Unchained - Why the Legal Process for FTX and Sam Bankman-Fried Could Take Years - Ep. 430

Starting point is 00:00:00 Hi, everyone. Just wanted to state two quick clarifications about recent shows. In this past Tuesday's show with Ram Alawalia and Sam Andrew about all things Genesis and DCG, Sam and I stated that a loan to three arrows capital accounted for 47% of Genesis' loan book. This was technically true as of June 30th, but not true when the loan was originated. Rom explained that the figure was likely that high because, as Genesis began to call in loans, the good loans got called back, but then the bad loans remained taking up a huge portion of the loan book. Second, in the episode the Tuesday before that, with Michael Jordan and Alex Pack, Michael said that there was a tweet from Doquan confirming that the Luna Foundation Guard's selling of UST in a curve pool to purchase Bitcoin set off the DPEG.

Starting point is 00:00:50 However, I talked to Doe, and this was a misinterpretation of his tweet. He says that the UST sold to buy Bitcoin didn't come from a curve pool, but instead from the Luna Foundation Guard's own holdings, and actually significantly predated the withdrawal of liquidity from that U.S.T curve pool. Hope that that clarifies things. And now on to the show. Hey, everyone, just a quick note before we begin. Unchained is doing its annual survey.

Starting point is 00:01:20 Head to SurveyMonkey.com slash R slash Unchained 2020. to tell us how you think we're doing and how we could improve, whether it be on the podcast, in the newsletter, or in our premium offering. Looking forward to hearing your thoughts. Again, the link is surveymonkey.com slash R slash Unchained 2022. And you can also check the show notes for the link. Hi, everyone. Welcome to Unchained. You're a no-hype resource for all things crypto.

Starting point is 00:01:48 I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago. and as a senior editor, Forbes, was the first Main Tree Media Reporter to cover cryptocurrency full-time. This is the December 9th, 2022 episode of Unchained. Every other week, Unchained hosts the shopping block with Crypto Insiders Hasib Koreshi, Tom Schmidt, Robert Leshner, and Tarun Shitra. Catch the latest episode on YouTube and all podcast platforms. With the Crypto.com app, you can buy, earn, and spend crypto in one place.

Starting point is 00:02:19 Download and get $25 with the code, Laura, link in the description. Today's guest is Vee Lee, partner and head of regulatory and policy at Bain Capital Crypto. Welcome, V. Hi, Laura. Thanks for having me. After the collapse of FtX and the revelation that customer funds were allegedly lent to sister trading firm Alameda and then lost, founder and former CEO Sam Bankman-Fried has been in the hot seat. There are at least six investigations into what happened with the latest of these being that the Manhattan prosecutors office is looking into whether he manipulated the market for Tara and Luna. Can we just do kind of a

Starting point is 00:03:00 quick overview of all of these different investigations? And actually, now that I think it might even be seven, do you want to just go over which ones are the most important and why? Yeah, so since you just mentioned this potential like market manipulation with respect to the Tara Luna incident earlier this year, why don't we just cover that real quick? Because I think that one is actually really interesting. I think the article that reported this did not say when this investigation started. I suspect that this has probably been going on for a while simply because, you know, the collapse of Terraluna happened like back in April. So the theory that they're allegedly pursuing here is a really interesting one, right? It's, it's something that you do see from time to time,

Starting point is 00:03:48 this idea that like it's illegal to engage in trading to artificially increase or decrease the price of some asset, whether it's like a security or a commodity or something like that. So the idea is that instead of reflecting like the market-based forces of supply and demand, you're tricking other market participants into buying and selling something at an artificial price. So that's fraud, right? So, and it can be a crime. So typically when market manipulation is charged, it involves the manipulation of like a security or a commodity, like I said, right? So there's criminal statutes on commodities fraud. There's criminal statute on securities fraud. And then, of course, these things are often also charged under wire

Starting point is 00:04:34 fraud. When it comes to crypto assets, though, I wonder if, you know, in this case, it involved market manipulation of Terra. So I wonder if in this case, they'll run into the same issue that they had in the two cases, the federal prosecutors, that is, the two cases that they brought earlier this year, involving the OpenC employee and the Coinbase employee and the brother and it was the cousin, where they charged, quote unquote, insider trading, but didn't allege the involvement of any security or commodity or anything like that. So it was just charged under wire fraud. So I was looking at some cases involving market manipulation, and the only one I was able to find that only charged wire fraud without like a securities fraud charge or a commodities fraud charge,

