Crypto Critics' Corner

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Episode 133 – Did Sam Bankman-Fried’s Defense Blow It? (feat. David Z. Morris)

Did Sam Bankman-Fried's Defense Blow It? (Feat. David Z. Morris) – Crypto Critics' Corner

Bennett Tomlin and Cas Piancey are joined by David Z. Morris to discuss the trial of Sam Bankman-Fried, and the testimony against him so far. This includes longtime friend Adam Yedidia, FTX leader Gary Wang, and investor Matt Huang. Additional resources: Protos coverage of the trial https://protos.com/sbftrial/ Bennett newsletter about opening statements http://us2.campaign-archive.com/?u=16a900a42513fb7998acad86d&id=4f3209dbfb Semafor reporting on loans https://www.semafor.com/article/12/07/2022/charity-money-launched-sam-bankman-frieds-empire Tara Mac Aulay tweet about leaving https://twitter.com/Tara_MacAulay/status/1592985303262072834?cxt=HHwWhMDU1a_stZssAAAA WSJ reporting on XRP bet https://www.wsj.com/amp/articles/alameda-sam-bankman-fried-ftx-crypto-crash-11672434101 Reporting on MobileCoin losses https://protos.com/mobilecoin-the-project-that-doomed-ftx-a-year-before-terra-luna/ WSJ reporting on Cohen & Everdell https://www.wsj.com/articles/sam-bankman-frieds-defense-team-led-by-battle-tested-lawyers-11673217199 Where to find David: Flesh/Markets https://davidzmorris.substack.com/ Protos https://protos.com/author/dmorris/ Unchained https://unchainedcrypto.com/author/davidz/ Twitter https://twitter.com/davidzmorris This video was recorded on October 8th, 2023.

Cas Piancey and Bennett Tomlin are joined by David Z. Morris to discuss the trial of Sam Bankman-Fried, and the testimony against him so far.

This episode was recorded on October 8th, 2023.

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English Transcript:

00:00:05:02 - 00:00:12:17
Cas Piancey
Welcome back, everyone. I am Cas Piancey. I'm joined, as usual, by my partner in crime, Mr. Bennett Tomlin. How are you today?

00:00:12:22 - 00:00:13:22
Bennett Tomlin
I'm doing well. How are you?

00:00:13:22 - 00:00:21:07
Cas Piancey
Good Good. It's been an exciting week. We are joined by a very special guest, actually, fourth time appearing on the show in some way, shape or form.

00:00:21:07 - 00:00:22:13
David Z. Morris
Wait, fourth time?

00:00:22:15 - 00:00:23:06
Bennett Tomlin
Yes if you count the panel.

00:00:23:07 - 00:00:29:16
Cas Piancey
The panel which you were a part of. David Z. Morris, welcome back to Crypto Critics Corner.

00:00:29:16 - 00:00:31:18
David Z. Morris
Thank you and it’s an honor.

00:00:31:19 - 00:00:45:13
Cas Piancey
He has he's been writing for Protos and kind of covering the SBF trial for Protos so it's been wonderful having you on the Protos team, David. But actually maybe we should start off there. How did you wind up writing for Protos?

00:00:45:13 - 00:00:48:12
Cas Piancey
What's going on over at Coindesk? Let's let's talk about it.

00:00:48:12 - 00:01:17:13
David Z. Morris
Yeah, I think some people will know and some people will not. There was a big round of layoffs from Coindesk about six weeks ago now, seven weeks ago. And unfortunately I was impacted. There's a there's a whole behind the scenes story that I can't go into too much. But as people know, Coindesk is a is a subsidiary of digital currency group, which was pretty significantly impacted by a lot of crypto crashes that we caused.

00:01:17:16 - 00:01:33:22
David Z. Morris
Question Mark? And so, you know, I've been talking to some of my colleagues and saying that there needs to be some sort of equivalent to like the Silver Star or the Purple Heart for journalists who lose their jobs because they destroyed the organization that they were.

00:01:34:00 - 00:01:49:20
Bennett Tomlin
Well, and I've also been excited just had before going further to have for you to have had more time to contribute to your personal newsletter, Flesh/Markets, where you get to cover some of the more esoteric but interesting stuff that just can't get editorial approval at other outlets.

00:01:49:22 - 00:02:14:19
David Z. Morris
Yeah, Yeah. Thank you. And I guess right up front, I can say I would be really awesome to have more people sign up. It's just David Z Morris dot Substack dot com and you get a bi weekly subscriber only crypto news roundup. Although right now it is mostly SBF trial, but too much of good stuff there. It's been really exciting to see it grow and I have gotten a lot of a lot of great feedback, so it's nice.

00:02:14:21 - 00:02:33:07
Cas Piancey
And we're going to link to that Substack in the show notes and in the if you're listening to this on a podcasting platform, I will be linking to it there as well. So it'll be easy enough to find David Substack and also his coverage of the trial so far for Protos. So we'll be linking to all of that good stuff.

