Auditors, Binance, and Global Regulation – Crypto Critics' Corner

Today Bennett and Cas are recording an IN-PERSON(!!!) episode of CCC together! We discuss auditors exiting the cryptocurrency industry en masse, what's next for Binance, and how regulators will or won't take on the new global financial industries. Recorded on Tuesday, December 21, 2022.

Cas Piancey and Bennett Tomlin discuss the recent spate of auditors leaving crypto, some strangeness around Binance, and whether or not the rest of the ecosystem is still teetering on collapse, or if it has improved.

This episode was recorded on December 20th, 2022.

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Other episodes mentioned in this episode:

• Episode 98 – FTX and Alameda are dead, long live cryptocurrency
• Episode 98b – FTX Collapse feat. Mike Burgersburg (Recorded Live) (Bonus Episode)
• Episode 99 – Continuing Crypto Collapse (Recorded Live)
• Episode 101 – Banking on Regulators – A FTX Story (Recorded Live)
• Episode 102 – Sam Bankman-Fried was Arrested (feat. Coffeezilla) (Recorded Live)

Where to find Crypto Critics’ Corner:

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• Bennett’s Twitter
• Cas’ Twitter
• Bennett’s Newsletter
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• Bennett’s Blog
• Bennett’s YouTube
• Bennett’s Mastodon

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English Transcript:

00:00:01:11 - 00:00:10:07
Cas Piancey
Welcome. Welcome back, everyone. I am Cas Piancey and I'm joined, as usual by my partner in crime, who's sitting right across from me today.

00:00:10:08 - 00:00:10:29
Bennett Tomlin
That part's not usual.

00:00:10:29 - 00:00:16:07
Cas Piancey
No, that is very unusual. Mr. Bennett Tomlin, how are you today? I know the answer.

00:00:16:07 - 00:00:18:02
Bennett Tomlin
I'm doing great. How are you doing, Cas?

00:00:18:02 - 00:00:42:03
Cas Piancey
Doing good. We've had a long day, but we have more to talk about. It feels like we've been talking all, all day. But we have a lot to talk about today. So let's get started. And all of the auditors seem to be vanishing from the cryptocurrency industry, which is, you know, for such a vibrant, innovative scene, you would expect that the auditors would want to be a part of it.

00:00:42:03 - 00:00:44:25
Cas Piancey
So why don't you why don't you get us started?

00:00:45:25 - 00:01:10:15
Bennett Tomlin
Well, I guess let's start with finances. Auditors Mazars, who was also used to sign off on the Trump financial statements. And now, now and then they started doing so. Binance's is proof of reserve statements, which they are what they are, you know. And now they, after doing one of those, have decided that cryptocurrency is too risky for them.

00:01:11:19 - 00:01:29:17
Cas Piancey
Which, you know, says something. We don't have to get into exactly what it says, but it says something. There's other there's other. Prager Maetis is the other one that is absolutely 100% confirmed, I believe, to be quitting the cryptocurrency industry. Is that right?

00:01:29:17 - 00:01:45:23
Bennett Tomlin
Yeah, that they were there, supposedly they were the first metaverse auditors. And even they have decided that it is too much for them to be in the cryptocurrency space. They can't do it anymore.

00:01:46:14 - 00:01:52:14
Cas Piancey
Yeah, not again. Not. Not super surprising. Oh, when we got.

00:01:53:08 - 00:01:56:25
Bennett Tomlin
We're both one of us is in the left, you know, and one of us is in the right channel.

00:01:57:17 - 00:02:06:01
Cas Piancey
Oh, uh, I don't know what we're going to do about that.

00:02:06:25 - 00:02:08:15
Bennett Tomlin
We're going to keep you informed. Okay.

00:02:08:24 - 00:02:43:15
Cas Piancey
Um, okay. So regardless, the other one that I want to talk about is unconfirmed, seemingly, but is Armamino, which Forbes reported with two sources, unconfirmed like unknown sources, but two sources claim that Armamino which was like the king of getting involved with cryptocurrency companies, was also deciding to wind up their cryptocurrency business. They do real time reserves for TrueUSD and nexo.

00:02:43:29 - 00:02:50:21
Cas Piancey
So I don't know what those two companies are going to do. Maybe, I guess nothing. They don't have to do anything, do they?

00:02:51:00 - 00:02:53:05
Bennett Tomlin
They never had to do this in the first place. Right.

00:02:54:00 - 00:03:01:08
Cas Piancey
So yeah. Prager, Maetis Armani now. And uh.

00:03:02:24 - 00:03:03:24
Bennett Tomlin
Yeah, BDO

00:03:05:00 - 00:03:34:07
Cas Piancey
Mazars. And then the last one is BDO, who again, unconfirmed, but the suggestion has been that it looks like they are also going to wind up their cryptocurrency uh, uh, auditing services, which we know exactly who claims to be using BDO and loves to brag about it, which is tether. So if, if they're getting abandoned, what does that mean for tether?

00:03:34:13 - 00:03:36:02
Cas Piancey
I think is the question.

00:03:36:02 - 00:03:55:20
Bennett Tomlin
Well, especially since tether is legally audit or legally obligated to provide these assurances under the New York attorney general. And so more came in. Can't do them anymore. MJ can't do them anymore. The only people that are left like who's left, who are they going to get their assurances from Scientology?

00:03:55:20 - 00:04:16:01
Cas Piancey
Hmm. Well, I'm I'm I'm fascinated by the idea that this is going to happen, that I don't know what they would maybe they revert back to their top 12 auditor that they briefly were bragging about. I'm not exactly sure if I go to their transparency page. No, that's not going to have it. Oh, is it? Reports and reserves.

00:04:16:01 - 00:04:40:24
Cas Piancey
There we go. So let's look at all of them. How many and they had done so far one. Oh, that certainly doesn't count. One, two, three, four, five, six, seven, eight. That is. So they're almost done in February of next year. Tether essentially no longer has to do these assurances, right? According to the New York attorney general's deal.

