Episode 102 – Sam Bankman-Fried was Arrested (feat. Coffeezilla) (Recorded Live)

Cas Piancey and Bennett Tomlin are joined by  @Coffeezilla  to discuss the arrest of Sam Bankman-Fried and the charges filed by SDNY, CFTC, and the SEC.

This video was recorded live on December 13th, 2022.

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English Transcript:

[Music] um

sorry give me one

oh yeah his mic is pick I can tell his mic is picking up like some like computer audio

I think that's probably what he went to go get it's it's not gonna get better it's just gonna be a sleigh Tom but I'm gonna mute myself whenever I'm not talking so hopefully it's not going to bother anybody guess we are live all right great what's up boys hey welcome back everybody we're joined with a special guest today it's coffeezilla uh I assume everyone is familiar with him uh if not please go check out his YouTube channel he's been uh on top of just a ton of fraud in scams in general um but today we're obviously going to talk about the uh 10 billion dollar elephant in the room FTX SPF alameter research let's let's get going uh we got an arrest today fellas uh I I don't know I don't know what to say let's I want to hear I want to hear what you guys have to say about this honestly I'm surprised they got it done this fast I know everyone was like oh well you know why isn't he arrested yet these cases take time it's complex White Collar fraud it just takes a while and the problem is if you arrest someone too early they have a right to a speedy trial so they can just rush you to court and then if you don't have the goods they cut they get let go so uh usually you see these cases take a while so it's actually pretty surprised that they just like hit him like right off and I think that mostly was due to the public outcry I think if it was any other case they probably would have took take their taken their time uh it was everyone's number one priority so they got it done what was interesting is they filed it December 9th they just didn't say anything nobody said anything everyone's coordinating to drop the same day until that he gets arrested that was pretty great I don't know if they intentionally did it the supposedly supposed to testify if that was I thought it was pretty smart I was like Wow in a way it ensures Sam would be somewhere with stable internet so probably like at his house you know like at a reliable place they knew where he'd probably put on that you know so right ahead of that I thought that was really smart what'd y'all think