00:02:33:09 - 00:02:48:18
Cas Piancey
But now let's get to the the main course of our discussion, which is, yes, the trial and how hectic and wild this has been. Why don't you start us off, David? You've you've been there firsthand, wherever you want to start. Why don't you just go for it?

00:02:48:20 - 00:03:13:16
David Z. Morris
Yeah. So we just finished the first week. There was no trial on Monday, but Tuesday started with jury selection, which was interesting. But also I got a lot of reading done, which I think is actually going to be a theme for a good bit of the trial. And then we really like went off to the races. We the first the first witness was Adam Yedidia, who is one of the developers, fairly high ranking.

00:03:13:22 - 00:03:35:14
David Z. Morris
He lived in the Bahamas penthouse with with Sam Bankman-Fried and was a longtime friend. He crucially... Well, we'll go into more depth, but he's a little bit different from some of the other witnesses because he's not testifying under a plea deal. He hasn't pled guilty to any crimes. So the prosecution started off with a witness who's not implicated in anything that's going on, particularly.

00:03:35:16 - 00:03:41:06
Cas Piancey
After he did actually start off with a cocoa commodities trader, if I recall. Right. Like everyone seems to have.

00:03:41:06 - 00:03:42:03
David Z. Morris
Just.

00:03:42:05 - 00:04:04:12
Cas Piancey
Skirted over that. Right. It's okay. I actually saw a bunch of videos say the same exact thing, but I know he wasn't a very impactful witness. He basically was just saying that he, as a professional commodities trader, cocoa trader, had fallen for the hype of of what SBF had put out there and that he he watched the Super Bowl ads and he put his money on there.

00:04:04:15 - 00:04:05:12
Cas Piancey
But yes, that.

00:04:05:12 - 00:04:33:06
David Z. Morris
Was actually kind of significant, just as a thing for the prosecution to establish, which is that this was a customer, somebody who used FTX talked about the marketing, talked about why he, a professional, trusted the platform. And that sort of establishes the grounds for for a lot of the fraud charges. So, yeah, that was the first. Adam you did the second third witness was a guy, Matt Huang of Paradigm, which is a crypto venture fund, took the stand to talk about how they got robbed.

00:04:33:08 - 00:05:02:06
David Z. Morris
And then yes, we wrapped up the week with Gary Wang, the co-founder of of FTX and Alameda Research and Gary's testimony was definitely the bombshell of the week and we'll get into it. But I think the totality of the situation is that things are going very badly for Sam. And there was even some drama in the courtroom that seemed to reflect that people understood that, which I think we will also get to.

00:05:02:07 - 00:05:24:22
Bennett Tomlin
Yeah. So jumping back to that, I haven't been in the courtroom like you have, but I've been reviewing the coverage in the transcripts and some of that and the opening statement for Sam Bankman-Fried’s lawyers struck me when they were going over it because it made a variety of incredibly strange arguments, at least to me as a layperson. None of us on this call are a lawyer, just to be clear for anyone listening.

00:05:25:00 - 00:05:47:06
Bennett Tomlin
But I argued in the opening statement that Alameda Research had billions in profits, said Alameda Research was a totally legitimate payment agent for FTX that everyone was fully aware of and then even tried to make the excuse that FTX was a bank and that a bank run is what occurred, which is surprising to me because I missed them getting that charter.

00:05:47:06 - 00:05:51:10
Bennett Tomlin
But apparently their lawyer found it. Do you have any thoughts on kind of that opening?

00:05:51:12 - 00:06:16:21
David Z. Morris
Well, one notable thing about kind of being in the courtroom is that at this point, I'm not really yet looking back at anything. So I was there for the for the statements and I found them I found the defense statement quite weak. The bank run thing definitely jumped out at me. And of course, you know, that is the side of the debate that Michael Lewis is on, which maybe we can talk a tiny bit about either here or elsewhere.

00:06:16:23 - 00:06:46:15
David Z. Morris
And also, just more generally, I think that, you know, the way to think about those arguments is not so much that they're actual arguments that the defense is going to be able to make over the course of the trial for the reasons that I for reasons that I get into. But they are means of slowing down to the defense's only real tactic so far has been to and you know this is legitimate right on in a criminal case the standard is you have to establish beyond a reasonable doubt that somebody is guilty.

00:06:46:17 - 00:07:18:05
David Z. Morris
And so the defense is is focused on creating that reasonable doubt. It's pretty much failing to do so so far. And I think the opening statement kind of previewed that, you know, they are kind of grasping at straws for it. For those who don't know, the defense witnesses were all denied. Basically, they submitted a list of witnesses that was almost exclusively, as far as I could tell, subject matter experts, finance professors and other people who had no real specific knowledge of what was going on.