00:04:41:02 - 00:04:51:28
Bennett Tomlin
Yeah, they had to do two years and after that they're free. They can go back to getting lawyers to sign letters, getting their bank to sign letters, ignoring it entirely. Like.

00:04:52:23 - 00:04:59:23
Cas Piancey
I wonder if that's what they do. I mean, they're right at the tail end of this. If BDO decides to quit on them, I don't know.

00:05:00:00 - 00:05:03:12
Bennett Tomlin
How, how are they supposed to have unrivaled transparency then.

00:05:03:24 - 00:05:07:24
Cas Piancey
I mean, do they need unrivaled transparency at that point?

00:05:07:24 - 00:05:08:09
Bennett Tomlin
Um.

00:05:09:01 - 00:05:10:22
Cas Piancey
I don't know what they're I don't know. I don't know.

00:05:10:22 - 00:05:13:07
Bennett Tomlin
What unrivaled transparency means for them. Right.

00:05:13:17 - 00:05:28:00
Cas Piancey
And I don't know what they're I don't know what they're actually I don't know what they're actually offering of value besides not, you know, not being properly audited. Like, I don't think their transparency is what is driving any use case for them period.

00:05:29:09 - 00:05:47:12
Bennett Tomlin
Yeah, but like broadly, there were only a few firms who would do anything like audit firms who would do anything in the crypto space. And we're talking about four of that select few who would do anything. And they have all basically said, No, this is too risky for us, this is not worth it. And they're all withdrawing from the space.

00:05:47:12 - 00:06:20:12
Cas Piancey
It says something, you know, I don't know what I don't know what it'll end up. Meaning I don't know if there's other auditors who will end up taking these people's place. It is curious why all of them are quitting at once. I guess it's not everyone's just going to say it's FTX. I don't know. It's I you would think that so when we've seen other accounting fraud like with Arthur Andersen in the late nineties and early aughts, not every accounting firm was getting slapped and smashed with fines.

00:06:20:20 - 00:06:36:09
Cas Piancey
They weren't all committing massive frauds at the time. So I'm wondering, like, are they all bouncing because they all feel like they might be doing like them? They might all get in some serious trouble right now. All of them, I think I'm genuinely curious.

00:06:37:03 - 00:07:06:22
Bennett Tomlin
I think there's a possibility that they're trying to avoid them potentially getting in trouble. One of the things that's interesting to me is Francine McKenna, we've had on this show before at re the Auditors on Twitter was tweeting about one of the challenges for auditors when you're assigned to audit, like if taxes were one entity in these where it is a combination of different related parties, just auditing that entity doesn't actually give you that much insight.

00:07:07:00 - 00:07:25:26
Bennett Tomlin
And this is the thing we talked about when David Morse was on to talk. Enron is because of all the related party transactions, the auditors didn't actually have a good understanding of the financial reality. And WorldCom is a little bit different because they were just outright like creating numbers in their accounting system. That didn't make sense. But so is FTX, right?

00:07:25:26 - 00:07:38:03
Bennett Tomlin
Yeah. And so maybe FTX made these auditors realize, oh no, we were doing the same thing we've done before and that we fucked up before and we got to stop doing that before someone gets turned into Accenture to point out.

00:07:38:24 - 00:07:52:14
Cas Piancey
Well, I mean, this might bring us to our next point, which is finance, which used excuse me that I don't remember which auditing firm it is and.

00:07:53:17 - 00:07:54:18
Bennett Tomlin
Is who did their proof of.

00:07:54:28 - 00:08:00:25
Cas Piancey
Use measures to do their proof of reserves that proof of reserves was taken offline.

00:08:02:16 - 00:08:06:02
Bennett Tomlin
The entire subdomain for Mazars crypto business was just white.

00:08:06:02 - 00:08:41:14
Cas Piancey
Gone, just gone. So. Hmm. I am, I guess. Yeah. I'm wondering what could cause that. But then I'm also thinking we heard from apparently the CFO of Binance. Right? We heard that the CFO said the previous CFO sorry, not the current CFO. The previous CFO by the current CFO. I have no idea. The previous CFO said that they had never been shown the full financial documents which I don't.

00:08:41:18 - 00:08:42:25
Cas Piancey
It's hard to imagine.

00:08:43:23 - 00:09:04:07
Bennett Tomlin
That's like it's absurd. It is blowing my mind to imagine being the chief financial officer of an entity valued at many billions of dollars, doing like tens of billions of dollars in trades monthly. And you're not allowed to see the books. What what is your role in the organization? What do you actually do?

00:09:05:27 - 00:09:31:17
Cas Piancey
Well, I mean, so I think this is where we get back to what like what the role of an auditor is like. It's funny because we reflect on it and then a full audit is a procedure that takes a long time. You have to like go through all of the all of the entries, all the ledgers. You have to figure out who was spending, what for what, who is buying, what for what do the numbers match up like?

00:09:31:17 - 00:09:54:28
Cas Piancey
Are you solvent? These are like questions that can actually only be answered with a full audit. And so you and I were talking about this and I, I was like, why are we I guess we addressed this with Francine, but I was like, why? Why are we seeing so much of this attack station assurance is like all this stuff that definitely is not in audit?

00:09:55:22 - 00:10:19:07
Bennett Tomlin
Well, the answer is because they can't get audits. Yeah. The more interesting question is, why can't these firms get audit? Is it because these firms are just stricken with fear about this new, unproven 12 year old tech analogy that they just can't wrap their heads around? Or is it that many of these firms have operated at best in very gray areas in order to continue their operation since?

00:10:19:09 - 00:10:26:06
Cas Piancey
Well, we still have Grant Thornton auditing USD coin for the time being.

00:10:26:06 - 00:10:39:06
Bennett Tomlin
Yeah, but now that circle canceled their SPAC circle's probably not actually going to keep doing audits to just go and keep doing the attestations because, well, they were doing this back. They did file with the SEC like their actual audited statements. Yes.

00:10:40:06 - 00:10:49:19
Cas Piancey
Audited annually and subject to review by the SEC. I see. Huh. Yeah, that is.

