Episode 101 – Banking on Regulators – A FTX Story (Recorded Live)

Cas Piancey and Bennett Tomlin discuss the continued fallout of the FTX and Alameda Research collapse, including the failure of regulators and how Alameda and FTX were trying to maintain banking.

This video was recorded live on December 2nd, 2022.

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English Transcript:

now okay I'm gonna hit go live

welcome back everyone I am Cass piancy I'm joined as usual by my partner in crime Mr Bennett Tomlin how are you today I'm doing good Cass how are you I'm tired I'm so tired um and we're getting hit with the usual kind of disrupt disruptive nonsense and technical difficulties right before we go on but um let's talk about what's been going on it's been a hectic couple weeks it's been uh a lot of drama and a lot of uh uncertainty I think not thud but uncertainty we will say um where do you want to start

well okay let's just summarize a little bit at the top of this uh FTX and Alameda where Alameda was using FTX customer funds to gamble on cryptocurrencies made a whole bunch of bad bets they collapsed taking out FTX with them and sending Sam bankman Freed's entire cryptocurrency Cartel into bankruptcy that's where we're at now during that period we've now discovered a bunch of interesting information about how FTX and Alameda were banking at the most basic level we've even had Sam bankman freed admit that um Alameda was regularly used to bank FTX meaning that Alameda was where they were accepting deposits is what Sam will publicly admit to but Alameda is also where they were sending out deposit or withdrawals from and so there was this definite co-mingling of funds between Alameda research and FTX in order for them to be able to comfortably maintain banking during this process there was one specific bank that you've written a little bit about so Cass why don't you tell us a little bit about the bank you have covered well I do I do want to add uh from what you were saying just now uh that the statements made about this to me uh and I'm not a lawyer you're not a lawyer but the the statements made about the co-mingling of funds and where the where the money has been sent to and from it sounds like wire fraud and it sounds like bank fraud um I'm not a lawyer so maybe it's not maybe I'm I have no idea what I'm talking about but it sounds like you would have to be lying about where the funds are coming from and how you receive them to be doing the things that they were doing um so I do want to just kind of state that on the record I it looks like that to me that doesn't mean that's what it is but that's what it looks like to me um and then yeah we're we're looking into you and I and others have been looking into more than just this one bank it's uh the in the bankruptcy filing there was 32 Banks uh listed I believe um 32 Banks and lenders and and other parties uh involved with Alameda and was was that just Alameda was that list just Alameda or was that list FTX as well that that list was the combination of 130 entities that comprised the FTX Enterprise that ended up going bankrupt and these were the banking relationships for all of those right and the bankers include you know the the normal names that we've come to expect in this space so for instance I think everyone who follows the tether stablecoin drama is familiar with Dell tech because that's the bank of choice for

um and I'm getting into the weeds a little bit here because I think to tell the story of this little bank that we're about to talk about uh you do have to kind of understand the back the back story here the history um Dell tech has been around for a really long time I think 75-ish years or something like that uh old school offshore Bank listed heavily in the Bahamas papers um associated with you know all kinds of you know the Panama papers and the Bahamas leaks um are associated with a lot of tax evasion and a lot of money laundering um that doesn't mean necessarily that I'm suggesting that's what these banks are guilty of but they are one of the top listed banks in the Bahamas leaks Dell tech Del Tech is run by a gentleman we're not run by he is the chairman of so take that as you will he's the chairman of Dell tech Bank the bank that does banking with tether and also was a banking partner for FTX and Alameda right