00:07:18:07 - 00:07:43:14
David Z. Morris
And the judgment in that case was that, you know, these witnesses are only going to confuse the issue because they're going to be talking in theoretical terms rather than speaking to any substance. And so that means the defense doesn't actually have any witnesses to call. There might be some opportunities for them to go back to that initial witness list and and get some people in.

00:07:43:16 - 00:08:10:12
David Z. Morris
But I think at most there were like two names that they were given the option to recall as responses to government witnesses. So so they're really relying on their cross-examination to, again, almost exclusively to show doubt about the witnesses. And that has included both with Adam Yedidia and Gary Wang talking about the deals under which they are testifying.

00:08:10:14 - 00:08:34:22
David Z. Morris
And in Adam, you did his case, the first, you know, major witness. I would say I think that fell really flat in a way that might wind up harming the entire defense because, as I said, you did you did not plead guilty to anything. But he was testifying under an immunity agreement that is he anything he said could not be used to charge him with a crime.

00:08:34:22 - 00:09:00:21
David Z. Morris
He has not been charged with a crime, but the agreement just prevents him from being charged based on his testimony. However, and the prosecution has done this very effectively, both with Jedediah and with Gary Wang. They are actually bringing up these agreements first and emphasizing the fact that what nullifies the agreement is if the witnesses are found to have lied to somebody like Adam, you did hear is now completely not charged with any crime.

00:09:00:23 - 00:09:31:03
David Z. Morris
Anything he says cannot be used to charge him with a crime on the stand. But if he lies, that agreement is nullified. And the same goes for Gary Wang, who actually faces, you know, decades in prison for the stuff that he's charged with. So, you know, if you give the jury the benefit of the doubt that they're at least slightly thinking these things through, it really undermines the fundamental argument of the defense that is trying to imply basically that these people are just saying what the government wants them to say because they were offered a deal.

00:09:31:05 - 00:09:35:19
David Z. Morris
And that's really one of frankly, only two legs that defense is standing on right now.

00:09:35:23 - 00:09:59:06
Cas Piancey
And that. So that's a really compelling point that you're making. And piggybacking off of that in a sense here, I think the to some of the more dramatic flubs that have been pointed to publicly, the one that I remember distinctly and I don't know if this played out similarly in the courtroom, but the one I remember distinctly is he didn't buy a yacht, did he?

00:09:59:08 - 00:10:06:14
Cas Piancey
Which was what the defense team essentially said to I don't know if it was the idea. I think it was Yedidia.

00:10:06:16 - 00:10:07:05
David Z. Morris
Yedidia.

00:10:07:07 - 00:10:38:06
Cas Piancey
Where they were saying he owns a Toyota Corolla. He's obviously he's not taking in all this wealth just to buy fancy crap for himself. He didn't buy a yacht, did he? And I think the other flub that everyone's been noticing or that has been sticking out for everybody is that the judge is basically not having any of this, that there's been a lot of repetition, that there's been some borderline hearsay attempts for witnesses and and other stuff, and that the judge is saying, you guys better fucking cut this out right now.

00:10:38:06 - 00:10:40:07
Cas Piancey
But yeah, can you, can you talk about those.

00:10:40:07 - 00:10:40:15
David Z. Morris
Yeah.

00:10:40:16 - 00:10:41:04
Cas Piancey
Those moments.

00:10:41:04 - 00:11:00:02
David Z. Morris
So there's actually three things because I want to talk about the hearsay thing and see if I can pull out the details because that was a pretty nuanced one. Yeah, but the, the questioning of your duty about Sam spending was honestly hilarious and really made the defense seem. I think I just have to say like, not that competent.

00:11:00:04 - 00:11:22:22
David Z. Morris
And it's it's surprising because this is the firm of Mark Cohen and a guy named Christian Everdell and Everdell is handling most of the cross-examination so far and it was Everdel who pursued this line of questioning with you did you and was asking. Yes. Did he buy nice clothes? Did he buy a nice car? Did he buy a yacht?

00:11:23:02 - 00:11:51:19
David Z. Morris
Right. And of course, you did. He was saying, you know, not that often. I think they also during this question you did you were saying like, no, he just dressed in cargo shorts and a t shirt. And I think the really incredible part that seems to show some real lack of comprehension by the defense is that the defense then pulled up a piece of evidence that was the infamous photo of Sam Bankman-Fried on stage with Bill Clinton and Tony Blair at Crypto Bahamas last year.

00:11:51:21 - 00:12:12:13
David Z. Morris
Now, they pulled up this photo because Sam Bankman-Fried in that photo was sitting next to Bill Clinton in cargo shorts in a t shirt. So the defense is doing this to try and show he's just a regular guy. He's not embezzling money. Look at him. He's looking, but he's next to Bill Clinton and Tony Blair. Guys, how do you think he got on that stage in a t shirt and cargo shorts?