00:10:49:23 - 00:10:51:09
Bennett Tomlin
Up a second. But your first thing.

00:10:51:25 - 00:11:22:21
Cas Piancey
You could add to that is interesting. I hadn't thought about that. I do wonder if like now the now the go to is just like audit. Why? Like, why? Why would we get an attestation in assurance and audit? Why bother? Like, what are you really accomplishing? I guess they can keep accomplish trying to accomplish this. They can keep attempting to, I don't know, push whatever this is on the greater public and expect everybody to kind of believe it.

00:11:22:21 - 00:11:39:13
Cas Piancey
Maybe, I don't know. But like clearly it didn't work for Binance. Kind of shot them in the foot, I would say. Really backfired for them almost. But what is going on with Binance now? I think that, uh, I don't know. It's, it seems like a lot.CZ

00:11:40:24 - 00:12:12:03
Bennett Tomlin
Yes, it's they, they keep seeming to be behaving strangely like CZ going watch out for exchanges, making big transfers before proof of reserves. And then like two days later he's like, Oh no, all these big transfers we're doing or because we're trying to do our proof of reserves and then like it's it's kind of inexplicable. The things he's been doing and the way they've been behaving, they got this one proof of reserves and now aren't going to be able to get any more for a while.

00:12:12:15 - 00:12:17:21
Bennett Tomlin
And and you were looking a little more into the past of Binance recently. Well, I.

00:12:17:21 - 00:12:18:08
Cas Piancey
Wanted to in to.

00:12:18:08 - 00:12:19:05
Bennett Tomlin
Talk a little bit about that.

00:12:19:05 - 00:12:37:14
Cas Piancey
Yeah, I wanted to bring that up because I was seeing him tweet about how they had no debt. They or I don't know if he was quote, no, he was doing an interview. They have no debt. They have no investment, like no investors in Binance. And then I just was like, wait, is that even true? I was just like, I want to fact check that.

00:12:38:15 - 00:13:09:20
Cas Piancey
And the reality is like, no, it's not true. They do have investors, but it's like for a totally like stupid amount of money. It's for $88,888. Now, we can talk about why that is mainly simply just Chinese superstition. Superstition like it's a lucky number. So, you know, 88,888. But why three funds were able to invest in the Binance Series A that took place on September 1st, 2017.

00:13:09:20 - 00:13:24:16
Cas Piancey
Apparently. I like it. I don't know. I guess so. But it was a very, very small amount of money and it was three firms. One of these firms is called Black Hole Capital because of course, it is.

00:13:25:29 - 00:13:27:19
Bennett Tomlin
Almost as good as the name is wormhole.

00:13:28:04 - 00:13:51:09
Cas Piancey
And what's interesting about this is that black hole capital basically only made investments in 2016 and 2017. They made one investment in 2018, one investment in 2020. But they have it seems like they're gone. I'm not sure if they're gone or not, but it seems like they don't exist any longer. So that's one of the that's one of the fun firms.

00:13:51:09 - 00:14:11:24
Cas Piancey
Yeah. Yeah. Then the second one is Fund City Capital. Fund City Capital also seems to only have invested in 2017 and 2018. They did one again, one investment in 2020. So fun city capital. These are both China China based funds, by the way. Not that I mean, it doesn't matter, but.

00:14:12:22 - 00:14:21:00
Bennett Tomlin
It matters a little bit with how hard S.Z. tries to pretend there's no connections between finance and China. It matters a little bit that that's where the money was coming from.

00:14:21:02 - 00:14:57:04
Cas Piancey
I think that's right. And I do think we were talking about what it what this potentially could be, because it's not real equity. Like there's not a lot of equity that these people hold for this little amount of money. Or maybe it's more it's outsized equity. I have no idea, really. But like either way, I think it's it seems like Guan Shi, which is kind of like you scratch my back, I'll scratch yours deal in China, it's it's just kind of quid pro quo, kind of working together to to make business a reality anyway.

00:14:57:09 - 00:15:14:17
Cas Piancey
So these are two out of three of the funds that got it, got an investment. Both of them seem to have vanished. And then the last one and we also have finance saying that they're not a part of the U.S. at all. Well, one of the investors is a company called Limitless Crypto Investments, which is located in Houston, Texas.

00:15:15:05 - 00:15:40:15
Cas Piancey
The founder, Matthew Jordan, American dude, they only made investments in 2017 and 2018. They have been gone for four plus years now. And so I guess the question is, what are these companies? Why did they invest in Binance's and why did Binance let them invest?

00:15:40:15 - 00:16:21:09
Bennett Tomlin
I think that the fact that they decided to do an equity round for such a de minimis amount for not even one engineer's salary for one year, it's clearly not actually about capitalizing Binance. And so because of that, they are now in a position like so. And as you mentioned, the amount is symbolic, it's lucky. So I think the implication of them having this equity round is because they were trying to maintain important relationships and they thought that these entities were ones who would be valuable to have aligned with them from the beginning.

00:16:21:13 - 00:16:25:05
Bennett Tomlin
At least that's the only way I can interpret them doing that low of an investment.

00:16:25:28 - 00:16:49:11
Cas Piancey
It's, uh, it's really weird. I don't really know how to interpret it, period. Other than what you said it, it's confusing. I'm like, I'm not. I'm not. I tried to get in touch with some of these guys. I haven't been able to reach them. Their websites seem to be very much dead. Their investments are pretty poor for the most part.

00:16:49:12 - 00:17:09:16
Cas Piancey
You know, they invested in like Ren. I'm looking at limitless stuff right now and let's see, Power Ledger, I don't even know what that is, but okay. Power Ledger Tezos Republic Protocol one chain. Wasn't that from 2017? One chain I don't remember.

00:17:09:16 - 00:17:14:05
Bennett Tomlin
Man 2017 was half a decade ago. We've been doing this for half a decade.

00:17:15:01 - 00:17:31:00
Cas Piancey
Binance's exchange is listed as their investments as well. So yeah, I don't I think all of it is just really confusing. Also, he clearly maybe they exited, but none of them, it doesn't show exits from any of their Binance investments, so I'm not sure about that.

