcoin.

Wait, what's, what's SOBTC? So BTC was like a Solana wrapped Bitcoin that was issued by, by FTX. And they, like, had, so people, like, these Bitcoin whales would send Bitcoin there and then then get SOBTC and then go, like, take their SOTC and use it in Defi and Solana, right? Right. That last part, that Bitcoin didn't exist at the end. That was like wild to me. That like basically they somehow had like completely run out of Bitcoin.

Wait, wait, wait, wait, wait, wait. So people wrapped their their Bitcoin for the Salana thing, but then actually there was no Bitcoin that was being wrapped that somehow. By the end, by the end, FTX was somehow. They spent their Bitcoin to FTX. FTCs wrapped it, kept down the exchange as like a special account. for the wrapped Bitcoin. It's kind of like what CoinList does with WVTC, right?

Except it was FDX instead of CoinList. Or no, it was like with all the other bankruptcy assets. They had no Bitcoin when they went bankrupt. In fact, I actually have this slight theory that of the $6 billion of withdrawals, Bitcoiners were probably the most paranoid because they've like lived through the most exchange failures. They were withdrawing the first. And so they had so much BTC that day that they basically had none.

And then they couldn't do any of the salano withdrawals. And the salon took and then lost its peg. Oh, wow. Yeah. Actually, now that I think I did know that, I totally forgot about that. Yeah. Okay. So, rewinding a bit, Sam, trying to make bail, no dice.

And so Sam is now in a jail in the Bahamas, known as Fox Hill, which apparently is one of the worst jails in the world. It's supposed to, it's like rat infested with maggots. It's got horrible treatment. Apparently your toilet is a bucket. It's a really terrible place where he is being held right now, basically awaiting extradition to the U.S. And supposedly, from what I've been reading, a lot of people think that he's going to stop fighting extradition if he can't make bail. Because if he can't make bail, it's a lot better to be in American jail than to be in a Bahamian jail.

No, he wasn't even granted bail. He wasn't granted bail. He was correct. He wasn't granted bail. Yeah, he wasn't. But he's trying to stay to fight this extradition thing. Right, right, right, yeah. Extradition, so there have been cases where extradition court battles have taken up to seven years out of the Bahamas. If he, for whatever reason, was able to stomach life in Fox Hill, which, by the way, like, I think Sam is the greatest con artist of, like, all time, like, he's horrible. Like, I still don't think any human beings should, like, live in those conditions, even if he can stomach that, like, it's horrific, like, unhumanitarian conditions. Like, I don't wish upon anyone, even though I wish L for Sam. Like, if he can stomach that, environment, like he could probably fight this for years, just from that cursory research

until like Bahamian, like, extradition law. Like there been cases where it took seven years from to extradite people on like simple stuff. Like if you keep on appealing it and going through like the British court system and like all this stuff. So he could stay there almost indefinite. Wow. I don't see any world where he'd want to.

Yeah. Like it's horrible conditions. Yeah. Yeah, you know, this is kind of a, this is sort of a very weird aside. But so after, after all this stuff with FTX went down, like, I try to message Sam to see if I could convince him to come on the show. He was not interested. Because it's because we're not a Twitter space. Clearly.

He's been on like 20, the most random Twitter faces, but he doesn't want to come on the show for whatever reason. No-name Twitter space, but anyway. And so, so anyway, it doesn't matter. I don't message a lot of people on Facebook Messenger. And so the few people who I do message, I message him on Facebook, he would like show up all the time. I could always see when he was online on Facebook, which is very weird because he was like doing this apology tour and he's like one of the few people who were showing up at the top of my thing. And then yesterday I was like, I didn't see him all day because I usually see, because he's online a lot.

I didn't see him yesterday. And then I read that he's in jail. And I'm like, okay, I guess he probably doesn't have access to Facebook. I think his, I've heard his Facebook is filled with posts of people being like, You robbed me. Which is like funny just because it's like, it's like his, even his friends are going and posting like, you know. Right.

So this is like funny that you just happen to mention his Facebook account because I can't remember where I heard this, but it must have been some interview he did or something. I don't know. And somebody must have asked him something like, you know, what's something that you, you know, like don't wish you did all the time. I don't remember what the question was.