00:12:12:15 - 00:12:44:17
David Z. Morris
Do you think the jury is morons like they they know influence peddling when they see it, do you not? And the other point at which this is a complete disaster is that there's what's known as redirect. So cross-examination is after the prosecution has asked questions because these are a prosecution witness. So the prosecution goes first, ask questions, defense gets to cross-examine, and then the prosecution gets to come back for what's called redirect, which is they have to address issues that the defense raised in their cross-examination and they can essentially rebut.

00:12:44:19 - 00:13:03:18
David Z. Morris
Now the rebuttal for this line of questioning that the prosecution came back with immediately was to ask you, did you have you heard of FTX Arena? And at this point, I was in the actual courtroom. Sometimes I'm in the overflow, but I was in the actual courtroom. In the actual courtroom. Burst out all of it. I could not control myself.

00:13:03:18 - 00:13:27:23
David Z. Morris
I laughed. Everybody laughed because we all knew where that was going, which is that you did hear said, yes, I've heard of it. We paid $100 million for the naming rights for the former Miami Heat arena and again, it seems like the defense's tactics are built on the assumption the jury is stupid, which is to say that they think that this guy's personal spending is the full sum of what he did with $8 billion.

00:13:28:01 - 00:14:07:15
David Z. Morris
And so that was that was pretty bad. The hearsay issue was interesting, and I'm not going to be able to pull the details back up from memory. But effectively, I think this was with maybe we shouldn't go too deep into this because I'm not even remembering whether it was Yedidia or Wang, but essentially the defense was looking at the transcript of testimony that one of the witnesses gave to, I believe, the FBI immediately after the shutdown in December was asking them what they had said at the time and then when they did not produce the response that the defense was hoping for, the defense began reading their past statements to them from the transcript and

00:14:07:15 - 00:14:31:11
David Z. Morris
asking them, did you see this? And that is essentially putting words in the witnesses mouth. The judge immediately cut this off very sternly, and it was part of a much larger pattern where the defense was getting constantly shut down on its lines of questioning, as you know, whether they were leading the witnesses. Well, and, of course, Cas, as you point out, the big one was repetition.

00:14:31:11 - 00:14:50:01
David Z. Morris
And it really feels like the defense is just killing time because a substantial portion of the cross-examination with the major witnesses so far has just been the defense re asking the same questions as the prosecution with no apparent purpose at all, as far as I could tell.

00:14:50:03 - 00:14:55:16
Bennett Tomlin
And and that's sitting the judge there was like a whole sidebar with Cohen about it on day two, right?

00:14:55:16 - 00:15:16:13
David Z. Morris
Yes. Yes. He got it right from the start. And then, you know, after that sidebar on day to it has continued to happen. The judge has continued to reprimand this as Everdell who's really doing it? I mean, Cohen was brought up for the sidebar, but ever Doh has been the one doing the cross checks. It's in fact on Friday it was to such an extent.

00:15:16:13 - 00:15:42:15
David Z. Morris
I haven't looked back at the transcript, so I don't have the exact wording. But Everdell as we got, we had recess early on on Friday because a juror had travel plans. So we were going to wrap up at 2 p.m. and it was 150 and everyone else started doing so. He started like repeating the prosecution questions and the judge at this point just interrupted him and said, Mr. Ever Del, it appears you're just trying to kill time until 2 p.m..

00:15:42:21 - 00:16:05:05
David Z. Morris
Why don't we just break and ever go? It was like, okay, you got me. That's exactly what I was trying to do. Let's break. And so we left at 1:50 and the other thing to point out, and I think this is the right point to point it out, is that you can hear all of this and maybe somebody in the audience is thinking, oh, but, you know, maybe they were making some legal point, making some argument that we don't quite understand yet.

00:16:05:08 - 00:16:27:14
David Z. Morris
And that is possible, but also irrelevant. One of the nice parts of being in the courtroom is that I'm there with a bunch of other very even far more experienced court reporters who have watched a lot of trials. And one fella who I have found very knowledgeable told me that a jury trial is a lot like a presidential election.

00:16:27:16 - 00:16:52:00
David Z. Morris
The winner is often the person who the jury wants to have a beer with. In some ways, it might seem like it's not real justice, but it is also because jurors are smarter natively than I think you might give them credit for these interruptions. The judge reprimanding the defense counsel. All of this, I think, boils down to the jury having less reason to trust defense counsel and in turn less reason to trust Sam Bankman-Fried.

00:16:52:00 - 00:16:54:00
David Z. Morris
So I think it's all very bad for him.

00:16:54:01 - 00:17:06:16
Bennett Tomlin
I think one of the most impactful pieces of testimony so far, in my opinion, has been the testimony of Garry Wang. Can you talk a little bit about what he testified about, especially the relationship between FTX and Alameda Research?