Starting point is 00:05:22 involved, I don't know if you remember this, but from a few years back, some Deutsche Bank traders were charged with manipulating the LIBOR rate, and they were convicted in that. So that was just charged under wire fraud because, you know, the LIBOR rate is not a security or a commodity. But in that case, what's interesting is that the convictions were later thrown out because the judge said that, like, it's basically not possible to manipulate the LIBOR rate because there's no like natural market rate or LIBOR in the way that there is for like an equity or a commodity commodity future or something like that. So I don't I don't know that that would be an issue here because I think, you know, most crypto assets do have a market,

Starting point is 00:06:08 like a prevailing market price that's determined by natural forces of supply and demand. But it's just something to be aware of, you know, like how if they brought these market manipulation charges in the past and how could it apply here. And then, that's the criminal part. So on the SEC and the CFTC side, there are also provisions that prohibit market manipulation. And it's the same exact idea pretty much. It's just that it does have to involve a security or a commodity. And I think if the SEC was investigating this too and ended up charging it, they would do the same thing that they did, you know, that they would have to do in like the insider trading cases, in the open sea and coin base incidents where they would allege that,

Starting point is 00:06:45 you know, Tara Luna is the security and that they tried to manipulate the price of it. in order to profit. Oh, wow. And we, so I don't, I don't remember, but OpenC, I remember that that was charges insider trading, but it was by the SEC. Yeah. So in the OpenC case, the SEC did not bring a parallel case. I'm not sure why, but I think it's because, you know, they've never actually brought a case asserting that NFTs were securities, whereas they obviously have brought cases asserting that tokens are securities, right? And so they did bring a parallel case in the Coinbase insider trading case because that involved tokens. My guess is that in the open sea case, it's just less of a settled issue for them, whether NFTs are securities or not.

Starting point is 00:07:33 Okay. Yeah. And one other thing just earlier you said Terraluna happened in April. It was May. But then besides that, there's also a Department of Justice investigation. Can you talk about that? because that's probably going to be criminal as well, right? Yeah. So you can bring a criminal charge for market manipulation, right? And so a lot of times these cases involve something called like spoofing, which is when you place a bunch of orders that you never actually intend to fill in order to drive the price up or down.

Starting point is 00:08:08 Right. Yeah, but I'm not talking about the Teraluna potential market manipulation anymore. I'm just talking about the investigation to FDX. Oh, okay. Okay, you want to talk about FTX, the recent events. Not the, yeah, so the recent events. Yeah, so, you know, I think people have a lot of questions about how the process is played out so far and how it's likely going to play out in the coming weeks and months.

Starting point is 00:08:33 So, you know, we know that the DOJ and the SEC and possibly other regulators or other criminal authorities are investigating. And, you know, we're still learning the facts. and Sam has obviously been speaking out publicly. But I think right now I feel pretty like comfortable saying that enough facts have come to light to suggest that there probably was fraud committed and at the very least the misuse or misappropriation of customer funds. And, you know, Caroline Ellison, the CEO of Alameda herself, the Wall Street Journal reported that she told her employees in a video call. right, that she, Sam and other executives at FTX were aware that customer funds were being moved to Alameda. And so, you know, the question is, I think a question a lot of people have, including me, are like, why hasn't he been arrested and will he be arrested?

Starting point is 00:09:30 Will others be arrested? And what's taking so long? And what's he doing going on all these podcasts and Twitter spaces and doing all of these interviews? Like, what's up with that? Yeah. Well, can you answer those questions? Like, why hasn't he been? I don't, I don't, so I know he just retained an attorney, like, recently. I don't know if he had legal representation when he was going out and doing all of these interviews. I find it hard to believe that, like, if he did have a lawyer, that the lawyer would not have strongly advised him against doing that. It's certainly very unconventional for someone who is being investigated for potential crimes to be speaking out as much as he has.

Starting point is 00:10:12 But I think he's trying to shape the narrative and preempt, you know, what potential, like, criminal or other charges might be coming down the line, right? Yeah. So I think he's trying to, you know, sort of paint this narrative that this was about, like, mistakes or, you know, the fact that he wasn't paying close enough attention to what was going on or, like, maybe taking on a little bit too much risk. Or I think at other times he suggested that, like, this was all due to, like, a downturn in the market that he had no control over or like a bank run, which he also had no

Starting point is 00:10:47 control over. So I think he's suggesting that, you know, it's all of these other things other than just outright fraud and like misuse of customer funds. People are calling this the bad businessman strategy and saying it's not a crime to be a bad business person. Yeah. So we're going to talk about his selection of lawyer in a moment. But first a quick word from the sponsors who make this show possible. Investing is all about the future. So what do you think is going to happen? Bitcoin is sort of inevitable at this point.