All I remember is that. he said that he finds himself scrolling through Facebook all the time, like a lot, sort of like, compulsively. And then I was like so just like Facebook. Like you are you are not a crypto person of your scrolling through Facebook. I was just so confused by that. I was like Facebook. Like what crypto person is like constantly scrolling Facebook? It was so weird. I remember I had this call with him in 2020, I think it was like right after comp farming launch. So it was like July 2020. And he was like calling me to be like asking me what layer ones, some question,

tackle questions about layer ones. And I guess like I was the only person he knew to ask or something. And I remember he was like telling me all the reasons he loves Solana. And I was like, but like here are all these other problems. Like the BFT might not work. You might have these liveliness issues like blah, blah, blah, blah. right and he was just like unable to understand any of these concerns that like crypto people have about like what a blockchain is i was like oh i see like you literally are just like going to everyone and you're like

what's the block time okay next what's the block time okay like you didn't even like care about any of the like safety conditions like how the wallet interactions work like any of that stuff and this is not knock on it right like the team has in a lot of admirable ways like somehow patched it together to not totally fall over. But it was just like kind of funny that the like savior of this thing doesn't even understand why anyone would use a blockchain. He was just like, he was just like, how can I make this thing less and less and less and less and less like a blockchain? And like that's all he wanted. It's funny because I had a similar experience to Sam.

I remember after that initial when Dragonfly passed on the Sam seat round super early on. Well, you were you were also, you were the Alex Pack story. also that was Dragonfly. Yeah, yeah, yeah. Alex Pack was originally a Dragonfly, but I wasn't there yet, right? So that was before I joined. That was before I joined. And so, yeah, so Alex Pack and Bo passed on Sam's seed round.

Sam got really pissed. And Sam basically was like, I'm never going to work with Dragonfly again. And he refused to invest, co-invest into any rounds the Dragonfly was in. And I didn't know that at the time. And I didn't know Sam very well. You know, I sort of knew of him, but I never really spoken to him in any length, except the first time I met him, which was years before he even got into crypto. And so I remember I reached out to Sam because I was like, hey, I heard that you are really mad at us.

And I don't really know why. Look, I was there. Like, let's talk. I just kind of want to understand more about what you're doing because you're obviously building something really big. And so we got talking. And I remember we were chatting about defy. And we were just like exchanging trading notes on what things we like in defy. And I was saying, oh, yeah, you know, MakerDAO is great.

Like, I'm really excited about MakerDAO. We invested MakerDAO. And she fucking hated MakerDAO. And I was like, what's the way? wrong with Maker? MakerDAO's so great. How could you hate MakerDAO? He's like, it's just so inefficient, right? Like, it's so, their collateral ratio is so high. It doesn't make any sense. Why would you waste all this capital? And he was just so anti-Maker. It was like very surprising to me. I like very few people in cryptic, like there are a lot of things people don't like.

Almost everybody likes Maker, you know, like even if you have your issues with it. By the way, I owe the Maker folks, including Rune, a correction for something I said last time, which was the the insolvencies they had were completely not related to gemini. And it just happened to there was some GUSD. It's like completely, it's completely safe. That was me falling for Fudd and not understanding. And I talked to Rune about it. I told him I would give an on-air.

Oh, there you go, correction. Your correction. And since you brought it, Maker, I was like, great time. Okay, great time. Okay. So anyway, all right. We have a little bit more news to get through because it has been kind of a crazy. Wait, do we talk about the, should we talk about the block?

We have to talk about the block. One more example of SBF being evil. Okay. So, all right, TLDR, the block secretly got a financing where SBF basically gave a massive loan to the block. And that loan both financed the block itself as well as real estate for. the former CEO of the block. The loan was not to the block. The loan was to him personally.

McCaffrey directly. Yeah. The loan was to Mike who did basically a private equity buyout of the block from its former team and owners using SBF's money to personally own the entire the block, which is like, which was hidden from all of the team members. at the block, it was hidden from the people that he was buying it from. And it was hidden from the public, right? It was SBF taking what was most likely customer money to buy out a media publication in the space. Right, right? Which he then did like a bunch of those after, right?