00:17:06:16 - 00:17:38:17
David Z. Morris
I believe this is new information, but Garry testified that as early as late 2019, Alameda was already effectively tapping customer funds because Sam had personally authorized the use of FTT tokens held by Alameda as leverage for what amounted to margin loans on FTX. So there are various interpretations of this, but I think one very straightforward one is that FTX was a fraud from almost the very beginning.

00:17:38:18 - 00:18:07:15
David Z. Morris
FTX was founded in the last few months of 2019, and within a couple of months they were already having to use customer funds to underwrite. Alameda. And this is staggering because what it means is that Alameda was very bad at trading crypto, even in the lead up to a real mega bull run. And well before or by the way, Caroline Ellison was co-CEO with Sam Tabasco.

00:18:07:17 - 00:18:16:05
David Z. Morris
So, you know, we have a a real pattern here. And I think, again, very devastating for for Sam and for his defense.

00:18:16:07 - 00:18:31:19
Bennett Tomlin
Yeah. And I have some of this open in my notes right now because I covered the defense's opening statement in my newsletter for this week. And the comment, like I mentioned before, that stuck in my head was their billions of profits. So just to kind of help with the timeline a little bit here, Alameda Research was founded in 2017.

00:18:31:21 - 00:18:41:12
Bennett Tomlin
They were initially funded by a large like $110 million loan with a 40% interest rate based on reporting from Semafor.

00:18:41:12 - 00:18:43:10
David Z. Morris
From effective altruists, by the way.

00:18:43:10 - 00:19:06:03
Bennett Tomlin
Yes, that's right. Yes. This loan gets called in in early 2018, which leads to some of the early members of Alameda Research quitting, including Tara Mac Aulay, the co-founder who eventually cites risk management and ethics issues. In 2018, the Wall Street Journal has reported that Alameda Research lost about two thirds of their total assets on a bad XRP bet.

00:19:06:05 - 00:19:30:10
Bennett Tomlin
Now we have the new testimony from Gary Wang saying that in late 2019 or early 2020, Alameda Research starts pulling from customer assets by effectively putting FTT up as collateral at an unreasonable rate in terms of how it was calculated for the collateral. In 2021, we see the bad bet on Mobile Coin where they fat fingered and ended up needing to have to step in.

00:19:30:10 - 00:19:55:04
Bennett Tomlin
Reportedly 2021 tax returns for Alameda Research and FTX show billions of dollars in losses. 2022 We have the Luna and Terra collapse along with 3 Arrows Capital, resulting in all the loans being called in which involved them taking more customer funds allegedly, of course, to pay back those loans. And during this period, they're valuing the FTT they're using as collateral at more than the entire market cap for FTT.

00:19:55:06 - 00:20:25:09
Bennett Tomlin
And like the reason I'm belaboring this timeline right now is because I think it's kind of important to emphasize that from 2018 through 2022, it's not clear there was ever a year where Alameda Research was actually making the billions in profits that their lawyers are claiming that Sam is still claiming. It's not clear that at any point this was very much like legitimate, successful business points towards the creation of FTX being perhaps not motivated purely by a desire to create an effective cryptocurrency exchange.

00:20:25:11 - 00:20:27:00
Cas Piancey
That's right.

00:20:27:02 - 00:20:55:23
David Z. Morris
And let me jump in real quick and provide one other bit of clarity about the early days and kind of how Sam was thinking about this. According to Gary's testimony, which is in itself staggering. So what Sam told him about Alameda, this deficit, according to Gary, was that they could be allowed to run a deficit as long as it was not higher than the trading fees that he was making up to that point.

00:20:56:05 - 00:21:20:22
David Z. Morris
This is insane. Basically, what Sam is saying is that as long as FTX is making a profit, those profits can be funneled directly into Alameda by way of a deficit like this makes no sense. And I don't understand why he would even think it made sense. And it does speak to well, I mean, I get in the in the bigger picture, but if you're actually running a business.

00:21:21:02 - 00:21:32:01
Bennett Tomlin
He plotted an exponential curve and then just plugged that into a bad expected value calculation and says, yeah, that number is positive, not negative. So we should do this. That's all that happened.

00:21:32:03 - 00:22:05:00
Cas Piancey
There's another point that's come out is the insurance fund has been questioned and how the insurance fund was calculated. And in case anyone is unfamiliar, in case anyone doesn't actively trade on any of these kind of bucket shops, the concept, including for BitMEX and other cryptocurrency exchanges, is that with these transactions, with all of these trades that are ongoing on your exchange, you take some of these fees that you're accumulating, you pile them into this big like the SAFU fund over at

00:22:05:04 - 00:22:28:10
Cas Piancey
Binance And you basically do this so that you can tell customers, look, if there's ever a hack, if there's ever any kind of loss, if, if somebody freezes some token or something, we can we can cover losses up to a certain point. But it turned out that they were calculating this with just random numbers. There was no reality to the insurance fund numbers that they were coming up with.