Starting point is 00:11:20 I think it would come down to precious metals. I hope we don't go cashless. I would say land is a safe investment. Technology companies. Solar energy. Robotic pollinators might be a thing. A wrestler to face a robot, that will have to happen. So whatever you think is going to happen in the future, you can invest in it at Wealth Simple. Start now at WealthSimple.com.

Starting point is 00:11:43 Join over 50 million people using Crypto.com, one of the easiest places to buy, earn, 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. Back to my conversation with V.

Starting point is 00:12:12 So one thing that you mentioned quickly was that he hired Mark Cohen, who was the lawyer for Gailene Maxwell, who was affiliated with Jeffrey Epstein. And I wondered what that said to you about what kind of defense he's likely to undertake, that selection of lawyer. Yeah, I mean, Mark Cohen is a seasoned criminal lawyer. He's done criminal trials. He's done civil trials. He's worked on cases involving securities fraud.

Starting point is 00:12:44 He's taken, you know, cases to verdict, including, like, acquittals. And so, I mean, it makes sense that he would choose someone like that as opposed to, I think, like, for a little bit there, he was represented by some Stanford law professors. Yeah, David Mills, who I think is still advising him, but anyway. Yeah, that's possible. Yeah. But, you know, if you're facing potential criminal charges in the Southern District of New York, no less, like, if you want an actual criminal lawyer who has experience trying federal criminal cases and white-collar cases. And so, I mean, to me, it signals that he wants someone who is able to do that if it does come to that. I was curious because he said he's down to $100,000 in one bank account.

Starting point is 00:13:30 So I was curious how much a lawyer like that was cost? I mean, I think probably a lot more than that, depending on how, you know, the investment. investigation proceeds and whether he is eventually charged and whether he decides to go to trial or not. You know, obviously, if he decides to go to trial, that's going to be a long process and it's going to involve a lot of work and that would, you know, result in a lot more expenses. But if he, if he is planning to negotiate a plea, then this could be resolved more quickly, right? So I think it really depends on how this all fits out and the route that he wants to take. And earlier, you mention how everybody's wondering why he hasn't already been arrested. So why not? Yeah. So I think it's

Starting point is 00:14:17 important to kind of like take a step back. I know there's like a lot happening and just to sort of go through how these criminal investigations and like if there's an SEC enforcement matter going on like how they typically work just so people have like a realistic idea of how things are likely to play out. So on the criminal side, this is very basic. But in order to arrest someone in a situation like this, you need an arrest warrant, right? So you can get that through either an indictment returned by a grand jury or a criminal complaint. But either of those have to be based on probable cause. And if the person is overseas in a country like the Bahamas, which the U.S. does have an extradition treaty with, the DOJ would then work with the Office of International Affairs to have the person extradited. And so if the person submits

Starting point is 00:15:03 to being extradited, then the process should be pretty quick, like they'll be back in the U.S. pretty soon. but some countries allow you to challenge your extradition, right? So like Julian Assange, for instance, challenged his extradition, and that took a long time to play out. So that could prolong the process. I don't know what the process is in the Bahamas for someone to challenge their, to challenge an extradition request. But if Sam avails himself of that, that could prolong the process.

Starting point is 00:15:30 So, you know, the DOJ is either, like, in the process of investigating the facts in order to establish probable cause to get an arrest warrant here. or it's possible that they've already obtained one. Like we don't know, right? If they had an arrest warrant and are actively working towards extradition, that wouldn't necessarily be public, right? Arrest warrants are typically kept under seal for obvious reasons. Like if the person you're planning to arrest gets wind of it,

Starting point is 00:15:56 then they could be a flight risk. So it's totally possible also that they already have an arrest warrant and are just working on that and that's not public. But, you know, assuming that they're still investigating, that can take a lot of time, right? like they have to get search warrants to get access to documents and data, potentially. They have to sift through all of the documents and data. They might want to interview witnesses, right?