I I don't think they said they weren't really planning in any specific time that this was just how long it took for them to coordinate with the Bahamian authorities to pull off the arrest and I think barring other evidence that's probably the best explanation I think some of the conspiracy theories people have had that he was arrested so he could avoid testifying our um a little hilarious yeah you just file an eight count criminal charge because you're worried they're gonna say something um and it has been hilarious in this case because like you mentioned they filed this indictment last week under seal and since then he just hasn't been able to stop confessing in Twitter spaces in uh interviews recorded and elsewhere and both of you at different times have had uh conversations with Sam that crew to get contentious and we're at different times he seemed to confess to fraud well I didn't I didn't hear castes tell me what happened yeah well I actually want to say that I I what I did copy was I brought up your previous uh interview with him where I had publicly asked uh Twitter um is he confessing to wire fraud when coffee asks him these questions um so tell the audience what the what the thing was um basically you were asking him about the stub account this magical stub account on uh in Alameda research and he was essentially telling you that this money that was for FTX customers and was intended to go into FTX accounts was from the very beginning to the it sounds like to the very end was never being directed to FTX at all and was simply being fed to this stub account and now to me he's like whoa they were given instructions to do that and they agreed to those instructions but it's like it sounds like that's wire fraud like you're not sending it to the FTX bank accounts that's where it's supposed to go that's where customers expect it to go and you're not doing it and to me that sounded like wire fraud so basically I brought up your interview again um and I said like can you help me understand how this isn't wire fraud and he was like I'm done with your questions after this um which I think he said to you as well it's I've heard him say it to other people too um and I start I also started out thankfully Molly white asked him Point Blank um are you playing video games right now and he was like uh I shouldn't I probably shouldn't answer this um yeah I'm I'm playing video games um and then you could just hear throughout the rest of it like you you could just hear click click click click click just desperate clicking the entire time and so I started it out yeah exactly and so I started it out and I was like Sam I find it incredibly disrespectful that you're playing video games the entire time that you're talking to this panel and creditors and he was like do you have a question for me um so uh he was getting really uh annoyed by the end of it like everyone wasn't he was surprised that everyone wasn't bowing down to his transparency and honestly which wasn't transparency or honesty because the second you actually pushed him on hard questions he would dance around the subject I mean we have to talk about the crazy revelations in some of these uh complaints it was shocking actually what I thought was the weakest I mean I think the the FBI doj indictment I thought interesting it wasn't that much in there but the SEC and cfdc laid out some Bombshells in there in their complaint so to get everyone up to speed there were like three things that went out the SEC said okay so we had talked about this okay right where they lost eight billion dollars the whole thing is this if the SEC says that I don't know what their evidence for this is but they must have it complaint they said that he directed people to hide the account concerned that creditors would find out about it and worry about it this said Not only did he do that he like which it accounts for why it was so poorly labeled he said it was poorly labeled well it's poorly labeled labeled by Design to hide the account then then he moved the account so they wouldn't be charged interest then he excluded them from the Auto Liquidation protocol which we all knew but uh it was nice to get confirmed on that so it's like from the beginning he not only did he know about the eight billion dollars that's like he thought a lot about where that money was going well and I I just want to clarify for those who might have missed this this stub account is not one single account it's one single notation in ftx's internal accounting system it is hundreds of accounts spread through dozens of entities across like several dozen different banking Partners payment processors whatever it's not just one account and like so Sam likes to treat it like it's one accounts you're like oh he just missed one thing no no it was a deliberate attempt to use dozens of entities to set up hundreds of accounts to try to obscure their banking relationships and flows we talked about this a little bit in our last episode with like hivecs and gold fields and stuff like that where they were purchasing these entities specifically so they would be able to use them for Banking and all of those were contributing to the so-called stub account but it wasn't just one account like and so much of like this and like the stuff you're talking about in the SEC filing today just revealed how Brazen what he was doing really was yes absolutely it was unbelievable you you look at it you go I mean because listen nobody distrusts Sam more than me but even I was reading this complaint and I was like he really lied about it all like of course I thought that but like to actually read it and to see it you go wow he went on interview after interview and lied to people's faces over and over did he not think this would come out I I actually want to bring up because we're talking about these charges so we're talking about the SEC and the cftc and all this stuff but I do think what one of the interesting things here that I would like to hear both of you comment on is that we've got a money laundering charge we're doing this in the southern district of New York which poses Ricoh uh issues here um yeah like what what do we think about this money laundering charge I think that's actually a pretty big deal I think a lot of people were really skeptical a couple weeks ago when I said he was going to get indicted for money laundering and I was right and they were wrong um we've talked about this in past episodes before but money laundering is actually a relatively broad charge like your general conception of it is Narco cartels trying to launder cash proceeds into the banking system right but the crime itself encompasses a lot of activities that are just around hiding the source of funds and so if you do something like commit wire fraud and then try to take the proceeds of committing wire fraud and get it into the banking system there's a chance that ends up charged with money laundering and so there is still kind of an outstanding question is Sam bankman freed being charged with money laundering in the sense that he was facilitating flows for organized crime or is he getting charged with money laundering in the sense that he was committing Bank fed wire fraud and all these other things so it was very easy to charge him with that as well yeah and like even like when he was spending it on venture capital is that why are sorry is that money laundering because you're moving funds that should have been customers you're putting it into investment vehicles I don't know it yeah I it is a bit different than what you'd expect you do expect kind of the Narco thing but I don't think that's what they're going for I mean ultimately how many of these charges do you think will stick I don't see a jury being very sympathetic to this guy no I think I think there's that these eight are the beginning there's going to be superseding indictments on him specifically and I think other well I mean they've basically said in the indictment that there are other unindicted co-conspirators and so I expect we're going to see more indictments for other members of the executive team soon that's right and I feel that even more strongly after seeing Reuters report that they got the part of the code base where uh seeing the CTO was describing setting up the no liquidation parameters for Alameda um yeah I feel pretty confident we're gonna see more indictments and more churches expect these eight will stick and more if he doesn't work out a good deal this is you bring up the next topic that I think is really important another thing that happened today which is uh John Ray III appeared in front of Congress and uh wow I mean first of all I'm gonna say to me it seems pretty clear absolutely yeah congratulations to him what a performance it was fantastic um and it's clear to me that he is sharing everything with every three letter and four-letter agency that they need to see and perhaps this is part of why we saw the expediency of these charges and this push to get him extradited as quickly as possible like I let's talk about his uh his appearance today in general yeah I'll start I mean I knew from the way he wrote that he was a very careful professional he he wasn't new to this and I think he put on a master class I mean simultaneously he said some pretty damning things about Sam while giving off the total appearance of objectivity not bias he could have come in ham-fisted and like banging the gavel on this guy's guilty that he doesn't do any of that instead he lays out a very cold view of what FTX was in terms of they didn't have this they didn't have an accounting department they were using QuickBooks they uh no I don't think he could have possibly not known about this thing and by doing that instead of coming in like I honestly thought a lot of the Congress uh the the Congress men and women did not do such a good job either because they were trying to beat their like constituent point one little thing that they have to talk about or because they just really didn't grasp grasp the subject or they were looking for this like slam dunk moment of do you think he committed fraud yes or no uh but I think what John rated was great because he sets up himself as a the responsible person in the room who's going to get to the bottom of it all he he gives you confidence in him as like an executor of this whole thing and I think he also gave some pretty good evidence well and he specifically accused Sam of embezzlement like yeah that was a good right yeah yeah yeah go ahead and even like mince words or anything on that just outright said like this was a case of embezzlement they took billions of dollars of customers they were never supposed to embezzlement plain old embezzlement I I love I love that woman I loved that moment I think uh I also really appreciated that he at some point they I think one of the other people like going back to your point coffee about some of them maybe were uninformed maybe some of them were trying to drive home some point that they thought was important but I um I remember one of them being like do you think this is common with these other exchanges and it's like how could John Ray possibly know what's going on at any other exchange like sure I guess anything's possible I don't know it was such a weird question don't more like crypto industry for four weeks how could he not know everything yeah more like creepy though we need to start calling crypto creepy though yeah like and then there was I don't know if he was expecting everyone to laugh like it was because you just don't laugh in that setting so everyone just it's dead silence and he goes I'll follow up with my colleagues and it's like what what are you doing you're wasting everyone's time