yeah yeah so Dell tech Bank was one of the banks for both FTX and Alameda um and sorry before we go in Cass you might want to turn the gain on your mic down a bit uh you're coming in a little hot uh but yeah so Dell tech Bank and Trust is the bank for tether in the Bahamas and has been banking both FTX and Alameda um and so yes and then as you were saying Del Tech then went out and found this other little Bank yeah well we're we're talking about we're talking about a bank called Moonstone now uh it was formerly hopefully that's a little better are we okay now uh yeah okay um yeah we're talking about a little bang called Moonstone uh it formally was known as Farmington State Bank um when we say small it's like one of the smallest banks in the entire country uh apparently there was about 10 million dollars in customer deposits there at the time uh that it was purchased um I'm there's kind of conflicting evidence as to I believe the purchase was in 2018 but the he finished following through with the entirety of the purchase in 2020. regardless uh the company that purchased this tiny tiny Bank in rural Southeastern Washington state was um a company called fbh now fbh is owned by Jean chalape who is the again chairperson of Del Tech Bank and Trust in the Bahamas so now he is banking tether and FTX and Alameda and he's purchasing a bank in the United States after he purchased it it was a state Chartered Bank I hope people understand there's like a difference between so like a state Chartered Bank generally is not is taking on like super minimal risk is only working with local businesses and local individual probably only within State for the most part they're not doing a lot of international wire transfers they're not doing um you know a lot of a lot of the stuff that basically the Federal Reserve requires you to check in with them if you want to be doing this stuff they were almost exclusively regulated by the federal uh the FDIC and the Washington State Department of financial institutions uh as soon as Jean purchased it he basically made it his mission to get it federally reserved Federal Reserve regulated as opposed to State chartered and the reason for this was uh obviously so that he could connect up ask or I mean I'm not going to say Obviously but I think it's to make it an international business an international banking business uh no longer just for the rural individuals of Southeastern Washington State again I'm sorry that this seems like it's so long and complex but and ultimately he got his Federal Reserve uh regulatory licensing and was allowed to do this and one of the first things they did when they changed their name to Moonstone which by the way is a combination of to the moon like in asset class going to the moon and uh Stone like stoned smoking weed because they're two product offers are uh digital assets and cannabis um so basically as soon as they get this um done and this Federal Reserve regulatory framework done they accept an investment of 11.5 million dollars from Alameda research now I think in the scheme of things especially for everybody who's involved in the cryptocurrency industry 11.5 million dollars really doesn't sound like anything um because it isn't it's really very very little but for a tiny Bank a one building Bank in a town of 140 people where that investment actually matches customer deposits at the time um it's a lot of money and not only is it a lot of money the important Point here is that it was for a 10 minority stake and what that does is that balloons the value of this tiny Bank in Washington state so now what was who knows what it was worth I mean the revenues that were reported were like sixty thousand dollars or something in the Years leading up to the purchase um it's now valued at 115 million dollars which is a steep valuation for a tiny little Bank in Southeastern Washington but the second part that's really troubling about this is that as soon as this investment was made suddenly deposits in the bank shot up from 10 million to 80 or 85 million all at once um no the bank secrecy act does they cannot disclose who those deposits were from but I think the general public seems to be under the belief that who else would it be besides possibly Alameda research and FTX and that the question now becomes quid pro quo like are you not doing suspicious activity reports on these depos on these customer deposits I mean I they could these again are not things that we would ever be able to possibly find out but these are real questions that I think the public has now at this point the more interesting point here is kind of why this was necessary right because if we believe that it is Alameda research in FTX who made up this sudden bulk of new deposits that suddenly came in from like what a total of four counts or something was the reporting if we assume let's just assume for now that that's largely SPF related the question is why did they need to go find this other Bank in order to have banking access or banking for these assets because presumably they should have had active and good relationships with other Banks where they were being fully forthright about what was going on and they should have had that continued access to banking them going out and seeking this incredibly small Rural Bank that was as you mentioned doing like 60k in Revenue a year and valuing it immediately at over a hundred million dollars seems like they really were looking for access