Starting point is 00:16:17 All of this stuff is really complicated. In addition, when a lot of this stuff is located overseas, right? So, you know, hopefully they're getting access to, like, what they need because the criminal authorities in the Bahamas are willing to cooperate. And then, of course, FTX has a new CEO and lawyers, and they're presumably cooperating and doing what they need. to like preserve documents and turn over evidence to the government and things like that. I do think one potential wrinkle here, though, is that the government is probably also investigating the role that officials in government officials in the Bahamas may have played in all of this, right? So, you know, there were reports, right, that like after the accounts were frozen and no one

Starting point is 00:17:04 could withdraw their money. There were reports that some of the accounts belonging to officials in the Bahamas and, like, their family members, like, they were allowed to withdraw their money when everyone else's accounts were frozen. And then, of course, that happened the same week after the accounts were frozen. And I think there are still questions there about whether some of that money was transferred to government accounts in the Bahamas or, you know, whether they directed some of that or were somehow involved, right? So to the extent that the U.S. is also investigating potential involvement by any government officials there. That could also complicate the cooperation between the two countries, and that could also prolong things, right?

Starting point is 00:17:46 And then with criminal investigations like this, there's always the possibility that there are people who are cooperating. Caroline Ellison was reportedly spotted in New York City recently, and it's also been reported that she's hired the law firm, Wilmer Hale, which, you know, as a lot of people know, know they have like a star roster of former federal prosecutors, including the former like SD&Y U.S. attorney himself. Pre-Bara. Yes, exactly. Pre-pre. So, you know, cooperating witnesses, if that's something that's happening here, cooperating

Starting point is 00:18:20 witnesses can speed up an investigation, right? If they're providing evidence that can be like corroborated, that could really help the federal prosecutors here establish probable cause that they need to get the arrest of, you know, or potentially others. And so, you know, I don't think it's rocket science here that there are probably individuals involved that have an incentive to cooperate sooner rather than later. So that can also affect the timing of the investigation and like one in the rest could, you know, could happen.

Starting point is 00:18:51 And, you know, I know people have been like Bernie Madoff situation. And I think he was arrested within like a week or something of his crimes coming to light. But, you know, I would just caution like that situation was really different. because Madoff, you know, he basically confessed his crimes to his sons. And then they called the FBI who showed up at his house, like soon after that. And he basically admitted to all of it, right? Like all, and this all happened over the course of like a week. So that's obviously not the situation here, which is why it's probably just going to take longer.

Starting point is 00:19:24 Like Sam hasn't openly admitted to criminal conduct. And in fact, he's, you know, like we were saying earlier, he's been pushing like a very different narrative of just like, you know, maybe he made mistakes or wasn't paying attention or just made bad business decisions or something, right? Like everything but criminal fraud. And so I think it's just for that reason, too, it's very different than something like made off where you did see an arrest right away. I think this is going to take more time. Yeah. And just to understand like earlier when you were saying that there might already be an arrest warrant and like leaving this situation with the Bahamian government

Starting point is 00:20:02 aside, since so many journalists are going and meeting Sam right now and even setting up film crews and his, you know, either his apartment or, you know, some of the other FTX apartments and interviewing him and all that, it's very easy to, or not easy. You know, there's security at the place where he lives. But I'm just trying to say that it seems like maybe it sees other factors, not that they haven't like tried or something. It's like they're probably waiting for various reasons. Yeah. You're saying like in the case that they actually do have an arrest warrant. Yeah. Like I wouldn't imagine that it's like actually hard considering all the other people that are going to meet him in person. So there is the extradition process that they would have to undergo, right?

Starting point is 00:20:47 Like they have to work through that process. Like I don't, I don't think that the FBI could just show up in the Bahamas. They would have to work with the government law enforcement in the Bahamas to get him extradited. And then when he's here, that process would take over. Okay. And then I wanted to ask when you mentioned that most likely there will be some kind of fraud charge. Obviously, the word fraud has been thrown around a lot, just kind of in, I think, a non-legal way. But I imagine that in a legal way, there would need to be like a certain bar for evidence. And like for instance, I just think when you're a journalist sometimes, you know, whether or not you use the word lie to describe what somebody, a statement somebody has made, you know, it kind of requires having a sense of their intention or, you know, being in their brain. And so it can be a little bit difficult. And they imagine that that's a similar case here. I don't know. But can you just explain to me sort of what the legal bar would need to be for fraud to be proven? Yeah. So if, you know, if the federal prosecutors bring a criminal fraud charge here would likely be brought under the wire fraud statute, which is very broad. You know, it can cover all kinds of fraud, which involves, you know, things like stealing customer funds and lying to customers about what's happening with their funds and lying to investors about, you know, how the money that they're investing is going to be used.