00:17:31:00 - 00:17:53:03
Bennett Tomlin
Well, in which corporate entity did they invest in and does that entity still exist? Is that entity still a part of Binance? Binance has switched like countries entity does everything like six times. Maybe the current Binance corporate structure doesn't have any equity investors. Maybe when they restructured, they either wiped them out or bought them out or did whatever they had to do.

00:17:53:03 - 00:17:54:24
Bennett Tomlin
Maybe Sky is telling the truth.

00:17:55:18 - 00:18:14:08
Cas Piancey
So and this was a naive question that I asked you the other day, because I was also thinking about how there's Binance Labs outside of because she's talking about how there's no investments in Binance. And I was like, Well, Binance Labs exists and like, what's the deal with that? And it's like, I guess it's supposed to be entirely separate from finance itself, right?

00:18:14:24 - 00:18:16:19
Cas Piancey
This should not be.

00:18:17:00 - 00:18:20:11
Bennett Tomlin
Yes. Like Binance, U.S. is totally separate from Binance.

00:18:20:11 - 00:18:24:07
Cas Piancey
Even though we saw some interesting transactions happening with that this past week.

00:18:24:12 - 00:18:29:28
Bennett Tomlin
Let's so yeah, I'm going to pull you away from Binance Labs for a second and we can go back at.

00:18:29:29 - 00:18:31:02
Cas Piancey
Promise that's fine.

00:18:31:06 - 00:18:56:08
Bennett Tomlin
But Binance U.S. is buying Voyager's assets and guaranteeing their liabilities. Assuming the court accepts it. And so that's interesting because originally Coindesk reported that Binance was the one considering it, and it was Binance that was originally putting in the offer before FTX one. And like Binance Labs, as you mentioned, is their venture capital arm, the one you would expect to be doing investments.

00:18:56:08 - 00:19:18:00
Bennett Tomlin
You don't expect the exchange itself to necessarily be doing investments in them instead of Binance. It's Binance U.S., which is challenging for me because the reason you would buy a defunct lending platform is because you decide that whatever the gap between assets and liabilities is, it's worth closing because the customer relationships, the customer data, whatever is going to be more valuable.

00:19:18:16 - 00:19:43:09
Bennett Tomlin
But Binance, U.S. shouldn't be able to service a lot of the customers of Voyager because Voyager wasn't like exclusively in the United States. It was out of Canada and a ton of their Internet of their clients and stuff were not in the U.S.. So what Binance U.S. is going to have a bunch of new customers who can't use Binance U.S. and then because Binance U.S., it's totally separate, they're definitely not going to direct them to Binance.

00:19:43:09 - 00:19:47:19
Bennett Tomlin
Right. Like, it's it's confusing.

00:19:47:19 - 00:20:11:11
Cas Piancey
Yeah. Voyager was Canadian and listed on a on the Canadian Stock Exchange. Right. Am I getting that right? Yes. I don't know. It is. It is it is difficult to parse why they would do this. I know his suggestion is, hey, hey, you know, cut it out.

00:20:11:11 - 00:20:18:25
Bennett Tomlin
That's messing up our live stream cats, man.

00:20:20:03 - 00:20:45:17
Cas Piancey
I love my cat. But anyway, so I lost my train of thought there. Yeah. Okay. So it's confusing to me. It's confusing to me. Why Binance U.S. would buy this Canadian company and how they intend to utilize this in a positive way for themselves. That's the that's the business question. Right, because it's not about like, oh, is this to help the customer?

00:20:45:17 - 00:21:06:01
Cas Piancey
Because I never believed that when these CEOs or whatever say it's to help the people like, no, it's not. I need to understand why this helps your bottom line. I'm not sure I totally understand that with this. But let me get back to this other point, which was Binance Labs, which has a fund named Startup Fund. So they gave that a lot of thought.

00:21:07:09 - 00:21:09:15
Bennett Tomlin
Well, now they also have the Industry Recovery Fund.

00:21:10:06 - 00:21:13:05
Cas Piancey
Was that from Binance Labs?

00:21:13:05 - 00:21:13:27
Bennett Tomlin
Yes.

00:21:13:27 - 00:21:16:20
Cas Piancey
Oh, well, that hasn't been listed yet. Okay, that's good.

00:21:16:21 - 00:21:24:29
Bennett Tomlin
Oh, yes, it hasn't. It probably hasn't actually been set up. Probably never actually set up like an entity for the fund. It was just easy going, Yeah, maybe we'll throw some money.

00:21:24:29 - 00:21:28:03
Cas Piancey
Is there a wallet? Is there a confirmed wallet for the for that fund?

00:21:28:20 - 00:21:29:06
Bennett Tomlin
I don't think.

00:21:29:06 - 00:21:32:10
Cas Piancey
So. And they're not using that to do to do this purchase.

00:21:32:10 - 00:21:33:09
Bennett Tomlin
As they haven't said they.

00:21:33:09 - 00:21:44:07
Cas Piancey
Are. Yeah. As far as we understand also that would eat away the entire half of it. That would eat away half of the recovery fund that they had created. Right.

00:21:44:07 - 00:21:47:18
Bennett Tomlin
Is are they only doing 500 million for Voyager? Is that their.

00:21:47:18 - 00:21:48:28
Cas Piancey
Bid? I thought they were paying a billion.

00:21:49:19 - 00:21:51:22
Bennett Tomlin
And their industry recovery fund was a billion.

00:21:51:22 - 00:21:53:27
Cas Piancey
It's too, isn't it? It's not their claim.

00:21:54:04 - 00:21:59:04
Bennett Tomlin
I thought the goal was that eventually they'd find other people and they never found other people enough.

00:21:59:18 - 00:22:35:09
Cas Piancey
Fair enough. Okay. So Binance Finance Labs has a startup fund and there's two investors in it for apparently money raised 500 million, apparently. This is all I assume is outside capital. I have no idea, actually. But $500 million and the two companies are DST Global and Breyer Capital. Um, they're, I mean, DST, I can't imagine possibly spent half of it.