it it feels like an access point to the federal and by the way I want to point out the Washington State Department of financial institutions admitted that of all the banks that are uh can't like dealing with cannabis businesses and digital asset businesses the only one that is under Federal Reserve guidelines is moonstone bank it's the only one in the state of Washington I it made me scratch my head that doesn't mean there's anything um malicious going on that doesn't mean that there's anything wrong going on or that any illegal activity has taken place but it makes you scratch your head and go like I'm not exactly certain what's going on here and we should keep peeling back this scab to see what's underneath well and I think we should talk briefly about Dell tech and we've probably talked about Dell tech before in some of our early episodes when we were talking about the past of tether but for those who are unaware it is a relatively unassuming or at least it was a relatively unassuming I always struggle with that word uh and back in like 2016 before tether started banking there before their new CEO at the time took over I want to say it had like 16 to 19 million in deposits right so let's say double Moonstone bank but still not a major bank right and then we see its capital structure change around the same time that tether starts banking there in 2018 with them leaving the Asian Isola group and coming under some new ownership structure which is a little bit harder to discern they launched Dell chain their cryptocurrency focused offshoot of which Paulo Arduino the chief technical officer of tether used to be an executive director for they launched their cryptocurrency hedge fund fulgar Alpha onboard it onto bitfinex and then Paolo stops being a director at Del chain there's all of these transitions happening for Dell tech in 2018. they launched this new cryptocurrency offshoot they start banking tether shortly after that they start banking Alameda research and onward and eventually they start banking FTX as well 2020 comes around and then we get to Moonstone Bank where we see deltek the group that started just a couple years ago at like less than 20 million dollars in deposit now going out and seeking a bank that was of roughly the same similar class of sizes it in America purchasing it from another foreign National and then watching its valuation immediately explode to something greater than a hundred million dollars thanks to the investment of Alameda research who is also being banked by Del Tech down in the Bahamas where FTX is operating TX needs a bit of social and political capital and so these entire series of transactions that are happening here are still somewhat opaque but from what we can tell suggests that the interactions between these companies and the steps they need to take to maintain banking are more significant than some people have recognized and in in a protost piece today um uh it's called Washington regulator doesn't need new laws to stop bad guys in crypto um you know maybe people who didn't scroll all the way down to the bottom might have missed it but um a former regulatory lawyer said simply the SEC the cftc and fincen have been worn time and time again about the risks of Dell tech um and I think that there's probably a lot of former regulators and Regulators out there who are equally frustrated with this situation um as we are if not more because perhaps they're not the laws and rules and and regulations in place for them to do what they they want to do on the other hand um I think it's important to point out that we that protos also spoke to the Federal Reserve this past week and their excuse was uh well you know sometimes we screw up and I don't know it's nice to hear them admit that I guess on one hand on the other hand that doesn't instill anybody with a bunch of confidence does it like it's not saying oh we acknowledge we made a mistake here's how and here's how we're going to fix it it's uh well you know oops boys will be boys and you're just like what like yeah so I think they're we're looking at um truly a a systemic regulatory failure here truly I I believe it yeah and so you they've been the conversations with the Federal Reserve about the approval of moonstone about Moonstone becoming a Federal Reserve regulated Bank you there was the conversation with Washington DFI and broadly I think there's a few classes of problems here when we're getting into regulators and there's like a couple of things okay I want to address because besides those two there was another regulator who made comments recently that made me incredibly angry and that was uh chairman Ben man Ben name Rustin Benham the chairman of the cftc made a comment where he said that FTX looked like a classic Bank friend a liquidity Crunch and that made me angry because FTX not is not a bank and that is not what was going on it was not just a liquidity crunch Alameda was Exempted from Liquidation Alameda was getting positions they could not without special exemptions FTX and Alameda were intentionally co-mingling assets there was these loans against related parties in order to maintain this fiction the chairman going out and saying that revealed that he had not spent the time to understand even the basics of what had been publicly reported about the FTX thing so far beyond whatever other information the cftc and its staff may have it was a it was malpractice basically it is your responsibility to under the to understand these things and making a statement like that suggesting it is a class of failure that it was that the public reporting already says it was not is embarrassing from a regulator and I think that's kind of what we're seeing here is that many of The Regulators are doing an embarrassingly bad job at seeing through what they're supposed to and some of the others are hamstrung by the lack of political will or resources or desire to actually even try to regulate I again I think that's all correct I think that's all correct it's it's it's such a difficult systemic it's such a difficult systemic issue because it's almost like you don't know where one systemic issue ends and another one begins like is it politics and lawmakers or is it Regulators who are being lazy or is it that I mean one of the one of the I don't know if it was reported in the this story or not but um the the Washington Department of Financial Services or um financial institutions uh one of their their consumer services uh uh representative basically said that um you know they expected consumers to you know read the fine print like if they didn't read the fine print that's why they got messed over messed up with on on block fi which had been which had been

given license like money transmission licenses Etc in the state of Washington and I was like hey you and I you know we know when when block five is offering 12 15 20 apy on these stable coins where this whatever it's not only is it unsustainable but like it's a business model that's doomed to make this business fail um and I can say that confidently now because they've declared bankruptcy basically twice or three times or who keeps who's keeping count anymore um so I I think the fact that that wasn't caught beforehand by these Regulators like it's already ringing alarm bells to me and then for them to write off like well they should have read the fine print it's like well no maybe the fine print shouldn't be fine print maybe the fine print should be bold and accurate and fair for all the consumers so they know what they're getting themselves into and the FI the The Regulators the lawmakers I don't think this is even on their radar as like a possible solution which is just I don't know it's mind-boggling I don't know who's failing hardest right now I guess it's it's hard to try to cover who's failing hardest besides like SPF yeah well and like we've kind of talked about some of the challenge here is that like there is kind of a lack of political will there is not a broad consensus among our lawmakers or even our populists that it should be a thing that our Regulators actively go out and regulate these markets and so without that even when they have the laws on their on the books it can be challenging for them to go out and do it however even saying that right now as I'm saying it it feels like a really weak excuse because like often what you end up seeing and like I'm thinking of I'm blanking on the name but the director of The Mint who started like the state quarter program