he opened his time with like reading off of Sam bankman Freed's prepared testimony I think Forbes had published that morning and is like Sam was going to start by saying [ __ ] he didn't respect this thing at all and then he ends his time by trying to make this joke about Creepy dough currency and that was kind of my frustration in the same vein with a lot of these Representatives is it felt like they wanted it to look serious but didn't actually want to be serious and so they wasted their time treading ground that they had already gotten very direct answers on like from questions from uh John Ray and it seemed like many of them didn't actually understand it well enough to kind of adapt and progress the hearing and we're just reading off the few sets of questions they had prepared I think I think that's fair but I do want to make two points one uh AOC who I'm generally not a huge fan of uh I thought she did a pretty good job with her question her question was about the timeline of all of this and about the Bahamian like attempts to like make it a Liquidation in the Bahamas and how that could play a role and I think she also specifically asked if they should go forward with chapter 15 bankruptcy which if anyone doesn't know there's chapter 7 chapter 11 chapter 15. there's probably other chapters um and chapter 15 is a foreign entity uh going into bankruptcy and I believe he said that they should pause chapter 15 bankruptcy uh if they could um which I thought was good uh and a good question um and I also remember that two uh Congress people asked about Moonstone and Farmington and fbh which uh was just an absolute pleasure to hear them uh specifically ask him about and that he was also troubled by this investment in a small uh Washington State Bank