00:22:28:10 - 00:22:52:03
Cas Piancey
It was like times 7500. I'd like ridiculous, just totally invented. But this brings me to you mentioned Michael Lewis. Michael Lewis came out with his book Going Infinite, which has been widely sort of lampooned within the financial industry. Outside of that, publicly, it seems like some people are into it, but that's fine. It depends on what you think.

00:22:52:03 - 00:23:13:01
Cas Piancey
But regardless, two things here. You mentioned that, you know, the defense is trying to sell a story. Essentially, they want you to believe Sam is the guy that you want to go out and have a beer with as opposed to whatever the prosecution is throwing out there to not establish that. Meanwhile, I think we have Michael Lewis saying we've got this exchange.

00:23:13:01 - 00:23:38:00
Cas Piancey
The exchange was always profitable. I was sitting there, I could see these books. I know that it was what it was. And yet everything that we're hearing says otherwise for all of this, whether we're talking about the story being painted of who SBF really was, or whether we're talking about what kind of risk profiles these these executives were taking, how they conducted themselves, how they even determined what was acceptable levels of risk.

00:23:38:05 - 00:23:48:18
Cas Piancey
It's all total fluff nonsense. Do you think there's any redemption arc here? What do you think the defense could do to to push back on what we're all seeing? I don't know if it's obvious to the jurors, but.

00:23:48:18 - 00:24:13:12
David Z. Morris
Well, we have Caroline coming up on Tuesday, probably. And it really seems likely that they are going to really work hard to throw her under the bus. And that, I think, is the only it's the only narrative Sam has offered, basically, is that Alameda losing all that money sent FTX into a tailspin and then you just have it's like the underpants gnomes.

00:24:13:12 - 00:24:43:12
David Z. Morris
It's like Alameda lost all that money. No explanation for why Alameda had all the tax money in the first place. But out of business. And that, I think, is the is the sleight of hand that the defense is going to rest on is basically saying that it's collapsed because Alameda was bad at trading. They've mentioned at least once that sam recommended Caroline put on a hedge at a certain point and she didn't.

00:24:43:14 - 00:25:09:20
David Z. Morris
And that I think, you know, whatever relevance that has, they're going to make a big deal out of it. Leaving aside the fact by the way, that that also put Sam Bankman-Fried in the chain of command for a an entity that he was not supposed to have any influence over and in fact, whose, you know, lack of his influence over it was part of how they marketed and defended the entire arrangement that led to the creation of these two companies.

00:25:09:20 - 00:25:35:06
David Z. Morris
So, you know, the defense is hung on its own petard, whichever way it turns, because their only way of claiming that that Caroline was somehow the culprit was you know, that includes saying that Sam was actually in charge of Alameda. I do also want to speak to the Michael Lewis thing, specifically the quality of the book and the quality of the narrative is one thing, but it has been honestly shocking.

00:25:35:08 - 00:26:04:09
David Z. Morris
And, you know, I idolize this man, to be clear, like he's one of my, you know, one of the most people I hold in the highest regard, perhaps in the world until about a week ago. But he is now saying in public that he intends his book to be a, quote, letter to the jury. And we already have a serious problem with jury trials in the U.S., which is that is basically impossible for a jury to be sequestered from outside information.

00:26:04:11 - 00:26:26:03
David Z. Morris
And here we have an influential finance writer who's saying he's actually trying to engage in what amounts to jury tampering from outside the courtroom. And that, I think, should be distressing as far as the substance and the explanation of what's going on there. I think it's a lot of Freudian psychology, frankly, with Michael Lewis and his self-conception. There's there's a lot more to be said about that.

00:26:26:03 - 00:26:32:12
David Z. Morris
But it's a it's a sub issue. I think the real question is like, buddy, you should not be trying to influence the jury. It's not what you're here for.

00:26:32:16 - 00:26:51:10
Cas Piancey
Some of the things he said about Zeke, Zeke Faux, friend of the show and author of Number Go Up a brilliant book that I recommend. Everybody check out the stuff he said about Zeke, the stuff he's saying about Oher. The the lad who's featured in the Blind Side and all that.

00:26:51:10 - 00:26:53:17
David Z. Morris
But, boy, it's been a bad month for him.

00:26:53:18 - 00:27:19:05
Cas Piancey
Yeah, he, he basically said that that dude has suffered. I mean, I want to say that this is hyper hyperbole that I'm, I'm saying here, but he basically said that he's been hit in the head too many times and he's suffered a personality change, which I don't know why you're fucking saying that out loud. Whether you believe it or not, I recommend shutting your fucking mouth and not, you know, not not talking about CTE in that way.