um his first name is yes that's right yes yeah uh so that position wasn't ever imagined as like what he made it into but because he was willing to go out and try to do something with it it became a much more meaningful thing and really kind of changed the mint's position in the government under his care and so I think that well I'm saying they don't have the political will there is kind of this part where when the public sees you going after the Bad actors and taking steps to do these things you can start to create virtuous Cycles where the political will comes from that done well because there are people who are clearly frustrated at the abuses of power and privilege that they see all around them every day foreign that's right um and and definitely some of this I think is as we continue to watch all of this unravel and untangle some of this it's becoming clear you know there were red flags years ago there were red flags a long time ago about this there's people trying to spin it like no one could have possibly known like oh there there's people who talk bad about others who did ask the right question two or three years ago and say they just are constantly flooding and it's like well actually the question of like how much separation between Alameda and FTX is there and how can you prove it wow well that seems like a really poignant question now doesn't it it seems like it was anyone who said I'm not going to trust them because it seems like they have a trading desk directly trading against customers I mean wow well that seems like it was obviously true now doesn't it um so I I do think that it's easy to write off these old questions but when we're slowly untangling the scope of this it becomes clear that this has been going on for a really long time um and I know you and I have both been working on trying to untangle some of this mess can you like can you talk about this process it's been challenging I've started working to like some of the banking partners and the entities that have declared bankruptcy trying to trace like overlapping directorates and things like that and this entire thing is a mess and there is one specific example I want to talk about because it brings us back to the issue of how they were maintaining Banking and directly connects to how interconnected these entities were their finances were and how much Sam bankman freed personally was involved despite his claims all over everywhere that he was not and so one of the examples I'm going to talk about is a small Australian over-the-counter trading desk called hivex and this small little over-the-counter trading desk started in 2018 by Fred sebesta was

Fred sebesta then after he started this desk in 2018 went out and purchased a roughly 10 stake in the local bank goldfields money which was a great bank because it had access to some broader payment system yada yada so it was a it was a small bank but it was valuable because it had the connections to the payment rails they needed if that sounds familiar hivex the small Australian over-the-counter trading desk then announced a service where they would help bank icos and start advertising their ability to bank icos one of the executives on their team was even had the title um his title was a bank brokering that was what he was in charge of or bank account brokering was what he was in charge of that brokering is generally the process of like buying and selling and so I'm not really want to know what bank account brokering is but that was his title August of 2020 Sam bankman freed and yes Sam bankman freed and Alameda research come in and purchased this over-the-counter treating desk for 300 000 in Australian dollars and I'm sure absolutely nothing else in any other consideration that was not reported to the Australian authorities so that's about 200 000 USD he buys this trading desk that had this nice banking relationship thanks to the purchase of the trading desk co-founder and then well it's still under the control of Alameda research FTX starts advertising that they can now accept deposits through Hive exchange because of course all of these were interconnected the money was moving through all of them and Sam bankman freed was personally made director of hivex after and while it was still under the ownership of Alameda research oh sure Sam you had no idea what was going on while you were being made director of the companies they purchased in order to bank FTX you [ __ ] liar oh shum it very much begins to feel like you're Charlie uh and pepe de Silva um or whatever it is Pepe Silva whatever um the classic meme of Charlie from It's Always Sunny and you're you're pointing to all the entities and all the circles are matching up and going here and there and and people are like I don't really even care to know about this complex net of Lies um but it is that I mean yeah it's really intense we've we've I I've been trying to Simply unravel kind of some of the exposure that some entities might have had to Alameda whether it's from Investments or from uh or from you know let's just give an example of say they were the insurance company for them or something like that so like these entities themselves are then connected to things like Dell tech or connected to things like and Del Tech Bank and Trust of course is owned by Del Tech International Group and you know Odell chain is a subsidiary of Dell tech Bank and Trust like we can go on forever and we're not going to get to the bottom of it and these are all slippery slippery slippery slippery folks who aren't going to tell us anything that we want to know I've reached out to Del Tech a bunch if they want to come on our podcast and chat I would love to have them I would love to have Jean shalapen or you know our good friend Greg I know he did the Laura Shin podcast I haven't seen him around much since then please come on hop on with us and chat I I'm super interested in Delta listens yeah I'm sure he does I'm inviting both of them they can come on together um you know the insurance provider though Jean shalapen has done a podcast where he is a sponsor of the podcast so I I know he does podcasts as well so if he won't he doesn't even have to sponsor us like come on come on in John we want to talk man I want to know more about your gigantic conglomerate banking thing in the Bahamas I'd love to hear more about how you did this how you've controlled this interest and banked Heather when no one else could I think it's amazing I would love to know all about it um so open invite to those folks those good folks over at Dell tech um obviously they're not going to but I like I think that the frustration you hear from both Ben and I whether it's about Sam bankman free getting a media parade um and trying to spin this obvious Narrative of well I'm just a stupid [ __ ] [ __ ] doesn't everybody see that I'm just a [ __ ] idiot I went to MIT I graduated I I like I worked at Jane Street I understand all of this stuff about trading and derivatives and margins and I know all about it I'm a [ __ ] dietary model that allowed Jane Street to profitably trade ETFs even when those ETF markets themselves were closed but I'm a dumbass I don't know what risk management even means co-mingling what's that by the way there was a really nice article today by Zeke foe of um Bloom uh well writing for Bloomberg um and uh I urge everyone to check that piece out um that that was I think it was a really well written and humble piece because Zeke admits in the piece kind of that he had been fooled as well that he had gone there and been like hmm maybe this guy is like for real maybe this effective altruism thing is gonna work um and you know he wrote this article going and visiting him in the Bahamas and just kind of being more like skeptical the whole time and uh it's nice to see that that's that's the turn I'd like to see from these media Outlets um you know I guess it's good that he that he did the New York Times thing Andrew Ross Sorkin did ask good questions um thank God I think nobody was necessarily expecting that thank you Andrew for doing the right thing um and then the GMA one was just so strange so so strange but again the right questions were ultimately asked and he didn't look good um now does he look kind of stupid do I perceive him as like I do think that this is like playing into the stupidity defense and possibly like I don't know maybe he'll go for like a site like drug psychosis defense or something like there's something weird going on where he's like I'm not listening to any lawyers I'm not listening to my parents who were like Professor lawyers and I'm not gonna do anything that anyone expects me to do maybe because I'm [ __ ] dumb and crazy um so I think it plays into that a bit which is unfortunate and is why I think if we could cool it with all the SPF interviews that would be really nice if you're going to do one if you must do one please please do your preparation beforehand and make sure all the people you invite to be a part of whatever kind of interview you're doing are similarly prepared and ready for what this type of interview entails please not referring to any of the interviews in specific that might have been really really [ __ ] bad but hey just a broad recommendation