00:22:35:14 - 00:22:56:00
Cas Piancey
It didn't spend $250 million on this. Breyer Capital has 1 to 10 employees. And I don't know I don't even know what they have assets under management. But I don't think that these are ginormous companies. So that 500 million mostly probably came from finance, I would assume.

00:22:56:07 - 00:23:02:21
Bennett Tomlin
Yeah, well, maybe Binance is just making so much money that you just can't even understand it.

00:23:02:21 - 00:23:03:16
Cas Piancey
Cas Maybe.

00:23:03:18 - 00:23:06:13
Bennett Tomlin
There's just so many fees and so many opportunities for.

00:23:06:13 - 00:23:22:00
Cas Piancey
Money. This is the pushback that we get. This is the real pushback that we get. And so let's let's actually acknowledge that is like a possibility. Like maybe they genuinely are making so much money that they can dump $500 million into a fund at once. Like maybe that actually isn't that much money. Now, they.

00:23:22:00 - 00:23:24:04
Bennett Tomlin
Can't show it to their CFO that they're doing that.

00:23:25:05 - 00:23:49:15
Cas Piancey
Right. And I guess I'm curious why I'm curious why they are not just hiding their financials, but like it just doesn't seem like the most prudent thing to do. And why are they asking for help to establish these recovery funds if they have so much money that they can just dump $500 million into a startup fund at once?

00:23:49:15 - 00:23:57:27
Cas Piancey
It doesn't seem super realistic to me, but I'm not sure. Maybe I don't have like they are the number one exchange in the world and cryptocurrency exchange in the world.

00:23:57:27 - 00:24:00:09
Bennett Tomlin
Yeah, they're up to what, like 70% of total volume?

00:24:00:25 - 00:24:04:11
Cas Piancey
That's decentralization.

00:24:04:11 - 00:24:14:01
Bennett Tomlin
Who doesn't want Binance controlling basically the entire global market for cryptocurrencies? I can't think of anyone who would be better suited for that job.

00:24:14:23 - 00:24:23:22
Cas Piancey
But you have a theory right now about Binance. I'm not sure if you want to talk about it in full, but let's just say.

00:24:23:25 - 00:24:46:02
Bennett Tomlin
No, I can talk about that. Okay. So there is some Reuters reporting suggesting that a couple of different prosecutors were ready to indict Binance and CC and money laundering charges. Right. There was also reporting that the indictment was being held up because of the money laundering and asset recovery service part of the Department of Justice. Who needs to sign off on this type of indictment for money laundering, indictment for something this large.

00:24:46:17 - 00:24:57:08
Bennett Tomlin
We also found out that Binance hired the former head of lawyers to go and negotiate in Washington to try to strike a deal.

00:24:58:19 - 00:24:59:11
Cas Piancey
Which is weird.

00:24:59:11 - 00:25:17:24
Bennett Tomlin
And my gut instinct is that they are going to be successful in striking a deal because we saw with BitMEX, right? Like you can violate quite a few things. And as long as you eventually cooperate, the prosecutors are going to take the win over the death. You know, they don't want to. And so, like, well.

00:25:17:24 - 00:25:51:10
Cas Piancey
Here here's a counter that I hadn't thought of when you initially had brought this up. He the two other people that were subpoenaed or indicted or whatever with Arthur. Yeah, Craig Dwyer was the one who went straight up on the like. I don't even know if he eventually got caught. I think he did. Maybe, I'm not sure. But the other, the other guy, Samuel, something he also didn't immediately get like they were all on the run I think at first.

00:25:51:18 - 00:26:12:12
Cas Piancey
And I think Arthur was the first one to flip, which again, I think if you're the first one to flip, it gives you some room for leniency in the prosecutor's eyes, like Caroline is going to be treated way better than Sam is going to be. And it's not simple. It's not because she necessarily did less wrong. Who knows?

00:26:12:14 - 00:26:18:29
Cas Piancey
Yeah, but like, it's because she went straight to New York, turned herself in and said, I'm talking.

00:26:18:29 - 00:26:27:00
Bennett Tomlin
I had told you everything. You want to see the secret signal check, wire fraud. I'll show you the secrets. Come on. You know you want to see it?

00:26:27:14 - 00:26:45:22
Cas Piancey
Oh, I think I think that could be part of this. And when you look at like who's sorry, who's on who's ahead of him, like who else would they want to catch besides CC? I can't think of anybody. I don't even we don't even know if he actually is in control of finance like he is. But he isn't.

00:26:46:06 - 00:26:48:25
Cas Piancey
It seems weird we were talking about that too. I.

00:26:49:06 - 00:26:50:27
Bennett Tomlin
I think he's in control of finance.

00:26:50:27 - 00:27:05:26
Cas Piancey
I think he might I think there might be some people who at least have a say in what's going on, and he has to at least hear them out like people.

00:27:05:26 - 00:27:09:16
Bennett Tomlin
He had to have a special equity round with very symbolic, that.

00:27:09:17 - 00:27:10:06
Cas Piancey
Kind of thing.

00:27:10:06 - 00:27:12:04
Bennett Tomlin
That's those kind of people, is that what you're saying?

00:27:12:04 - 00:27:13:19
Cas Piancey
That's something that rings a bell. Yeah.

00:27:13:21 - 00:27:34:25
Bennett Tomlin
I mean, yeah, it's possible. And honestly, I think this kind of segways us into like our last kind of challenging topic we wanted to talk about today, which is like the role of regulators in like this kind of increasingly globalized thing. Like what is the appropriate response to a Binance, to an FTA, to a tether? And like, what does that really mean?

00:27:35:05 - 00:27:53:21
Cas Piancey
It's really it's it's tough because I've been thinking about it and it's so it's so weird. The two side, the two heated sides that we hear on crypto currency, Twitter, like one side says, if you guys had figured out the right regulatory regime, then FTX never would have left the U.S. and this never would have happened, which is like a pretty bold claim.