00:27:19:07 - 00:27:43:19
Cas Piancey
Yeah, it's, it's pretty despicable stuff. And like you said, somebody who I had a ton of respect for, even just as a storyteller, whether or not you believe every story that he's told, you know, a lot of respect for that guy. And he wiped it out very quickly just by opening his mouth in these interviews, regardless of how I feel about his book, which I didn't like either sorry, tangent my own my own vitriol coming out a little bit there.

00:27:43:19 - 00:28:04:17
Cas Piancey
But yeah, so, you know, let's get let's get back to the trial here. I agree with you that, you know, you shouldn't be writing letters to the jury unless you've been literally asked to do so by the prosecution or defense. And usually that comes in during sentencing and not during the actual trial itself. I'm curious what your thoughts are going forward here.

00:28:04:17 - 00:28:11:21
Cas Piancey
As you said, we've got Caroline coming up, got a lot of other witnesses to go through as well. What do you what do you expect to see in the next week?

00:28:12:00 - 00:28:27:14
David Z. Morris
Yeah, I think that yeah, Caroline's next. That's going to be the big day. I get to be at the courthouse at 4 a.m. to try and get into the actual courtroom so I can see all the action. I frankly don't have a great big picture view of the way things are going to go. Obviously, we still have Nishad sitting on the docket.

00:28:27:14 - 00:29:00:04
David Z. Morris
He's the third guilty plea, coconspirator, major figure. And because I mentioned the shot, I'm backtracking a little bit. But it was very interesting listening to Gary Wang's testimony and describing, you know, it was very boring in some ways. He was describing in huge detail how he and you know, you did he was involved in this to some extent to how they in the process of recoding certain payment APIs within FTX’s code base discovered how much money Alameda was was extracting.

00:29:00:04 - 00:29:26:11
David Z. Morris
And there were these series of meetings like emergency executive meetings that Gary Wang described, and the attendees were Caroline Ellison, Gary Wang, Nishat Singh and Sam Bankman-Fried. None of those people is an accountant. It does not appear there were any accountants involved anywhere in the process of keeping track of how much, how many billions of dollars FTX was in the whole to Alameda.

00:29:26:13 - 00:29:46:03
David Z. Morris
Like we were seeing these, you know, you remember the infamous SBF balance sheet that he posted that was like, maybe we have a few of these. I don't know how much this is worth, but it was like in an Excel spreadsheet so that it like sort of had some superficial form to it. A lot of those were taken from internal documents.

00:29:46:05 - 00:30:11:20
David Z. Morris
Sorry, we saw a bunch of internal documents during the trial that basically made it look like that was actually an accurate representation of how accounting was done at FTI. It was just spreadsheets. And you would even have in a couple of cases, you had two different versions of a spreadsheet trying to calculate the same thing Gary would do, one shard would do another, and they would arrive at a different number and they would just kind of decide which number was actually correct.

00:30:11:22 - 00:30:40:04
David Z. Morris
And that just seems to be the way things went. So Nishat is coming up. We'll get another viewpoint on some of those meetings. We will, I think, still get some testimony from Zach, Zach Prince, I believe his name is the CEO of Blockfi. And so we'll get more from defrauded individual investors, defrauded equity investors and people who like Blockfi, I assume blockfi lent money to Alameda for trading purposes so they were defrauded in that way.

00:30:40:04 - 00:30:59:00
Cas Piancey
I think just to just to push back there for one second. I think what really happened with Blockfi is that came in Alameda came in as the rescue. They they came in to rescue Blockfi because their lending product had blown up and they were like, oh, we're going to take care of everything we promise. And in reality, they just desperately wanted to access those customer funds.

00:30:59:02 - 00:31:03:03
Cas Piancey
And so then they started taking the customer funds and using them for whatever they wanted. Am I getting that right?

00:31:03:05 - 00:31:26:23
Bennett Tomlin
I haven't been reading all the Blockfi bankruptcy filings like I have for FTX, but I think there was some detail about how when FTX came in with the rescue offer, Alameda Research still had some loan outstanding and like the payoff of that loan was structured into the offer combined with like the kind of performance standard that they were unlikely to meet, which made the total outlay from FTX, like likely to actually be small.

00:31:26:23 - 00:31:51:07
Bennett Tomlin
And like there was a bunch of weird structural issues in that deal that might come in. I can't. I have this feeling, but I can't remember the details that Blockfi was one of the last loans. Alameda still had not closed. They had successfully used the customer funds to close out most of their other loans, some other lenders. So Blockfi might be being called as one of the defrauded lenders related to that conspiracy charge and set list of charges.

00:31:51:11 - 00:32:28:23
David Z. Morris
It's all interrelated. It's all very incestuous, obviously. So as we wrap this up for so we can keep it tight and get it out, I think one other thing that people are going to be interested to hear about is that, you know, during this frankly disastrous cross-examination of Adam, you did you which ultimately culminated in the the prosecution getting a laugh line by mentioning arena early in that cross-examination was was really the first major moment of in courtroom drama that I saw, which was Barbara Fried seems to have either broken down, crying or come very close.