But it was like kind of, that was the first. Yeah, he did it more explicitly. Yeah, he did the more explicitly. I knew Mike quite well, and I actually had gotten drinks with him right around the time he did that. And it was like, hey, we'll celebrate the block going private. I was like, where are you actually, does the block make enough money for this happen? But I was just like, I don't really get how this is working out. Apparently the block made decent money.

They said it was something like 30 million last year or? Right. So, so like I seen. Is that just revenue or that must be just revenue, not profit? Because they have a ton of people. They have like a hundred something people. And like I just was like, I tried to do the mental math in my head. I don't really see where this is coming from.

But like, all right, congratulations. I guess you've sold a lot of enterprise subscriptions. And so like I kind of was always a little bit like, oh, there's something that's a little fishy. And he kept going to the Bahamas all the time. I was like, why are you going to Bahamas so much? Then it turned out he got this like other loan to get a, uh, apartment in the Bahamas, which is also, I guess, hidden from everyone's block. But, you know, I do believe

Frank and Larry that they like had absolutely no idea. And like I definitely, you know, support them in whatever and ever they do next. Because I really feel like, I feel like they just seem to have like gotten sucker punched. And I feel bad about that for them. Because they're some of the best, you know, journalists, I think, in this space. Yeah, I agree. I mean, From my perspective, so Laura, I'd curiously get your take as a journalist, but I'll say from my perspective as just like a passive observer of all this, no dog in the fight whatsoever. It felt, okay, clearly this Mike McAfrica, I don't know him, I've never met him. Seems like he was a dick and he did something he shouldn't have and then he stepped down.

He wasn't, he wasn't a dick. I will say, it's just that, you know, he got greedy. Okay. Apparently he wasn't a dick. I don't know. But what he did was a dick move. and ultimately the people who are at the block who do all the work,

from my perspective, like their work speaks for itself, basically the best coverage in the industry on a lot of subjects, including on SBF and including on FTX and this whole collapse, very often where the first place I go to try to read the best take on what's going on

is the block. And so I don't think in any way did any of this seem to seep into their coverage of anything. The thing that I guess I found a little too much about this story was that I think the block played it very well in everybody, who was at the block, just openly gnashing their teeth and cursing the skies and saying,

oh my God, I can't believe this happened as a way of like, kind of sort of like, look, we really believe in journalism integrity. And it's like, I know you guys. Like, look, I'm still going to read the block. I don't really care who got a loan from where. Like, it's good content. I'm not a journalist. So it doesn't hit as deep for me that, okay, the CEO finance this secretly from some guy. It's like, okay, fine. Yeah, but Hiseeb. I don't know if you saw, like, there were a lot of tweets that then became immediately suspicious. So that, and we're attacking them. And so, like, this is just a huge betrayal that Mike did on the journalist because, you know,

when you're when you have this kind of, you know, referee role, you're trying to be the neutral observer report, whatever, the facts, like, just anything that either you reveal or someone reveals about you that, like, allows people to attack you in any way that it's not helpful for your job, right? So to have, like, the CEO of your company completely undermine your ability. to do your work in secret behind your back. It's like a total betrayal. So like I don't know if you thought their tweets were like performative or something,

but like I'm sure they weren't. I'm sure they felt like. No, I believe that they were feeling very, you know, very betrayed by the CEO. And so like them oucing the CEO, Theo fell in a sword. He left. He's gone now. They're going to figure out how to recap the company. Great.

And to me, I'm like, okay. Yeah. But so I, it's great that for you, you recognize that, yeah, there wasn't any malfeasance on their part. But like I said, if you looked at the. replies in the tweets and stuff. Like a lot of people started attacking them. You know, like, oh, back in the day, you know, reported blah, blah, blah, and you didn't say didda. And I mean, you know, that's exactly what Mike set them up for. And, you know, they didn't sign up for that.