yeah do you think that maybe like part of where this whole money laundering charge is even coming from I'm I'm curious I'm curious about I'm curious about it I'm curious about I I would you know there's some strict regulations about talking about Banks um in America so I'm not going to really say anything but I it doesn't look great I think that's objectively the case here like getting in investment some of the statements by the Congress people I thought were really important where they said like you're you you gave them like I think it was 20 times Book value for this small small Bank like that's really effing weird um and uh yeah like I sorry well and sorry in that same vein yesterday there was a report from I think it was yesterday time has lost a lot of meaning over the last month let's go with yesterday Reuters random report about um some disagreement between prosecutors over whether or not to indict CZ and binance for money laundering and one of the interesting things about that case is that it was being held up by uh malars money laundering asset recoveries service for the Department of Justice and that the prosecutors who were ready to indict were the national cryptocurrency enforcement task force and then the prosecutors were the ones out of Seattle which was surprising to me because a lot of white-collar crime prosecutions end up in southern district of New York and so seeing that the CZ case was being handled out of Washington when we had this other known Nexus to Washington and knowing that the CZ indictment was being delayed by Department of Justice officials in the money laundering Wing was an interesting thing I noted um in the last couple days worth mentioning protego trust is another washington-based uh kind of it's not a bank it's a trust but they they provide a lot of services for cryptocurrency businesses I think they were also partnered with FTX in some sense um so yeah there's got to be a lot of questions for these uh banks that did have by the way these these are two uh one One bank and some trusts in Washington had access to the Federal Reserve which again like these are where you start getting into questions about wow that seems like something that is uncouth like at least uncouth who knows the legality of what's going on what it means for the bank itself but I think if Congress is going this seems fishy um and John Ray III is saying I agree um yeah there's probably something that's going to come of that I I'm wondering what else is sticking out for you coffee in terms of the past few days like stuff that is uh is gonna you think come come up again uh in in the coming months weeks I think the cftc had a huge uh Revelation in their their piece have you all read the it's like a 40 page deal uh I thought it was it was I think page 23 where it talks about wrote a blog post and never published it this was insane to me he wrote a blog post basically saying I need to wrap up Alameda the cost of capital doesn't isn't worth it but then he says something like it was it the the implication was edit where he says I didn't hedge and because I didn't hedge enough the expected value was lower than Alameda the money that Alameda has made and will ever make what does that mean it means I lost more money with Alameda than I made or ever will make it means there's no coming back from this that like said it plain and simple I probably should shut it down because we lost all the money and we'll never make that's literally what he said so are translating his kind of weird expected value effective altruist talk right so uh I thought that was absolutely stunning because that finally places us before November before his whole time it all got screwy in November no no he knew things were messed up before in September and if that's the K and that post he goes I should have wrapped it up a year ago which means the problem started way back that has huge implications to what his motivations were and his culpability in this whole thing because now he can't the the excuse of I found remember that we were in trouble has totally gone out of the window yeah absolutely um and in like that same part that same post you're talking about there's a line where He suggests that like as much as he should be shutting down Alameda research because of the things it's engaged in I don't know if it really can be shut down and then of course they end up not shutting it down because they can't um one of the other things that was really interesting to me that also challenges the timeline he's been trying to spread is in that same cftc thing they talk about how in May of 2022 a whole bunch of lenders start calling in their loans they had extended to Alameda research and then at this point in order to preserve elementa research Sam bankman free personally directs billions of more dollars over telling me to research to allow them to stay functional but the cftc specifically noted that before this point Alameda research already had billions of dollars of FTX assets and so this had started like even before the lenders called the loans in in May of 2022 and so like it had been going on for this entire time and a lot of the filings emphasize that the SEC one used the language um bankman freed was orchestrating a massive years-long fraud diverting billions of dollars of the trading platform's customer funds for his own personal benefit and to help grow his crypto Empire cftc said FTX threw their sister company Alameda had been surreptitiously siphoning off customer funds for its own use and over 8 billion in customer deposits were now missing all of these things lay out like behaviors that have been going on for years and that were part of like this broad orchestrated and deliberate fraud I I want to actually say something that Bennett and I and not to say that we there's no hard evidence of this but I think something both of us have kind of agreed on is this idea that there was that that SPF was seen as this wonderkin who was like able to do this magical Japanese Arbitrage uh with Alameda research back in the day by the way Alameda research founded in Berkeley California um and then moved to Hong Kong so we're talking about like clear connections to the U.S banking system clear connections to U.S regulators and law enforcement agencies right from the very beginning um but for some reason somehow this 25 year old like really just fresh out of Finance um is able to do a Japanese Arbitrage trade that no one else in the world is able to accomplish it's insane to me not only is it insane but I don't believe it and I think what we're talking about here actually is probably just money laundering it's probably just money laundering from the very beginning like I think there is no there's no reality to this ever being at face value a reasonable fare company that was making a bunch of money I don't believe it what do you mean by money like well let's drill down on that a little bit because we're back to Bennett's whole thing of money one thing right any kind of you know you have money you use it for this without trying to not let anyone know so what do you think that is well I think what we're talking about no one knows who funded him who gave him all this money to to make this Arbitrage trade apparently worth it everyone I've spoken to who's in Japan has said there's no way that Banks any Bank Regional or large would allow this trade to happen um period like the only way they would allow it to happen is if you bribe to somebody or if you basically if you just paid a bunch of mules to move this money out for you both of these like one of these is structuring more or less and one of them is I mean bribery which is completely illegal all of it would be illegally moving money into and out of a country to make an Arbitrage trade it's regulatory Arbitrage not actual Arbitrage and I think that that's that's what I'm talking about here this guy never made money legally it was always at best hard Gray let's get oh sorry go ahead Bennett I I wanted to talk a little bit about the other kind of money laundering which we of course have we of course do not know that Sam was implicated in but there are some strange dynamics that have been reported that we can talk about like the connection between Alameda research and Genesis Block in Hong Kong where the financial times reported people were lining up in long lines with bags full of cash in order to convert them into cryptocurrencies right um we've talked about some of their other activities like across the rest of the banking sector in terms of buying these shell companies and stuff to get set up and to access the banking rails uh the other part that gets challenging and is going to make me sound somewhat conspiratorial so I'm gonna try the best I can to stick to well-reported facts here is um there are other money launderers we've seen in the cryptocurrency ecosystem one of the famous sets were the executives of crypto Capital Corps which was a payments processor that served a whole bunch