Starting point is 00:22:26 So something like that could be brought under a wire fraud charge. It's pretty broad. And fraud, you know, like people use it like you said in the colloquial sense. But actually when it's used in like a criminal context, it's pretty straightforward. It's like what, you know, an average like person would consider fraud. And so, you know, if it turns out that customer funds here were misappropriated in light especially of like the terms of use that prohibited the customer funds from being used that way. I mean, that's just outright deception. That's frog, right? You're telling customers that you're not going to use their money for any purpose like that. And then you take the money in order to plug in like holes and cover up losses in your affiliated,

Starting point is 00:23:10 like, hedge fund. That's, I mean, that's going to qualify as like criminal law abroad. Got it. And then as you said earlier, this really could go anywhere in terms of it ending up in a plea deal or maybe even going to trial. I don't know if you have an opinion on which of those is more likely, but I was also curious regardless of that question, what kind of punishment do you think he's likely to face both under a plea deal and if it goes to trial? Yeah, I mean, so there are so many factors, right, that go into legal negotiations. And that's even assuming that, you know, If the DOJ decides to charge him, it's not a given that they're even going to offer him a plea deal, right? They have no, like, obligation to that's totally up to the federal prosecutors, whether they want to do that or not.

Starting point is 00:24:03 And then if they do, right, like his potential sentence, which would ultimately be decided by a judge, like the federal prosecutors don't decide what the sentence is going to be, but they do decide what criminal charges to bring. and then there are sentencing ranges that are associated with those charges, right? So they do have some discretion as to what charges they decide to bring, how many charges they decide to bring, and what sentencing ranges are associated with those charges. And then that is ultimately what the judge would work with, you know, if he's convicted to decide what his sentence is going to be. But, you know, if he's charged with wire fraud, which is, you know, the most obvious, like, outcome if the facts support it, then I think he's facing something like 20 plus years in jail.

Starting point is 00:24:53 And, you know, if there are multiple charges, like, there's flexibility as to how they can charge, like, one count with respect to, like, different, you know, conduct that happened. And that's something that, you know, if they offer him a plea, they can always negotiate that, right? That happens all the time where, you know, if the defendant is willing to plead and to cooperate or something like that, then they might work with the person to, you know, decide like what the charges are going to be and what the ultimate sentencing range is going to be. So that's all a part of the negotiation. I mean, who knows what he's going to do? I think, you know, he's going to decide based on what the charges are and what's on the table. But do you feel that the fact that the

Starting point is 00:25:35 strategy so far seems to be this bad businessman strategy means that he's less likely to take a plea deal, like in the sense that if so far he hasn't been willing to admit that there was fraud, then like do you think it means that maybe he's less likely to accept a plea deal? I don't think necessarily. I mean, you know, he's he's doing all of this right now. But like his mindset could totally change once he's actually faced with an indictment, right? Or like a complaint and he sees what charges are on the table and how much time he could be facing. I mean, he could be singing a very different tune once he's faced with all of that.

Starting point is 00:26:15 So I don't necessarily think that, you know, what he's doing now is any indication of how he would react or respond once he's actually facing charges. Okay. And then the only kind of somewhat recent comparison I could make maybe would be what happened with Ferranos, where the initial fraud was revealed in the Wall Street Journal in the fall of 2015. and it's only in the last month that the top executives there, Elizabeth Holmes and Sunny Balwani, were sentenced. So how long do you expect some kind of conclusion like that to occur for the FTX story? Yeah. So when the reporter there broke that story, I think even then it took, I think it took something like a year, right, for her to even be indicted. So that investigation took a long time. I mean, who knows that, you know, the same, the investigation here, could take something like months up to a year or longer. And that, if I recall, the recording there was actually pretty comprehensive.

Starting point is 00:27:20 It was a pretty thorough job. And yet it still took them, you know, that much time to get their case together in order to charge her. And then, of course, once it went to trial, you know, you have to go through the discovery process. And, you know, there could be like a lot of witnesses involved that the government wants to talk to to prepare their case. and there's like a motion to dismiss stage, there's summary judgment.

Starting point is 00:27:43 So there's all sorts of stages that you have to go through before it even gets to a trial. And then the trial itself has to occur. So it can take years, you know, like things that could make it take longer as if the defense brings a lot of motions to challenge the admission of certain evidence or things like that. And so there are all sorts of things that can happen in the criminal proceeding to really like draw up the process. So I think it's really hard to say. But if Sam does choose, you know, if he does. is charged and he chooses to take it to trial, it could be years. And if he chooses a plea deal, then how long or how quickly could that wrap up? That could wrap up quickly. I mean, if they,