yeah I know and you look I know a lot of people have been slamming the media left and right for their bad takes and I think it's fair it's fair to kind of uh look at some of those early takes about about him I think that I think the narrative is shift shifted like I think it's more or less become more like a oh okay he's just a alleged prod um yeah at the very least it's shifting and listen all of us in crypto are pretty deep into crypto anyone who's listening to this podcast knows like several standard deviations more about cryptocurrency than the average politician and like several standard deviations more than the average like newspaper columnist or whatever it's going to take a while for like the information to diffuse from those who know what's going on to those who write about what's happening and so I'm hoping that those who write about what's happening put in an active effort to get up to speed on this but just naturally generally for most things that process takes time as that information diffuses and I think we've already kind of turned the corner on Sam bankman Freed's possible redeemability like I think he has made enough and like that's the other effect of his interviews is he has contradicted himself he's contradicted previous interviews he's contradicted statements of like the current CEO of FTX John J Ray III and so like all of these contradictions will eventually as the media takes time to process and integrate them will come back to haunt Sam it's just these processes sometimes take a little bit of time because the people involved are people and are deeply flawed do you want to give John J Ray III an open invite as well that one's for real I'd much rather have him on than John shalopam but you know both of them either one would be great I imagine he's busy and probably can't talk about a lot of the things we would want to talk about but hey if you ever want to talk Enron and we can even ignore FTX and just talk Enron if you want John come on