00:27:53:28 - 00:28:24:26
Cas Piancey
But then also then the other side says like put like FTC's happened out there in the wild was, uh, was like driven off because it was a bad actor and therefore regulatory regime is working perfectly fine. And I think really neither are exactly true. Like I don't think actually either of those I don't think it's a duality here.

00:28:25:02 - 00:28:31:23
Cas Piancey
I don't think it's either or. And I think there's probably something in the middle of that. That is right.

00:28:31:26 - 00:28:54:02
Bennett Tomlin
The idea that FTX wouldn't have been a massive fraud if the U.S. had a different regulatory regime is insane. That's an insane thing. The fake. They stole billions of dollars in customer funds. We would Quadriga have not been a fraud if they had been set up in the US it's it's absurd right. And so like that is nonsense.

00:28:54:02 - 00:29:19:12
Bennett Tomlin
And like on a more practical level, we talked about this a little bit when John Reed Sterk was on. They keep requesting regulatory clarity, but they keep getting clarity and ignoring it. Like both Clayton and Gensler have been quite clear that basically every token they've seen is a security, which would mean all the exchanges trading, basically any token need to be registered in securities exchanges, and that a lot of these issuances are probably illegal.

00:29:19:19 - 00:29:32:22
Bennett Tomlin
They just fundamentally don't want that to be true in there. So are trying to ignore it so that they can continue to persist in the act in their activities, in the hope that there won't be serious intervention because there hasn't been political will for serious intervention.

00:29:33:00 - 00:29:56:19
Cas Piancey
But even if there is the like, what do you do if OC, X or Huobi or Poloniex are doing all sorts of weird stuff like that, why would that possibly be? The SEC's jurisdiction or why? Why should they bother caring about it? Probably, I would assume. I guess I have no idea. But I would assume most customers on those exchanges are not Americans like I don't know.

00:29:56:19 - 00:30:19:00
Cas Piancey
I don't know what role the SEC plays in a global regulatory regime with the world has changed drastically since the FCC was formed, even since the CFTC and like I, for God's sakes, the Department of Justice, like the world has the world has shifted dramatically, and we're talking about like you know, we talked about DEFCON. You have Interpol.

00:30:19:00 - 00:30:30:00
Cas Piancey
That's like the clearest international police force that exists that's literally what it is. But even that you can seemingly outrun it.

00:30:31:24 - 00:30:45:06
Bennett Tomlin
Well, Interpol is less an international police force and more of a way for police forces around the world to communicate. They've got a few of their own agents, but they're not like really an investigative or like serious independent force.

00:30:45:06 - 00:30:51:08
Cas Piancey
Erm 195 different countries are on board. Yeah. Which tells it like okay.

00:30:51:09 - 00:30:53:09
Bennett Tomlin
Some level of cooperation with it.

00:30:53:11 - 00:31:20:21
Cas Piancey
Right. Right. But yet Daquan is in Serbia or Kosovo anyway. But, but my point being here that we've seen previous we've you, you talked about poker's Black Friday being an example of like regulators and law enforcement agencies working across the globe to enforce actions on these illegal money transmitters and services providers and stuff.

00:31:21:07 - 00:31:52:21
Bennett Tomlin
Yeah, but in order to pull it off, it was like a many part investigation involving all these, all this global cooperation. And you kind of need to get the buying then for wherever these individuals and companies and stuff are to like let you go ahead with shutting it down for political and other reasons. And in many of those and like so back to like you mentioned, these other exchanges will be okay exploding ex whatever my guess is many of them have at least one U.S. person trading on them.

00:31:52:21 - 00:32:09:04
Bennett Tomlin
Right, like someone who's been able to evade their KYC or whatever. And so they probably could get a nexus right. But like, is there the political will to go after a bad actor just because an American happens to be using it for this company that's outside worth it?

00:32:09:04 - 00:32:09:27
Cas Piancey
And is it worth it?

00:32:09:27 - 00:32:10:28
Bennett Tomlin
Is it worth the resources?

00:32:10:28 - 00:32:32:15
Cas Piancey
What and what do you how do you even enforce that action? Right. Like if this is a Chinese company or a Singaporean company or like a company in a country that isn't keen on working with you financially to stop them, what how how would you possibly make a that's I mean, that when the China hustle came out like that's a I don't know, everyone should watch it.

00:32:32:15 - 00:32:59:15
Cas Piancey
It's a pretty great documentary and it's just about these short sellers who essentially the only way, especially once a like once they're able these companies are able to list on the American stock markets and it ultimately hurts American investors. But the worst thing that the regulators can do is then delist them from the exchange like nothing happens to them back in China.

00:32:59:15 - 00:33:06:15
Cas Piancey
China doesn't care when they steal a bunch of American consumers dollars. It doesn't matter to China. And so I think, like, it's.

00:33:06:15 - 00:33:09:14
Bennett Tomlin
Perhaps the ideal outcome, right, for that company's.

00:33:09:15 - 00:33:36:19
Cas Piancey
Actually. And so that's I guess that's what I'm saying is like we're entering a globalized like a strong globalized world now. I think we were opening up to globalization in like the early aughts and like it started to spread through the Internet and communication. And now we just see like true globalization. And I just wonder, like I it seems like regulators are just going to be endlessly chasing and trying to put out fires that like, I don't even know how they could.

00:33:37:08 - 00:33:54:28
Bennett Tomlin
And like just bring this kind of back together. One of the complaints that you mentioned is that there is no regulatory clarity, but like, I think there has been clear communication and what U.S. exchanges are supposed to do, and they don't want to, because doing that means they can't compete with the exchanges that aren't in the U.S..

00:33:54:29 - 00:33:55:08
Cas Piancey
Right.

00:33:55:23 - 00:34:25:15
Bennett Tomlin
And like, I think this is going to become increasingly a problem because regulators and lawmakers now have this clear example of a bad actor in FTA and MM that they can point to, to justify a whole bunch of other stuff that's going to primarily affect the companies that are easy to go after not buying. It's not for me, not Poloniex, not Justin Sun, not any of those people, because that requires Internet, international coordinated law enforcement efforts and that's a hard thing to do.