Starting point is 00:28:21 you know, if, if, if assuming they offer him some kind of deal, right, which I said is not a given, but if they do, and he is willing to plead and accept responsibility and they can agree on what the charges are going to be and things that would affect the sentencing ranges, then it could happen very quickly. So it's just it all depends on how he he wants to perceive if it comes to that. All right. Well, this has been just very insightful and kind of, yeah, just interesting to learn more of the legal process about how all this works. Is there anything that I didn't ask you that you would want to add? Yeah. So I just wanted to mention to that, you know, the SEC is also reportedly investigating, not just this situation involving like FTX and Alameda and the potential misuse

Starting point is 00:29:10 of customer funds, but I think the SEC is also involving this like market, potential market manipulation with respect to Taraluna. So, you know, I don't know if people know this, but, you know, when the SEC and the DOJ are doing parallel investigations like this, which is not at all uncommon. I spent about six years at the SEC. Five of that was as an attorney in the enforcement division, and we did a lot of cases in parallel with the criminal authorities. So if the SEC is also investigating, like all of those things that I described earlier that the DOJ is likely doing as a part of its investigation, I mean, I expect the SEC and maybe other, you know, the other regulators that are looking into this. I expect them to be just right there alongside the DOJ, you know, looking at the evidence,

Starting point is 00:29:55 interviewing witnesses together and that sort of thing. It's not at all uncommon for them to do that. You know, if the SEC is also investigating that in parallel or this recent FTX Alameda situation, it's not at all uncommon for them to conduct those investigations in parallel and share information and things like that. And a lot of times they even, you know, if they decide to bring charges, like the SEC decides to bring a civil enforcement action and the criminal authorities decide to bring a criminal charge, they'll often like even announce it at the same time. Not always. They didn't do that with Elizabeth Holmes, but usually they'll try to time it so that the charges are announced at the same time. But the thing there is that typically if, you know, the cases are brought in parallel, the SEC case and any other civil case will be stayed, meaning the judge will basically put a pause on it and allow the criminal process to come to a resolution before allowing the SEC and civil cases to proceed. So we could, that's, that's, that's, that's, what I would expect if that happens here. Okay. One thing actually that that makes me think about is the fact that in the Coinbase insider trading case, the SEC basically just stated these certain tokens or securities without providing the rationale for that. So if that were to happen,

Starting point is 00:31:17 it sounds like they would do the same for perhaps Tara and Luna, which would cause another whole interesting wrinkle and everything. Yeah, in the COIN, in the SECB-Wahi case, the Coinbase case. Yeah. So they actually did include some analysis, not a lot, but they did do sort of like, like kind of a short Howie analysis for each of that. It was like nine tokens that they alleged were securities. So I would expect them to do that here. They haven't done that in every enforcement action that they've brought that involved alleged securities. right. So like there was a case, I believe it was from last year where they charged a crypto exchange called Poloniacs for operating an unregistered securities exchange. But in their order, they don't actually, they didn't actually say which securities or which tokens were allegedly securities. So there have been, there's been at least one instance where they have just declined to allege what tokens were securities. But they did do it in. SECV Wahee, the Coinbase case. And they did do like a short Howie analysis.

Starting point is 00:32:30 Okay. Yeah, but I think also people took issue with the fact that then those token teams couldn't kind of like defend. But anyway, okay, well, this has been just super interesting and also really informative. Thank you so much for explaining it all on Unchained. Of course. Thanks, Laura, I have for me on. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. The ScoreBet app here with trusted stats in real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking.

Starting point is 00:33:08 Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or... The score bet. Trusted sports content, seamless sports betting. Download today. 19 plus, Ontario only. If you have questions, Concerns about your gambling or the gambling of someone close to you. Please go to conixontario.ca. Now streaming on Paramount Plus, it began on the shores of New Jersey. The calls of gym, tan, laundry, reverberated north to Canada, where a new type of party animal resides.

Starting point is 00:33:41 They move as a herd migrating to their favorite watering holes, asserting dominance by flexing, grinding, and twerking. Coupling is quick, steamy, and sometimes in hot tubs. When morning arrives, They do it all over again. Canada Shore. New original series, now streaming on Paramount Plus. Thanks for tuning in to this week's news recap. Taylor Swift rejected a $100 million sponsorship deal with FTX. The Financial Times reported that FTX attempted to strike a nine-figure sponsorship deal with Taylor Swift that included an NFT arrangement. Despite negotiating with a pop star, the talks fell through before FTC's eventual collapse in November. Apparently, former FTX CEO Sam Bankman-Fried is a big fan of Taylor, or, as one employee told the FT, big fan of Tatei. FTX also had extravagantly expensive deals with many celebrity figures such as Tom Brady,