um yeah uh um I mean I I think we're still waiting for the other shoes to drop I don't think that we've seen the end of the contagion risk here and the the the I think basically we're at the time where anyone who can get away with not answering the question of so how exposed were you to Alameda and FTX well just avoid having to answer that question like they're just not if if no reporter asks them they're never going to bring up that subject um so you know I know that citizen journalists there's been a bit of a I mean um look bit boy is not a journalist in any way let me let me just put that out there um anybody giving him props for anything he's currently doing um doesn't know the real truth about him and how he for years made money from reflings and Shilling and betting on a bunch of bad projects that he dumped these tokens uh of on from you know dumping on his audience um so I I just don't want people like bitboy to be getting any traction as like saviors in this in this current reality that we find ourselves in where everything seems messed up and and there have been some sort of weird whitewashy kind of pieces from some mainstream media outlets in the past few weeks like I get it there's frustration um but please let's not levitate people like him let's not levitate anybody like I don't think it's worth putting anybody on a Podium uh after after this I will give massive credit to coindesk and I think it's really important to note that what happened here I have no idea if it's because dcg is absolutely incompetent or if they purposely built these like built these these Chinese firewalls between their companies and they had no idea what coindesk was going to report if that is indeed the case you know props to them that is awesome I like really truly mad respect if they made sure that they never knew anything editorially going on at coindesk generally I find that hard to believe but I'd maybe that could very well be the case and if that is indeed the case props to them for um letting this story go out it gives everyone I think hope that journalism has Integrity yet I think it's quite plausible just knowing the journalists I know over at coindesk and the editors I know over at coindis I think it's quite plausible that dcg had no idea what they were reporting um but it is kind of funny that now yeah there's word going around that dcg may be interested in selling coindesks because coindesk might be one of the more valuable dcg properties left um which is not how I think Ian Allison expected this to go when he wrote a little story about what quindis or about what element of researchers balance sheet looked like four and a half months ago I think he was just covering what he thought was wow this is strange they're way over levered and on their sister company you know as scary as it is for I think that that the question kind of that journalists have been asking each other is like isn't this kind of funny and weird like isn't it kind of funny and weird that somebody essentially takes down their parent company like that is not exactly what has happened to be clear like who knows what ends up happening with dcg who knows what ends up happening with grayscale and uh Genesis and you know all this stuff nobody knows they could all they could all write it out and be totally fine maybe but um regardless this was allowed to be reported it was reported fairly justifiably it actually reminds me very much of um the initial reporting on Enron where it was um oh God forgive me um I'm forgetting her name uh Bethany um Bethany McLean thank you um Bethany McLean did the first story on it and it mostly I think that the headline was is Enron overpriced I might be getting it slightly wrong but I believe yeah yeah is Enron overvalued and um Enron freaked out all the executives freaked out they they were talking about how she didn't know what she was talking about well I think I don't know if his Wall Street Journal I think his Wall Street Journal that uh did that report initially said they were just like Wall Street Journal so stupid they don't I want to say it was a herd on the street column I know that's how Jim chanos ended up hearing about it but I don't know if that was where Bethany originally published it well I know hers was there were other things here and there but like hers was the big one um and their reaction to that was so strong that people started digging more and then everything came to light and I feel like there was such a similar uh basically Ian Allison reported this story it didn't get a ton of traction and I remember you and me both being like uh this seems [ __ ] crazy uh it seems like a huge [ __ ] deal um I think Mike burgersberg too kind of just like uh I mean he said he straight up was like they're insolvent which I think is like a bold bold claim at the time I mean ultimately he was 100 he wasn't willing to tweet it yet but yeah no but yeah you're absolutely right is there were people who like heard Carolyn go we've got another 10 billion of assets and they were like look at what do you guys talking about they've got 10 billion more assets and we're all like what you think they've got a separate balance sheet with 10 Bailey 10 billion of accurately valued assets after you just saw how they [ __ ] their valuation on these assets you just that that's you're just going with that they're working that's right people who just went with that that's right that's right and and I think it's it's um yeah it was this slow roll so like there was that initial story there was people like us who were like this seems way more important than anybody is taking it then there's people like Mike going like it's straight up insolvency and then there's like and then there's the slow revelation of like the rest of cryptocurrency Industry just being like Oh no this is really really bad isn't it no this is horrible I I think what's kind of really funny here and not funny like haha but funny like you [ __ ] did that to yourself is that increasingly it seems like the and this is going to be somewhat speculative so don't take this as a literal description of events but like Alameda and 3ac seem to have like both got to some indication that the other was weaker than was like generally understood and started like aggressively taking unprofitable positions in the hopes of like forcing the other into a position where they would break and then there'd be a bunch of things available for the winning firm and like eventually with Tara one of them did break but like from what I can tell when that happened they all realized that they had all the same counterparties and they were both getting loans from the same people and that they were both floning to the same people and that if one of them blew the other blue and so then Alameda takes more billions because I think they'd already taken money out of FTX at this point but they took more billions from FTX in order to bail themselves out and start trying to bail out all the counterparties that were involved in this little Tit for Tat game and now that FTX has collapsed with realizing oh wait a second all the companies we thought weren't exposed at least half of those actually still were exposed and we're just hiding it because Alameda was stealing in order to continue to fund the game and so like they went to war and destroyed everything

yeah there were no Victors in this in this war um I and and that doesn't even get to I think some glaring questions from everybody that had not been answered I think in in any real meaningful way which are hey where did those billions of dollars [ __ ] go it's a pretty simple question I don't think anybody has an answer to that yet um even if it was lost in trades where and to whom um so I think those are glaring questions that's a glaring question that hasn't been answered but another one actually wait it's especially a glaring question when the current FTX CEO and team writes in their bankruptcy filings that they believe the co-founders of FTX that beat Gary Wang and Sam Bateman freed are hiding wallets with digital assets and that's part of why they don't have an accurate kind of assets yet yeah when you've got the current CEO accusing you of hiding funds yeah I think it's a very good question as to where did the money go

that's are somewhere between a hundred thousand dollars and four billion dollars you think that's a fair stand Fair statement