And it wasn't, it had nothing to do with them. He did this on his own. So that's why they were so upset and why it's such a betrayal and frankly why I felt absolutely terrible for them. And just, you know, I really actually think it's like a really, really bad thing that happened. And And it's going to be something that will probably dog them for a little while just because, like, you know, whatever. There are certain people speaking of conspiracy theories, by the way, I just want to address that, you know, before SPF's arrest, like, so many of the conspiracy theorists were like, oh, because he made so many political donations, he's not going to pay at all. He'll never be arrested. He's just going to keep going on, living in the Bahamas, whatever. And I was like, wait, like, do you guys know what's what he just did?

and like, you know, I kind of was like, if anything, the fact that he kind of like made all these people look bad is going to, is going to mean that it's going to be much worse for him. But there were so many conspiracy theories I saw like that. And I was just like, you either don't know how this works. You don't understand how bad it is what he did or you don't understand how like people that have like egg on their face because this guy, you know, what, you know, like basically cozyed up to them and then what was perpetrating this fraud. Like you don't understand that like this is actually going to make it way worse for him and like he is going to end up in the slammer no matter what. So anyway, I just need to call out that those conspiracy theorists were

super wrong, which I knew from the start. And I just thought it was even weird that they could entertain the idea that he would not pay for any of this. Yeah, yeah, yeah, yeah, for sure. I just think it's like if I were in their shoes, I would just try to like make a new company and like, wait, their shoes. No, dude. The block has so much brand value. Why would you make a new company? No, no, no, no, no. You can keep, you know, I feel like the, the people are still there. A new corporate energy. Like, like, cost will takeover, like, because, like, it would kind of suck to have to work there and, like, you know, you're stuck in this situation. I think this will blow over. I think this will blow over.

No, no, no. I, I saw that they tweeted something like they're trying to buy the block from Mike or, or it's, like, going to be, I forget, it was something like that. They're coming together in some way to try to, to take. ownership. Yeah, there's some syndicate or something that they were informed. Yeah. Yeah. I mean, it would be great if it happens. The blocked out. Okay. Well, speaking of CZ, speaking of CZ, okay, okay, we should cover this before we wrap the show. So speaking of conspiracy theories. So we've learned fairly recently that it was reported, I think, was it by Reuters or was by Walser Journal, that the DOJ is contemplating bringing charges against finance. And so you've known that there was a DOJ investigation into Bynas. Reuters, thank you.

We know that there was a DOJ investigation to Binance for quite a while. It's been going on for years. And apparently they've collected enough evidence to be able to bring charges. But there's a debate internally within the DOJ, whether it's wise to bring charges at this time, or whether it makes more sense to sit on the case or to try to settle and just have them pay a fine or something like that instead of trying to do this big dog and pony show, given how much damage has been going on to the industry lately. I thought that it was that half the team thought they haven't had enough evidence and half the team thought they didn't have. enough evidence. Wasn't that it?

I think it was particularly around concerns around, like, just damaging the industry unnecessarily around these charges, right? So the question is like, why? How blockbuster are these charges? I don't think the DOJ cares about damage. Yeah, they don't care. No, I, Laura's correct. When I read the article, and I don't know who leaked this or why or, you know, whatever, but when I read it, it was something along the lines of, internally, they're split on whether or not they have a case. I'm sure someone's sympathetic to CZ probably leaked that. I actually think one thing that's funny is like, why are all these leaks happening like in the last month?

I feel like, is it just me or does it feel like there's just been like an insane torrent of leaks since like November? Like it's just been like non-stop. Well, no, no, no. But even leading into that, I feel like there were starting to be a lot more rumors. And then it just like cascaded that like, like I mean it's yeah this whole year I mean it started even at like the supreme court you know rovey wade league I mean like yesterday there was the CPI print which was a major event which got leaked

early and people were trading on it like I feel like the US government's control over information is becoming fragile and cracking and there's more and more leaks coming from different branches of government they're having the past that is the hottest take this show has ever had that's a very scale take. It is interesting, though. Yeah, I kind of, I don't remember, like, obviously, like, the problem is that you're, you know, you're not quantifying this perfectly when you, and you could maybe go retroactively do it.

But there's this quality of feeling that, like, yeah, the leak leaking rate just seems to be, like, growing a lot. Yeah, from the judicial, the executive and the legislator, you know, it's like, there's leaks, like, to me from everywhere. Like, it's sad and weird. But one thing that I did want to talk about was how we were all like, why would DOJ care about doing something that would damage the crypto. When I read that in the Warriors article, I was like, wait, like, what? Like, is that what people in the DOJ are thinking about?