00:34:25:22 - 00:34:51:01
Cas Piancey
So I think part of where my issue comes from, though, with the way American regulators have handled all of this, is the best the best example I have in my mind right now, is moonshine bank where you have. I'm just going to run it, render it really quick. Basically, Alameda Research invested $11.5 million into a very small bank in southeastern Washington state.

00:34:51:26 - 00:35:17:29
Cas Piancey
It was valued at 20 times book value, which is unheard of in banking. In most industries, it's just unheard of a value to the bank. At 115 million, they had $10 million in customer deposits. And then seemingly no one can confirm this because of bank secrecy laws. But seemingly that allowed Alameda Research and FTX to deposit funds onto Moonshine Bank's platform into their bank.

00:35:17:29 - 00:35:41:10
Cas Piancey
And who knows what kind of, you know, suspicious activity reports were conducted? Who knows like who knows what that that investment allowed Alameda research to do? But that isn't the end of the story because the person who owns Moonshine Bank is Jean Shalabi, who is a French Bahamian citizen. I actually have no idea if he's only French or if he's French, Bahamian or if he has.

00:35:41:16 - 00:36:14:21
Cas Piancey
Who knows how many citizenships he has, but he is not American, is what I will say. And I don't know, like I don't want this to sound. Maybe it will maybe it will sound this way. But it's like I would prefer if there were really, really strict regulations around who what foreigners can buy U.S. banks that are federally Federal Reserve regulated, and this guy owning or being chairman of the board for Deltec Bank and Trust, which is one of the most mentioned banks in the Bahamas leaks.

00:36:15:00 - 00:36:21:00
Cas Piancey
It's it's troubling to me that the Federal Reserve was like, yeah, it seems fine. It seems like a fine cat. Let him buy moonshine.

00:36:21:05 - 00:36:42:04
Bennett Tomlin
Well, and what was interesting is after the purchase had the conversation with the Federal Reserve in Washington, DFA, there was this piece in Shadow Banker by a former Federal Reserve chairman where they basically described what moonshine was about, how a company could come in, purchase one of these small banks that already has el-Sisi approval apply at the Fed for Fed approval.

00:36:42:04 - 00:37:00:10
Bennett Tomlin
That basically gets rubber stamped. And if you're lucky, the more thorough analysis the Fed might do isn't going to come for a couple of years. And so you have a couple of years where you can hypothetically, of course, do absolutely chaotic things before the regulators, like look at the data retrospectively and go, well, that was crazy.

00:37:00:18 - 00:37:20:21
Cas Piancey
And she or he was it was a she. Yes. She argued that this is like not uncommon. That is a thing that has absolutely happened before. And I am just like doesn't that my question for some of these regulators was like, okay, so what new tools would you need to be able to have caught this stuff that you didn't catch?

00:37:20:27 - 00:37:24:08
Cas Piancey
And almost all of them are just saying like, well, nothing.

00:37:24:12 - 00:37:25:26
Bennett Tomlin
We don't really want to catch it.

00:37:25:26 - 00:37:42:11
Cas Piancey
Well, I don't know if that's their I think their answer is they don't need new tools, which I think is a fair response. They're probably right. They probably don't need new tools. They aren't doing their job, but they don't they're not interpreting that as what they're saying. They're they think what they're saying to me is, like, we do a perfectly fine job.

00:37:42:11 - 00:38:02:23
Cas Piancey
Leave us alone. But what they're actually saying to me, what I actually here is we don't regulate. Like that's not the Federal Reserve's job, is it? We deal with monetary policy. We we check interest rates and blah, blah, blah, like. Yeah. And big huge portion of that is regulation.

00:38:03:28 - 00:38:51:03
Bennett Tomlin
Yeah. And honestly, it kind of comes back to what we've talked about in here before is that broadly in the United States, they think globally there hasn't been the political will for like serious regulatory intervention since like at least Reagan rate like regime chaotic cap. And so because of that lack of political will, any regulators who would have been interested in doing like really strenuous regulation, really thorough looks at all these things have are incentivized not to stay with the regulators are incentivized to find other roles and other things to do because often it can be challenging for those individuals to advance in those types of roles.

00:38:51:09 - 00:39:11:19
Bennett Tomlin
One of the things that struck me in reading Sam Cooper's book, Willful Blindness, is that many of the top RCMP investigators who started that she identified the Vancouver model of money laundering, eventually got forced out because they were so frustrated at continually running into walls and their superiors and stuff and being unable to pursue the investigations and go after that kind of thing.

00:39:11:29 - 00:39:33:27
Bennett Tomlin
And I and in the United States, I think that problem is a little more diffuse. But like especially when you have a political climate where there is not even agreement on what that regulation should exist, you can't even get both parties to agree that there should be regulation, let alone what that regulation should be. It becomes very challenging for the regulators to operate, becomes very challenging to get regulators the resources they need.

00:39:34:02 - 00:39:52:25
Bennett Tomlin
And when you start to develop that culture, more resources won't even necessarily fix the problems because you lack the like, institutional will and knowledge to pursue kind of thing. So this is a kind of what we keep coming back to. I think we talked about this when Rowan was on because he was talking about Deal, the former head of the Mint who came up with the state quarter program and really reinvigorate it.

00:39:52:25 - 00:40:05:29
Bennett Tomlin
The Mint is we should expect more from our regulators. We should demand more from our bureaucrats. But it is very challenging to find bureaucrats, regulators right now who want to do those challenging things.

00:40:06:27 - 00:40:30:18
Cas Piancey
Yeah, the pushback I got from regulators when I talked to them was really disheartening and the the lack of it, they it seemed like they were definitely not motivated. And I like I don't know what to say about that. You know, you hope that these people actually love their jobs and care about what they're doing. There's that Dirty Money episode about HSBC, which I urge everybody to watch.

00:40:31:18 - 00:40:51:12
Cas Piancey
And in that episode, it's just a dude. It's just a dude who has no special banking education. Like didn't go it didn't get any special degree to be doing what he's doing. He got the job because they wanted to find someone who wouldn't be passionate about what they were doing and they thought, we'll hire this guy off the street, he'll check the savings minimally.