Market at 4 billion though I know that um listen listen he'd Market at 40 take a loan out for eight recapitalize FTX and get the

Casino yeah yeah yeah yeah

there is what's the quickest what's the quickest way to make a hundred thousand dollars like invest 40 billion dollars with FTX and Alameda right it's that old yeah back to back to my little tit for Tad analogy there is an interesting angle that's gone largely unnoticed Forbes kind of gave it away today there's some more stuff coming that'll further report this out but like uh binance originally purchases a stake in of FTX Equity when the first getting started owns it and then they eventually sell it and some of the reporting said back to FTX but the Forbes reporting today and again there's more to come we'll reveal that it was not sold to FTX it was sold to Alameda research Alameda research was the entity that used largely FTX token in a little bit of busd in order to purchase back this Equity from binance and the reason they were doing this is that FTX was applying for licenses in in Gibraltar in Gibraltar and one of the things they had to do was give information about their largest shareholders to the regulatory body and CZ refused to give any information to the regulatory body and so FTX was not eligible to get that and so what I think happened is that in order for CZ to keep his equity-like exposure but not actually be a shareholder her they basically made FTX token like did the swap for FTX token so that CZ would still have the effective buy-in burn rates that you get from FTX the effective claim against that portion of the revenue without actually being a shareholder because it's not that they didn't want CZ involved it's not that they didn't need CZ involved it's that they couldn't have him and continue to pursue the broad slate of licenses they were hoping to get and so because of that they did this Swap and then when they had to bail themselves out I think CZ got wind that they were using FTX token to do it and he realized that his position his taken FTX was potentially in danger because there was this extra assets being spread out across the ecosystem so then just I'm not convinced it was malicious I still think CZ might have honestly intended to sell that position over months or a year or even more as he de-risked it but hold on reaction no no this gets back to Enron the reaction section of Carolyn and Sam to the news that CZ was selling suddenly meant that like oh they're they're [ __ ] there's nothing here and that meant there was blood in the water and then everyone came out

reiterate that if there was no malintent I don't there's no reason

yeah there's no reason for him to announce his illiquid his largely a liquid position he's going to be selling it out over months it is you know at the very is not that stupid so I'm gonna give him that much credit and say that he definitely uh at the very least he he was putting Chum he was putting Chum in the water to bring to bring the sharks in the first place so and you know whatever I like that doesn't excuse fro that certainly doesn't excuse fraud and I don't and I don't think don't think anybody needs to suggest that CZ is the one who who caused this that is definitely not true and I want to make it clear that neither you or I believe that but uh he did his part oh yeah and when I say I I don't know that CZ knew there was an 11 billion dollar hole in the books I think he gathered there was a hole in the books and I think he might have literally thought this is my chance to buy out one of the more threatening competitors not that he thought like this is my chance to blow up the entire industry

I think yeah I think that's probably right um yeah what else is there what is what else is there that we should cover is there I mean is there anything you think we need to update people on I think I I mean I don't know a lot of I think a lot of the stuff swirling around now is just based on what Sam like I I I my policy now is that he's exclusively lying um and by understanding that everything he says is a lie it kind of makes it so that there's very little reason to take anything he says to the media seriously or provide Pro suggest it provides us any value other than one day seeing him go to jail because of these interviews um so I yeah I mean for me that that story it's not dead it's certainly not dead we're gonna be covering it for years I suspect this is not the story is not going anywhere but um I don't care about hearing from uh Sam anymore I would really love to hear from Sam Trabuco I would love to hear from Caroline Ellison more I don't think she's spoken very much um I would love to hear more from Gary um and uh and the other the other few tight-knit people um in that little circle I don't care about I know other people are fascinated by like the sex stuff and the drug [ __ ] and you know I think all of all the kind of recklessness definitely played a role but the interesting part to like to me is hearing all sides in the sex and the Romantic element like insofar as it suggests that we're not appropriate like controls and separations between these I don't really hear who's the embankment freed sticks his penis in that's not a piece of information that's really that interesting to me but like the fact that the person he was dating was the CEO of the firm he claims to have no idea what was going on about that's pretty suspicious