Because that doesn't make any sense to me. I don't know if the person got the facts wrong there or what, but I just was like, I don't think they're thinking about that. In fact, I feel quite certain they're not thinking about that. To my mind, it would be either, like, they think they have. enough evidence or other people are like, no, no, no, we don't quite have a strong case to make. That would be, that's what I would guess. Yes, sir, I misread the article. What it says here is that among Binance's arguments, a criminal prosecution would wreak havoc

on a crypto market already in prolonged downturn. The discussion included potential plea deals according to three of the sources. And at the very end of the article, it says, Binance has hired a former chief of MLARS, engaged in discussions with the Justice Department. They met with just officials in Washington in recent months, three of the people said, officials discuss with a possible resolution to the case of court, whereby subjects would potentially plead guilty or pay a fine. The resources said,

Dade did not comment. Can I say one thing that's kind of a funny comment I felt when I read this story, which is normally when people talk about like the revolving door in government and like people going to finance or going to like tech from government jobs, it's like always viewed as like this like negatively connotative thing. In the finance case, the interesting thing is they've been advertised. it as this like positive thing that they're like taking advantage of the revolving door.

And I think that's like a funny flip narrative wise relative to like the normal one about the revolving door being like in there because they're like, look, revolving door means that we're more legit. No, no, no. It's because the revolving door is bad for government because then it makes government look less neutral. For sure. Right.

But, but. But Binance's marketing of this like CZ's tweets is like the opposite. No, but that's because they're taking the legitimacy of the government and now pulling it toward Binance. So it's good for Binance to be like, hey, we have these people that were in the government for like 10 years, 15 years, whatever, like one of the top investigators for CSI at the IRS. So it's good for them. So it's not a weird spin. It's like they want that. The articles, I mean, sorry, that like cover this.

Don't write it that way. Right. Whereas like when they do, when they, when someone like say an SEC commissioner goes to Goldman, they'll be like, oh, the revolving door of government like happening. again. So I think that that's like a funny, funny thing that this article. I think it's that the, I think it's that journalists are surprised to see that happening in crypto. You know, it's newsworthy that that is also happening in crypto. It's like, oh, wow, crypto's kind of like any other kind of weird financial industry. It's a sign that we're growing up a bit. But so because I think in one part, accelerated by this leak from the, the DOJ contemplating

bringing these charges against finance, but also from Binances. kind of bullshit proof of reserves where they, you know, sort of didn't do a very convincing job of showing their liabilities beyond just, you know, some, some nebulous amount of Bitcoin that they show that they have assets against. There have been, and the fact that they represented their proof of reserves as being an audit, which of course is no such thing, because Binance has an enormous number of assets and liabilities outside of just Bitcoin, but that's all that they actually produced. It's called a lot of fun around Binance, people believing that perhaps Binance is insolvent.

And then that was exacerbated by, one, there being some delays in withdrawals of USTC on Binance. Those were since ameliorated through to some, I think they had to move a bunch of USC around. But we've seen actually, we've seen all-time high net outflows from Binance. I believe it was like yesterday, there was like billions of dollars that. Nine billion, something like that's cheap. Yeah, something like that. Yeah, something like that.

Right, right, right. But to be clear, that's. a very small portion of Binance's total assets and liabilities. So there's still, I mean, there's, what do you think? There's 60, 70 billion, something like that in total. So it's a fraction of what they have. But this is probably the biggest case of outflows that we've seen from Binance in a very, very, very long time. So the question that is now circulating is like, is Binance the next FTX? I personally think that this is pretty questionable. I think Binance is just in a very, very different position than FTCS.

but that being said, the risk of the DOJ bringing charges against Binance is a very different kind of risk than the risk you might worry of just a vanilla bank run. So you guys have a perspective on all the fear around finance right now. I mean, I think most likely I would guess that Binance is not doing the kind of fraud that FTCS is just because the idea that there would be two of those is like as crazy as the FTA. You just have a hard time believing it? As crazy as the whole FTCs is.