of cryptocurrency companies bitfinex tether Kraken quadriga bitmax and a couple of others uh their principles ended up specifically I'm talking about even Manuel Molina Lee was arrested in Greece and extradited to pull in on charges of money laundering for the Colombian cartels right uh we know for a long time one of the large drivers of demand for tether was the Chinese over-the-counter trading market and capital flight out of China and we coined us reported back in 2019 that even back then there were millions of dollars crossing the border every day from China to Russia in tethers a tethering bitfinex shareholder Zao dong who ran Ren Ren bit one of the large over-the-counter trading deaths in China eventually ended up arrested in China for money laundering and he started the Leo token for what it's worth like he was responsible for the Leo token and he is sitting in a Chinese prison cell right and the uh and he was their specific partner for the offshore one token that tether had and doesn't talk about very often anymore for some reason um and then we get into now Sam bankman Freedom so we've talked about some of this strangeness bags of cash being traded at these Hong Kong over-the-counter trading desks these Australian over-the-counter trading desks being purchased the weird combination of hundreds of different bank accounts around the world and the fact that the government was confident enough to include a money laundering conspiracy charge in this initial indictment rather than going for just the wire fraud or things that would be sufficient for extradition there is of course no evidence that Sam bankmanfreed is part of any kind of like Global money laundering operation meant to like move funds for organized crime or something like that but other people associated with a lot of these companies were doing exactly that I just was that yeah I was waiting for the butt there is no evidence that he's uh yeah a great can we talk about one one thing that I think is so weird that nobody talks about is um and there's it's this weird effect where like if a fraud happens before the thing we're all talking about we're like oh that's not a big deal but it is a big deal so the whole thing about why skipping regulatory uh guard rails and having people wire money to Alameda Place is the most insane thing that I feel like everyone's just like kind of like well we don't care about that because it basically Sam's excuse is a crime his excuse is oh we had everyone wire uh to get money on FTX you had to go wire money to silvergate to and the wiring instruction said Alameda oh really oh really isn't that illegal you can't the the businesses or customer funds this has been normalized for years in cryptocurrency right and and the reason is that before and that this is and I assume now it's about to get real tough again but before it was really hard to get banking for these cryptocurrency companies and the the Federal Reserve and the FDIC wanted nothing to do with them and well you know you had signature figure it out you had silvergate figure it out you had Moonstone figure it out but not a lot of banks were able to figure it out well suddenly I think what is silvergate trading at 18 now or something like that like it's down 90 or something from its all-time highs um these guys and then this is crazy to me because this is not something I hear happening unless we're talking about a bank that's in deep deep [ __ ] um is signature selling 10 trying to sell 10 billion dollars worth of its customers deposits um like distressed Banks do that that is um it's odd it's just an odd thing that they're suddenly selling their customer deposits related to cryptocurrency assets like I troubling all of it is incredibly troubling I I would be worried I would be really worried because I think what you just said is true like cryptocurrency absolutely normalized wire fraud like it was just a part of doing business for them and I think a lot of them probably did this a lot well I think it's like it's but it's a crazy thing to confess to because it listen I don't think they're gonna go for this but really every customer transaction is a wire fraud and every wire fraud carries a maximum incidence of 20 years so you're looking at just outrageous outr like they'll never go for it but you could probably get them on like tens of thousands of counts of wire fraud just from that thing which is his excuse that's like the most mind-blowing part you would think that the thing that could put you away for several lifetimes would be the thing you're trying to hide from but somehow that's the thing he's like no that's what I did that's that's I'm not a fraud because I did that well or or he thinks that's the more excusable form of fraud because like what Cass is talking about is Right tons of these exchanges have at times used desks or shell corporations or whatever to receive and send deposits uh bitfinex and tether described using uh bank accounts of friends of bitfinex as it was described to both take in money and send it Jesse Powell of Kraken talked about renting employee PayPal accounts early on in order to service withdrawals from Kraken like and these are things that these people admit to in public and for years people have been like posting on Reddit or on Twitter like with their wire instructions for FTX and having it say Alameda research like that's been a known thing that was not a secret like in the cryptocurrency industry and no one everyone just kind of accepted it because it's how it always worked for so many of these exchanges and because no one ever gets right nobody ever goes down so this might be the first time that someone actually goes down for something like this although I think they're going to be able to get up on everything else I mean honestly I think they're gonna it's gonna be pick and choose your Prime that you want to stick them with and I think it's going to be you know I think it's gonna be like shooting fish in a barrel um what else oh there was something in the SEC about them using not only like Alameda but they use shell companies of Alameda that they pretended associated with it like they didn't have the name of Alameda anywhere on their website and that's where you sent money can you guys dive into that a little bit Yeah so that would be like North Dimension Inc which was a Delaware based corporation that was owned by Alameda research but was not um it wasn't called Alameda research and like the SEC makes it very clear that it was deliberately not called Alameda research like that was which makes me think they've got documentation of people making that decision to not have it say Alameda research um and so with that they were accepting these wires for FTX through an Alameda owned subsidiary that they were trying to hide the fact was an Alameda owned subsidiary which again is very similar to the story with hivecs that we've talked about in Australia um and North Dimension Inc may be weirder even than it looks um at least as a couple weeks ago when I first looked into it if you Googled it you came up with a weird Electronics retailer that seemed to be trying to claim it was doing import export of electronics under the name North Dimension Inc and I'm mentioning that fact not because I've 100 confirmed that website is tied to the north Dimension Inc that SPF was using but because um in like the case of crypto Capital core and things like that some of the shell corporations which were set up for them to get bank accounts one of the common things they were say they would say they were were doing was import export to try to explain why they were getting relatively frequent wires in and out of their accounts to the banks and so and that's broadly one of the common tactics for money launderers because you can mark your products to whatever you want you invoice it to someone across and you've got a justification for the flow coming back into your account and so when I saw that North Dimension Inc was set like when you search that name the website you found was this Electronics importer exporter that was um a little notable to me well I I guess that's super interesting I I guess we we've also Bennett and I we we've also seen other industries that could be incredibly useful and easy to money launder in uh supporting uh cryptocurrency conferences in the Bahamas and all this other stuff but I guess my question is if we know all of this and we know that these charges are now being brought against Sam bankman freed this is similar to the question that we spoke about last time which is like contagion we're all talking about contagion risk but I think now we have a new aspect of this contagion risk which which some people are already discussing but this idea of like is SBF going to sing like are a bunch of people about to get in trouble because SPF SPF opens up and tries to somehow get out of let's say whatever he could face a hundred years in prison like what is going to happen right now what do you guys think