I mean I think there's I look there's plenty of examples as to how broken this whatever you want to call like company is even a difficult term at this point um because it was such a [ __ ] from to me what appears like from the very very beginning I mean people have already stopped talking about that lady who co-founded who co-founded it with Sam and then immediately left because of all the risks that she saw there um or the uh the Ponzi like 2018 fundraising thing where they were promising like crazy returns and stuff um just don't get me started on that stuff because then I just start thinking about Kyle Davies and and Zuzu and and how they're they're trying to do this and how they're trying to be these these we're just seeing so many scammers try to elevate themselves you know they're trying to be we were Martyrs it's like they were Martyrs for um

for some greater good or something and I'm just like what greater good you just lost money idiots I have no idea like why do I why would I feel bad for you or why would I feel like you've done anything but hurt people um so I want to see less of that I really want to see less of that on on Twitter but whatever Twitter's a [ __ ] nightmare anyway we we should probably just spend less time on Twitter period which probably is probably the answer to that problem uh um any questions or not like is there anything let me check and see quick I got it open here casting your back down cast turn your mic down yeah yeah yeah yeah yeah yeah

let's see


sounds like probably not much there so um there's a question Astro brick asked a question about the tokenized Securities on FTX Europe uh I have started the process of looking into that but again that's another one of those cases where you have pretty complicated interlocking directorates trying it's like trying to track who had custody who was doing redemptions who was doing what has been challenging so far and um so haven't published anything yet and don't have any strong opinions on that um it seemed strange when I saw how some of the corporations that were involved in it were being passed from owner to owner as they like kept restructuring in Europe

but strange isn't necessarily Criminal

I do want to point out uh that reminded me of um the Arthur GB Thomas I believe is his name Arthur GB Thomas of the Eastern Caribbean Securities like commission or whatever it's called um I tweeted out about him being a board member for FTX Malta and I emailed them and specifically I asked what's the deal with this guy and then they just emailed me back and said he no longer works for us we've forwarded your email to him um and I never obviously I never heard from him but I do think that I what I'm pointing to is there was clear there's it's going to become very obvious to people I think how much of a role not only FTX and Alameda but these banks that are banking them and the people helping them move real US Dollars into and out of the cryptocurrency industry are going to be shown to have worked hand in hand with regulators and lawmakers in countries like the Bahamas which okay I'm sure there's a lot of people out there going well no [ __ ] Cass um but I I do think that this is like a good it's pivotal it and it's worth pointing to and it people's reputations need to be damaged because of this like the fact that the Prime Minister of the Bahamas was hanging out I get it it's a small country or whatever but like hanging out with him on stage and trying desperately to woo this woo this guy to the Bahamas why like why is this allowed you know why is this allowed how did this happen um and uh and why was there no due diligence done by these people uh there's something called the Dare act I want to point people to uh d-a-r-e act uh in the Bahamas this act has really allowed all of this stuff to flourish and Jean shalopin went on a different podcast honestly the podcast name I'm blinking on it otherwise I would name it um but he went on another podcast and he said like I helped the Bahamas like and state the Dare act like I was I was I helped get FTX and Alameda here um so these guys work a lot with these government officials this is a huge important part of the Bahamas economy still um and I don't know I expect there to be serious Fallout uh that we haven't seen regarding all of that yet yes I before we close this out I want to emphasize that I expect the banking and payments processing angle for how FTX Alameda and I think I think we're even gonna see FTX us end up implicating this how those three groups moved money is going to be one of the most important parts of this story and I think it is inevitable that story is going to touch on Dell tech and that story is going to touch on Tether as was discussed in the tether papers Alameda research was the largest single issuer of tethers and tether even again recently reiterated and reclaimed that those were dollars that tether received and then issued tethers for and so that is a serious claim from tether because that means there was 36 point and this was at November of last year and so it's actually probably in excess of 40 billion dollars in total um of U.S dollars moved through the banking system from Alameda to an account in tether's name and then those tethers were issued and then those dollars went somewhere and those tethers went somewhere and both parts of that are going to be an important piece of how this money moved as will Moonstone as will goldfields money and hivex as will the weird web of payment processors foreign exchange shell companies and other things that was used by FTX and Alameda research to move money around the globe

and we're calling it four arrows research there's a lot of reasons behind that we're trying to make sure that the bankers like us we're also just trying to get extra arrows in when we can um and yeah we're starting quartos research we're hoping to get eight billion dollars raised by who really honestly the end of this month if that's possible we're trying to get a stake in the new in ftx2 and uh and we're trying to yeah we're trying to I'm an STX classic guy myself I understand that I get it but um yeah I just I think it's time for us to stake some ftx2 tokens and get ready to uh really build out our Empire um so anyway thanks everybody before we're allowed to get stoned thanks for listening everybody talk soon

4 responses to “Episode 101 – Banking on Regulators – A FTX Story (Recorded Live)”

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