episode has been, I kind of, yeah, maybe I shouldn't discount the like really wildly impossible, but everything so far has been so wildly impossible. Who knows? I guess it could be. But as long as we're still not like a full on clown world mode, I would imagine, you know, Binance hasn't been using customer funds for some other purpose. So I would guess, yeah, it'll be. And it's like correction. I think the weekly outflows around five billion. So it's actually even less. It's less than what FTX had to do in that day where it was like six and then they shut off. Yeah, and Larry Sermak tweeted an image of the Binance Bitcoin reserves and it's like, you know, over time, this thing that goes up, or I guess since I'm doing it for the audience,

I should do it this way. And then it shows like a very, very, very slight decrease recently. And it's this huge mountain of Bitcoin there on. So, you know, whereas, you know, obviously with FTCS, you couldn't even find their cold wallet. So. Yeah, I think the other thing is that in absolute terms, I think a lot of people are now conflating FTX with like every exchange. And the reality is that FTX was pretty unique. FTX didn't make a lot of money, as we're now increasingly learning all the ways in which they didn't make a lot of money. The one thing that you can say about Binance and that now people are, even in congressional hearings, people are saying about Binance is that Binance is evil because they weren't doing all the crazy shit that FTX was doing of buying distressed companies. So, Binance has been, you know, if anything, they've been impressively financially prudent in not trying to catch any of these falling knives.

They just keep the business running. And so, you know, up till today, Binance has been incredibly profitable to the point where I would be very surprised if finance were in anywhere near a similar position to FTX, much less really any other exchange in this industry. So now that being said, that doesn't stop there being fraud, doesn't stop there being violations of anti-money laundering statutes, which is what the DOG. Jay is focused on. But, you know, as for them not having the money, that seems pretty, that seems pretty wild to me. Like unlikely. So, yeah.

But to, Tarun was mentioning this in our chat that, that doesn't stop Congress from pointing fingers at CZ in claiming that somehow the FTX collapse was CZ's fault. There was some, there was some testimony from Kevin O'Leary. Let's see. I didn't watch it. I saw this thing next week because we, we, we, we, we, we, we, we, we, we, we, We got to like, we got to like properly slice and dice this like. Okay, we'll play back a clip next time.

Yeah. Okay, great, great. I didn't actually see it. So I don't know what happened. Oh my God. It's, and it's so crazy. I was sad for humanity watching that. Yeah, but it's weird to me that like Congress would invite somebody who was like an investor and then also this paid spokesperson for FTA.

Like, like, I just was like, oh, that needed to have been like serious. It does clickbait. Turns out, you know, they just need eyeballs. No, but what's weird is, like, you would imagine for congressional testimony there, you would need to have a fact basis with what you say, you know, they're like the notion that you can get up there and then just say. Isn't Sam testify in front of Congress? Well, yeah, but I, so yeah, okay, but he was doing. Yeah, so Kevin O'Leary, all I'm trying to say is even after the facts have come out,

Kevin O'Leary is saying things that are like just not true whatsoever. despite the fact that like all the the facts have come out. So it's just very weird. And, but it's weird to me that like even with all the information, the facts coming out, that they would invite this person who is then just spouting. The Congress. Yeah. Like he's just like like he's a paid spokesperson for FDX and now he's spouting this weird conspiracy theory

that has no basis in reality. So it's just like, okay, whatever. I mean, the entire witness list of the Senate was designed to allow everybody to participate and grandstanding, like across the board, whereas the House, the two witnesses that they had planned were the people closest to the FTX drama, who would be most equipped to actually speak with authority on what actually happened. The Senate hearing had people that were quite far removed from FTX, who have no more information about it than you or I or anyone on Twitter fundamentally. maybe Kevin had the most because he was a paid spokesperson,

but no one else there had any access to any information whatsoever. The idea of him having any information that isn't just like Reddit. The witness list, it was like, it's like calling a witness, you know, to a, I don't know, a murder trial that's somebody that wasn't at the scene of the crime. Yeah, but it's like paid by the murderer to advocate on behalf of. And with that, I feel like we put the final dagger in. Okay, perfect. All right, well, we're going to open the next show with some clips from Kevin O'Leary's testimony,

and then we'll get the full treatment there. All right, we're at time, so we're going to go ahead and wrap for this week. But I'm sure there's going to be more juicy news next time. Thank you, everybody, tuning in, and we'll see you all soon.