that's a great question it all depends hey does does he have the skin is it sufficient that he could roll like that and be actually get him time off the other thing that I find dubious is that he's so much the boss that they want to take down that the odds of them cutting a deal with like a good deal with him is to me so low I think they probably if they have cut deals with other FTX top brass to as they already know okay how many of these guys do we really want to go after okay we'll give you some easy plea deal and that might be where they get the really good information from but it's a really good question I mean I think there's questions about what their connection is to like genesis um I I mean I think Genesis is a fascinating case if they've been lying to people saying they're so they're solvent they're fine they're fine they're fine until they're not fine um and they have some connection to

like kind of like another thing I'd love clarification on so this is kind of like off topic topic but it goes back to your thing about like contagion like what was going on one thing I don't understand is Sequoia invested in FTX right or Alameda they invent with a subsidiary some subsidiary they invest back in Sequoia to the effect that I think they only actually got something like 10 million dollars but the in was like 210 million dollars so there's this huge pressy headline but there was this really strange reinvestment back into their fund that seemed extremely pro quo what do you make of that and this is supposedly the legit guys right yeah that was quite suspicious they did get the investment from Sequoia and then the round-trip investment back uh did come from Alameda Alameda was the one who then invested to become an LP back in Sequoia which did look quite strange because you would assume that they had better uses for that money than investing in VCS when they're also VCS themselves um yeah that was quite a strange little bit there I do kind of want to go back sorry before we move on on the potential of like Sam flipping or exposing other things is in his prepared testimony one of the things he submitted was screenshots of the supposed exchange coordination chat uh where a bunch of different exchange Executives were discussing what they should do to help stabilize the industry that's an interesting document that I imagine many people would be interested in including a variety of federal prosecutors and investigators and other documents in that same kind of vein involving Communications between Executives of these firms and what they should all collectively do to stabilize the industry I imagine those could be useful and the other thing I think there's a chance that they negotiate an overly generous plea deal with Sam is like I'm reminded of the Paul leveroo case where once they got the head guy they basically used him flipped him upside down and used that to try to take down the rest of the network their effectiveness doing that is quite debatable but that was kind of broadly their goal with that and I think in SBF there might be kind of a case where they could possibly go both up and down right if you can potentially get enough information to get in an indictment for binance or for CZ or someone who operates a many billion dollar pseudo money market fund or something like that that might be valuable enough that you take a three lifetime sentence and make it 20 years with a chance for good behavior or something right and so I think there might be a chance that Sam's got some play on the table there don't you think he would have given it up with CZ it had it already I mean I got the I get the feeling from everything Sam has been saying that he hidden like he knows he can't do this from an Optics perspective but he blames CZ 100 you can tell just from how he writes like oh you won the game Senate testimony he's like yeah he blames Caroline too right it was all at Caroline's fault but I but that's like what he says for Optics because if it's not Caroline it's him right but I think he blames CZ in the sense of I think deep down when he's talking to his friends he's mumbling about CZ screwing him over oh yeah he even had that one tweet like about glass houses or something referencing CZ being like Oh yeah sure you won but it could have been the other way if I had played an entirely different set of cards in an entirely different game under an entirely different set of rules um I do want to go back to what coffee was saying about um Sequoia because I think this is some this is something that people like us who aren't sent to millionaires or billionaires aren't super familiar with but I bet you anything that this is not the most uncommon thing in the world when it comes to venture capital and especially when it comes to cryptocurrency in general is this kind of like back water okay so on one hand we're going to make a big loud investment in you so that everyone values your company at whatever and the and then we're going to get that money back though through whatever Back channel that we need to figure out we're gonna get that money back from you for the most part it's actually a minimal investment and ultimately we can't lose much money because look now you're in now your value is hyperinflated I don't think this is as com uncommon as we'd hope so but it also so vividly reminds me of the It's Always Sunny scene where they make their own currency and they're like they think they're getting all the people to pay uh and make them a bunch of money but it turns out they were just passing their own dumb currency around like that is definitely how this feels uh yeah and now they're out of beer exactly that is how this feels um but only if it was in the case of High Finance with actual Millions also being passed around with using your crappy current collateral uh that then they would actually Square oh it's so crazy um yeah that's really interesting did I saw a bunch of like at speaking of that I there's so many lenders who took FDT as collateral but I think a lot of them actually pulled it back I think that's actually why uh I was kind of surprised when I looked at their filings I thought I'd see more lenders with huge claims but a lot of them really did pull back and I think that is where the problem appeared I think they had lost the money kind of throughout maybe 2021 maybe part of 2022 and that when they really pulled the money out it was like oh no we have no cash I think that is exactly right and like in that vein we have described like in May of 2022 when a bunch of the lenders called in the loans bankman free directing them to send billions of dollars over to Alameda to keep it viable and one of the most interesting pieces kind of connected to this in my mind at least in the cftc filing was when they talked about Sam bankman Freed's little acquisition spree he tried to go on a few months ago when he was buying up many of these same lenders and one of the things the cftc specifically said is that his goal was to fill the hole in customer funds that had been created his goal with buying up all of these different bankrupt companies and whatever was to use their assets to try to cover his own liquidity hole it was just a Brazen Gambit right it's crazy but it's also like how obvious in hindsight right like how obvious is this in hindsight like oh who's gonna buy blockfi why would you buy blockfi it's a business that doesn't work that went out of business because they were offering something that was completely unsustainable ultimately you're buying it because there's still customer funds there that you can access and use to trade with like wow that is exactly what this guy did surprise but no not so it's the same as like oh of course he's lying about everything but then every time he lies again you're like I can't believe he lied about that um so yeah it's an it's infuriating and frustrating uh all of this um sorry coffee go ahead us well especially if if you just remember what that summer was like and the praise that he got the the hero worship that happened he's the Jamie Diamond of crypto he's saving the world the buck stops with Sam bankman freed uh that was that was the what everyone was saying and it was all a Croc I mean uh turns out he was paying off people at the Block he was paying off all the journalists it's crazy it's outrageous actually is what it is I will say that it is it is wild that um the XC former CEO of the block uh yeah accepted umholder and currently still the majority shareholder um yeah I got a 16 million dollar loan from FTX to buy some real estate the other callbacks on this are going to be impossible it's going to be so brutal that's that's what I was gonna I was actually about to say this is I wonder so once he's extradited do we think that the Bahamas just takes these assets and makes them their own