Starting point is 00:34:38 Jaselle Bunchin, Naomi Osaka, Shaquille O'Neal and Steph Curry. The report calls into question FTCS's internal decision-making, which led to clashes between Bankman-Fried's inner circle and more experienced executives. Bloomberg reported that Alameda Research, the trading arm of Bankman Freed's FTX, invested around $1.15 billion in Bitcoin mining company Genesis Digital Assets over four rounds between August 2021 and April of this year. And the FT revealed a spreadsheet of venture investments FTX in Alameda had made as of November, totaling $5.4 billion, including $500 million to Anthropic, an AI safety and research company, $270 million to EEC, and $400 million to Brazilian asset manager Modulo Capital. Additionally, a Solana developer noted that FTCS had been hosting all NFTs minted on its

Starting point is 00:35:33 exchange using a Web2 API. As a consequence, the metadata is now broken and no one can access their NFTs, which has caused frustration amongst users on the platform and has resulted in many questions being asked about how the issue will be rectified. Genesis owes at least $1.8 billion. Coin desk reported that cryptocurrency lender at Genesis owes creditors at least $1.8 billion, raising concerns about the future of the company. The alien crypto lender owes $900 million to customers of Crypto Exchange Gemini

Starting point is 00:36:06 and the other $900 million to a group of creditors represented by law firm, Prossgauer Rose. According to the report, there's a third group of creditors being represented by Kirkland and Ellis, but the amount in loans to which this group can lay claim is unknown. Meanwhile, Genesis's sister company, Grayscale, is being sued by hedge fund for Tree capital management in order to obtain information about potential mismanagement and conflicts of interest at the investment firm. Grayscale Bitcoin Trust traded at a 47% discount on Wednesday, marking an all-time

Starting point is 00:36:39 low for Grayscale's product and putting more pressure on the group's troubled financial situation. For more on that, definitely check out. out Tuesday's episode of Unchained. On Wednesday morning, Genesis's interim CEO, Deraa Islam, wrote a letter to customers, suggesting that the reactivation of withdrawals from the lending unit should be expected to come not in days, but weeks. Silvergate CEO responds to accusations of mismanagement. In response to a class action lawsuit that alleges Silvergate Bank was an accomplice in the FTX collapse, CEO Alan Lane sent a letter to shareholders to reassure them about the bank's due diligence practices, risk management, and reserves.

Starting point is 00:37:20 The lawsuit claims Silvergate is responsible for allowing FTCS to direct customer deposits to Elmita Research. Lane asserts the bank followed regulations for suspicious activity and conducted significant due diligence. Senator Elizabeth Warren, John Kennedy, and Roger Marshall signed a letter directed to Lane asking about Silvergate's egregious failure of its responsibility to monitor for and report suspicious financial activity carried out by its clients. U.S. lawmakers are also seeking answers about FTX. In a letter directed to the Board of Governors of the Federal Reserve, senators Warren and Tina Smith expressed concern about the interconnectedness of crypto

Starting point is 00:37:59 and the traditional banking system, and the fact that regulators are not closely monitoring the industry. Investment banking companies Morgan Stanley and Raymond James downgraded their ratings of Silvergate, and the shares fell approximately 20% from the start of the week. Celsius to return some customers money. In the Celsius Chapter 11, Chief Bankruptcy Judge Martin Glenn ordered Celsius Network to return around $44 million worth of crypto back to one certain group of customers, those who had their money in custody accounts,

Starting point is 00:38:31 not in the interest-bearing accounts. It has not yet been decided how the money and interest-bearing accounts will be handled. The decision could have some implications for FTX's case. Gabriel Shapiro, General Counsel at Delphi Labs tweeted, Celsius bankruptcy court holds that ordinary crypto accounts belong to users. Mere depositors are not being treated as general unsecured creditors. If followed in FTX, depositors are ahead of other claimants. Additionally, Celsius received court approval to delay its submission of a Chapter 11 reorganization plan till February 15th.