00:40:51:12 - 00:41:17:10
Cas Piancey
And if it doesn't match, then he'll let it go. But he just started noticing all these really weird things that were just slightly misspelled or slightly, slightly off kilter. And he just started pursuing it and it screwed their whole business up. And that's where you're like, Why aren't there regulators who work at least like, you don't want the Mexican drug cartels and the Colombian drug cartels moving billions of dollars into the U.S. banking system.

00:41:17:12 - 00:41:26:17
Cas Piancey
You don't want that stop it from happening. And why aren't you? And I don't and it's like it is lack of passion. It's lack of motivation is lack of caring.

00:41:26:20 - 00:41:33:02
Bennett Tomlin
And it's lack of reward for caring. Right. Because these things are so set up to be so resistant to that kind of thing.

00:41:33:12 - 00:41:57:26
Cas Piancey
Like government is like I guess I think of these people who are in these positions making $125,000 a year with benefits, getting the best medical, getting a nice retirement like that is the benefit of working in government like that doesn't mean you get to just sit and be lazy and not care about your work. It means that's the incentive and you should still be passionate.

00:41:57:29 - 00:42:36:12
Cas Piancey
Meanwhile, yeah, like Jerome Powell is a cent a millionaire. Whatever. I don't know, man. I like. I definitely think that we're witnessing systemic failure of the regulatory system. U.S. and otherwise dare act. And the Bahamas is a joke is a joke. The entire Caribbean in general, like almost all of those countries, just the banking structures and the offshore, you know, captive insurance and just the wildest schemes to totally flout financial regulation.

00:42:36:12 - 00:43:00:09
Cas Piancey
And nobody cares. Nobody cares whether it's there here or in Europe or in in Asia. I don't know. And I don't know what the I don't know what the solution is. In the end. I guess that's at the bring this to where we started. We we're seeing the global as globalization take its toll on all of this stuff taking its toll on regulators abilities to accomplish their goals.

00:43:00:09 - 00:43:08:08
Cas Piancey
I mean, how do they fix it? Can they can they turn this around?

00:43:08:08 - 00:43:36:28
Bennett Tomlin
I don't know. I, I really don't know that we can turn around the regulatory some of the regulatory issues because like, we are so fundamentally divided. And if you look at like the Supreme Court decision on the EPA, their general tenor, it seems to be that they are going to reduce every regulators power to the bare minimum interpretation of the very letters of the law that created them.

00:43:37:15 - 00:43:56:23
Bennett Tomlin
And like even in the case of the SEC we've talked about like they part of their mandate, at least their software, that they're not supposed to like bankrupt or take out companies like they are not supposed to do that. If the company is still existing and like. So when you can't really clearly tell what your intervention is going to cause, can you really intervene in that way?

00:43:57:01 - 00:44:30:10
Bennett Tomlin
And that's also kind of true when it comes to like Brito, like judges, like it's very rare in America for there to be a case where the final sentence is like corporate dissolution, right? Like a corporate death sentence. That is a penalty that can be used, but it's very rarely used in America. And I think it's kind of related to the same kind of things we're seeing here is that there's this kind of expectation that you shouldn't go after these people, you shouldn't try to destroy this value.

00:44:30:10 - 00:44:50:15
Bennett Tomlin
It's more important to protect it than to punish them in this bad behavior. And that's true even when the bad behavior like HSBC, what you talked about before, the cartels had boxes that were designed to be like one inch smaller than the teller window in each dimension that they would stack full of toes wrapped in elastic bands and shoved through there like it was blatant.

00:44:50:15 - 00:44:54:17
Bennett Tomlin
And there fine was large, but it was a fraction of the amount they laundered.

00:44:54:29 - 00:45:19:20
Cas Piancey
Yeah. I mean I guess wish that more of these, more of these regulators and law enforcement agencies were going after, going after these companies that were committing this stuff and doing these these wrongs and not necessarily trying to put them out of business. But like I don't know, people should get in trouble for this stuff. It's silly. It's silly to me.

00:45:19:28 - 00:45:34:01
Cas Piancey
It's silly to me. And I know it's it's a classic, like, white collar crime people. You're killing me. Oh, this is my little white collar criminal. Come here. But I'm here.

00:45:34:01 - 00:45:55:13
Bennett Tomlin
By God. Yeah. No, I think you're right that, like, you want. These people have consequences. You want there to be punishments, but like, it's a challenging thing to develop the political will for. And like, if we lack it to even do it internally in America, like trying to envision some global cooperation between regulators that results in some kind of serious impediment to Binance will be Poloniex or whatever is spun up.

00:45:55:13 - 00:46:00:13
Bennett Tomlin
Now that heft is gone. I really struggle to envision what that would look like.

00:46:01:13 - 00:46:30:27
Cas Piancey
I mean, I hope I hope that I don't know I don't know what we're going to see. I'm I'm I'm I'm reaching a a weird hopelessness wave right now, but we'll see how that pans out. I think I said to you, there's a specific bank. I would rather see that bank go down than see tether go down at this point, like not that tether can burrito.

00:46:30:27 - 00:46:43:08
Cas Piancey
That's who I really want to see go down now as burrito. I've had enough of this nonsense shit. Just keep going. Hey, get out. Get over here.

00:46:43:08 - 00:46:44:08
Speaker 3
You hit this.

00:46:44:16 - 00:47:08:16
Cas Piancey
Woman. Oh, okay. Well, I think that's going to probably do it. We thankfully before this took a complete turn, we were able to discuss the auditor's finance and the future of future of regulatory regime. We'll see how that turns out. I don't think I don't think it looks good.

00:47:08:16 - 00:47:25:13
Bennett Tomlin
I think thank you all for tuning in. I'm probably going to re upload this in like an hour or so to fix some of the freezing we had in the beginning and maybe some of the audio issues. So we experience those in the beginning. Check back in our channel and make an hour. Thank you all.