uh great question I mean this is the problem with jurisdictional like like battles I mean it's very tough to um to say I don't know Bennett do you have any insight here I the Android or the uh it's the Madoff clawbacks that are still going on where they just got another part of the funds and were able to release it like a couple months ago or something right and so like yeah these clawbacks are going to be ongoing for a decade maybe more as they try to fight across the global court system and like even in the testimony today uh genre specifically said that like part of the problem is some of these accounts are not in the name of FTX or Alameda research or whatever and that that may make it more challenging for them to exercise their claim on the funds that's very interesting uh I wanted to quickly bring up because I got to go in five minutes but I gotta quickly bring up binance they got a billion dollars out of this whole deal I think they initially get got 100 million in in and they got two billion out but I think they didn't cash I think they said they had some amount in ftt which is now worthless so let's just say they got an even one billion dollars I don't actually know um what happens to that does that get clawed back from the start this was a fraud and this is a huge chunk of funds you have billions of dollars missing this seems like funds that I got through fraud basically what do you guys think I think that that's going to be a little bit challenging uh protos reported on the series B1 documents a little bit about that uh acquisition and it was done again using Alameda research to repurchase the FTX Equity not FTX itself and a large portion of that was done in the ftt token with the remainder being done in busd there's still some things I'm struggling with because like the filings today suggested that when FTX started binance was a 20 owner by the time they were repurchasing the shares from Alameda research binance was less than 10 percent owner so they must have changed the share structure at some point between when they were founded and the series B1 that ended up diluting binance without them buying back the equity then there was this equity and I imagine there could be potential fallbacks but it's again one of those kind of challenging cases because what documentation is actually going to exist for this transaction which entities like corporations were actually involved in it do those corporations still exist binance has switched like it's nominal like corporation like what four times in the last five years like there's it's going to be a challenging thing for a lot of lawyers Rick regardless I will say that CZ has absolutely painted a Target on his back and uh they're they're gonna try to figure out a way to bring charges like something they should have kept his mouth shut when he said oh I got all this money from you shouldn't have said that buddy you should have not have made that super public because now yeah you're absolutely right he's a Target on his back completely uh it's an interesting the last thing I want to bring up before you head off copy uh I know you gotta go but here's the last thing I would like to bring up is while all this has been going on um a few other former scammers um have been nice and loud and boisterous and making these beautiful comebacks I'm specifically talking about suzu Kyle Davies and our boy dokwan um and and how one dokon is in Serbia which is located right next to to Kosovo which is one of I think five countries that aren't on the Interpol uh part of Interpol so that's so he doesn't get picked up via Interpol clearly but we also have suzu and Kyle Davies in um in the United Arab Emirates blaming uh a credit bubble essentially do you think these guys can make a comeback what's next for them and what are they doing I think it's okay so first of all I think it's so funny that basically everyone got super mad at them so they left the room and then somebody makes a bigger mess at the party and they kind of like peek their head back and they're like hey guys we're not that bad right ah you got we're just kidding right uh no I mean I listen obviously with me they're never gonna make a comeback um but I mean with other people who knows it it's really weird it actually the history caller fraud prosecution is kind of pathetic and you get these anti-heroes that because they never go down there valorized they're glorified I saw in Matt Levine who I actually really like him and respect him as a journalist but in this write-up about Sam begman freed he's like oh maybe he'll be like Adam Newman haha like he burned billions of dollars and now he just raised another billion like huh could be Sam Bateman Freed's future and it's like weird to me I'm like but though like why why are we why are we letting these guys in the back door so I don't know I mean the what I think obviously there will be big asterisks next to anything suzu or any of these guys do if they do do it but at the same time there's always going to be scumbags like Kevin O'Leary who they don't actually care that you're fraudulent what they care about is you might make money for them and so they well you ran up a company to you know billions of dollars that works for me as long as I'm not the one you backstab in the end or my new default on so I don't know it's a good question though