Starting point is 00:39:07 Speaking of bankrupt crypto companies, the judge overseeing the case of Three Arrow's Capital approved subpoenaing the company's co-founders Su Zhu and Kyle Davies, while the liquidators for the crypto hedge fund seized $35.6 million of the firm's cash. Signature Bank tightens crypto deposit caps amidst industry turmoil. Crypto-friendly signature bank is planning to offload

Starting point is 00:39:30 up to $10 million of crypto-related deposits. The decision has to do with the turmoil in the crypto industry, as well as signatures' share of crypto-related deposits reaching 23% mid-November. The bank's plan is to reduce this to less than 20% and eventually less than 15%. Signature is placing a cap on deposits from clients in digital assets at 2% of total bank deposits. Binance says it has more Bitcoin than it needs. Mazars, an international audit firm, has confirmed that Binance's Bitcoin holdings are

Starting point is 00:40:02 fully backed, exceeding its liabilities. This finding was reached by assessing Binance's proof of reserves and proof of liabilities, through a Merkel-proof verification process. Jesse Powell of Cracken, who raised doubts about Binance's statement last week, didn't miss the chance to express his concerns about the audit. He said that it is obviously not a traditional proof of reserves and hinted that Binance is hiding something. Disclosure, Cracken is a former sponsor of the show.

Starting point is 00:40:30 Gary Gensler says he has the tools to regulate crypto. Sidespepping questions about FTCS in an interview on Yahoo Finance, Securities and Exchange Commission chair Gary Gensler, said, as he has said repeatedly in the past, the agency has the necessary authority to regulate cryptocurrencies. On Wednesday, a federal judge terminated an investor's class action lawsuit against the creators of Ethereum Max and public figures Kim Kardashian and Floyd Mayweather. The dismissal comes three months after Kardashian reconciled with the SEC, paying a sum over $1 million due to her promotion of the cryptocurrency. The judge expressed worries about celebrities' persuasive abilities

Starting point is 00:41:08 to have their undiscerning followers purchase snake oil. Shanghai has a tentative date. Ethereum developers announced a timeline for their much-awated next hard fork, Shanghai, which would make it possible to withdraw Ether staked with network validators. At a meeting on Thursday,

Starting point is 00:41:24 core developers set the tentative date of March 2020-3 for the completion of the Shanghai upgrade, which is formerly known as Ethereum Improvement Proposal, EIP, 4895. This upgrade seeks to provide greater flexibility and convenience to those who have staked Ether on Ethereum since the merge,

Starting point is 00:41:42 the latest major upgrade of the blockchain. This has happened many times before, especially with the merge. The proposed timeline may be delayed due to potential technical difficulties or other unforeseen issues. Developers also discussed EIP 4884, another hard fork that will enable proto-dank sharding, a technology that will allow the network to significantly improve scalability. Circle terminates plans to go public. Circle, the issuer of the issue of the network.

Starting point is 00:42:08 widely used USDC stablecoin has ended its proposed merger with special purpose acquisition company Concord Acquisition Corp and scrapped the deal that was originally valued at $4.5 billion. The intention was for Circle to be combined with the SPAC and then listed on the New York Stock Exchange. Neither side revealed why the merger wasn't successful, but Circle CEO Jeremy Aller still believes an IPO is in the company's future. Maple Finance cuts ties with insolvent client that was exposed to FTX. A major defy lending platform announced it was cutting ties with orthogonal trading, a large client believed to have misrepresented its financial position. Maple's decision follows the collapse of

Starting point is 00:42:48 FTX, which is forcing the hands of overextended crypto lenders and borrowers. Orthogonal had borrowed over $500 million from Maple and its default caused a secondary knock-on effect on Nexus Mutual, which potentially suffered losses of $3 million from exposure to the company. Time for fun bits. avenging the scammers. Joma, the creator of NFT project Vaxed Doggos, posted a hilarious video on Twitter

Starting point is 00:43:16 mimicking how SBF handled funds on FTCS. The video portrays a conversation between Sam Bankman-Fried, in air quotes, who repeats that he's a philanthropist and a customer who wants to deposit $8 billion on an exchange to trade. During the conversation, SPF is playing League of Legends

Starting point is 00:43:35 and when this customer finally gives SBF the $8 billion, the money is not so accidentally slipped into the hands of Alameda research, represented by a person smoking and gambling with the funds. In a wise decision, the customer regrets giving his money to SBF and decides to ask for it back, but a bunch of FTT tokens get thrown in his face while SBF runs away. You still have my money, right? Oh, yes, of course. Yeah, here it is. Huh. Yeah, it looks a little bit different, but I guess that's fine. All right. Thanks so much for joining us today. To learn more about V, the legal process for Sam Bingman-Fried and FTX,

Starting point is 00:44:20 check out the show notes for this episode. Unchained is produced by me, Laura Shin, without from Anthony Youne, Mark Murdoch, Matt Pilchard, Juan Oranovich, Sam Shri-Rum, Pamajimdar, Shashonk, and SailK transcription. Thanks for listening.

Unchained - Why the Legal Process for FTX and Sam Bankman-Fried Could Take Years - Ep. 430

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