well uh thank you very much for joining us today coffee if you got any passing thoughts leave them on your way out and everyone make sure to check out coffee's work uh no no passing thoughts um obviously you guys know I'm a big fan uh and all y'all all the stuff you guys do so keep it up and yeah see y'all later thanks for joining us all right sweet

okay cool Cass do you have any other thoughts on the wildness that's been going on uh there's there's just a lot there's a lot that we need to be um cognizant of I think this is a this is the World Cup for um cryptocurrency journalists right now we um there's a lot of news there's too much news for any one team to possibly cover uh there is a just an entire enormous big pile um and it's it's gonna just get weirder I've said that before but it's just gonna get weirder it's just gonna get stranger and um and I think it's one of these um anything that could go wrong will go wrong and we have yet it hasn't yet it uh we're still in Contagion and scary mode um not that I don't think there's a lot of fear left it's kind of just like well here we go um what about you man what what about you final thoughts oh I still feel like there's a lot of contagion that has not yet been shaken out yet like genesis going to all of their investors we're gonna talk to you in January yeah January things are gonna be better we're gonna find the money in January see y'all then that doesn't leave me with a great feeling um the other piece that's always an outstanding issue is of course our favorite stable coin which Alameda was the single largest customer and the cftc settlement today like specifically talked about how Alameda was authorized like by FTX to use FTX customer funds to issue when redeem stable coins and things like that and so some portion of the 36.1 billion tethers that had been issued by Alameda as of November 2021 were quite likely um customer deposits which I think could potentially embroil tether in some interesting aspects of this bankruptcy in this ongoing case here uh broadly I'm also kind of just interested as I keep mentioning in that kind of flow of funds that's been going on there where you have 36.1 billion dollars supposedly pass from Alameda research accounts into tether accounts and then had these tether issued and that is just an interesting Dynamic that I'm very curious to see how it ends up proved out as these cases are ongoing yeah um yeah I don't know I yeah eyes are glued on all of this it's going to be wacky and Wild

well uh at least people don't need to worry about casscoin or casscoin exchange casscoin is fine cast coin exchange is fine

um okay uh with that thank you everyone for joining us for this live stream uh it's been a wild month hopefully at some point in the next several months we'll be allowed to sleep that would be nice doubt it

2 responses to “Episode 102 – Sam Bankman-Fried was Arrested (feat. Coffeezilla) (Recorded Live)”

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