00:32:29:01 - 00:32:49:01
David Z. Morris
I was sitting across the aisle from her and she sort of lowered her head during the cross-examination, took her glasses off, balled up her fists and like pushed her her eye sockets into her fists like this. And she was kind of down in her own lap, curled over for, you know, a few minutes and did it a few times during the cross-examination.

00:32:49:01 - 00:33:12:02
David Z. Morris
And at the same time, Joseph Bankman, Sam's father, kind of had his head down in his hand, whereas for most of the duration, they've both been very alert, very, you know, upright. They're taking notes. And so my interpretation of that, you know, whether she was crying or suppressing crying, she seemed very upset. And in the context the conclusion that I had to draw was that she maybe was noticing that the defense was not doing great.

00:33:12:02 - 00:33:36:02
David Z. Morris
And, you know, it's one of those moments where as we talk about the the courtroom experience and the fact that I'm there, those are those are the moments that were there to see. And it really raises a lot of sort of more complex questions on a human level, Right. Because these are, you know, people in their late seventies who are, I think, genuinely suffering whatever they might or might not have allegedly done as part of this crime.

00:33:36:04 - 00:33:59:17
David Z. Morris
And I think that that, you know, I have to be evenhanded here. I think that that actually could have an impact on the jury, especially since the jury will not be allowed to to learn any of the allegations. Now coming out around the parents themselves. And so, you know, I think that that could be a factor. It could be a factor even if she is not a manifestly terrible sympathetic person.

00:33:59:21 - 00:34:20:08
Cas Piancey
As a last statement for me, is that Liz Lovato, who's covering this for The Verge, she mentioned in one of her articles, which again I hope we can link to in show notes. She mentioned that a lot of it felt like the defense team was already preparing for the appeals and I think they're that feels I don't know.

00:34:20:08 - 00:34:39:23
Cas Piancey
I'm not there. You're there, David But if it feels right to me that like they know they're hobbled when it comes to actually providing a real defense for this stuff. And at this point, it's more like, can we figure out some way to get an appeal to actually work functionally? And they're just racking their minds trying to figure it out.

00:34:40:01 - 00:34:41:22
Cas Piancey
It wouldn't surprise me if that's indeed the case.

00:34:41:22 - 00:34:57:14
David Z. Morris
She's a more sophisticated legal observer than I am, frankly. She she covered the Elizabeth Holmes trial, so she knows this stuff a little better than I do. So I think the fact that she's thinking ahead to appeal is more than had occurred to me. To me, it just seems like they've given up already because they're just not trying anything.

00:34:57:14 - 00:35:29:03
David Z. Morris
They don't have any witnesses to build an alternate narrative with. They really don't have they have not been able to paint any clear picture in the jury's mind, as far as I can tell, of an alternate explanation for anything that happened besides the one that the prosecution has already painted very clearly. So all they can do is kind of chip around at the edges, frankly, and like they haven't even been able to get any of the witnesses so far to talk about like charitable donations, which people in the public sphere, that's where they go first.

00:35:29:05 - 00:35:50:05
David Z. Morris
You know, you're like Michael Lewis, like, oh, he wanted to solve pandemics. A No, he didn't. But also who gives a fuck? So, yeah, I mean, that's where they are. They're just going back and getting the witnesses to say the same things they said to the prosecution. And that's really like half of the defense cross-examination so far.

00:35:50:06 - 00:36:04:05
Cas Piancey
It could be a matter of like, you know, when they say someone's defending themselves, that they're a fine lawyer, but they've got an idiot for a client or something like that. But it could just be that trying to represent SBF is insanely difficult and if not impossible.

00:36:04:07 - 00:36:31:19
David Z. Morris
And there is there is a in convenient fact here that I have to be careful about what conclusions people are invited to draw from this. But Cohen Inverdale is the law firm that represented Ghislaine Maxwell and A, they lost that one too. But B, you know, they could be considered perhaps a law firm of last resort for people who don't have any better off.

00:36:31:19 - 00:36:53:22
David Z. Morris
And, you know, there was a Wall Street Journal article about this connection and they said that Cohen and Everdell have a reputation of I'm going to paraphrase, but something like workmanlike lawyers write, they're not flashy. They don't have a lot of I guess, juice, you might say. They're really just asking questions. And in some cases, that's very effective, apparently, according to this journal write up.

00:36:54:00 - 00:37:16:00
David Z. Morris
But in this case, you have to be able to paint a picture. You have to be able to tell a story that is convincing. And it contrasts with the prosecution's theory of the case. And in this case, you know, ever go against the cross. And he's just there's a lot of hesitation and there's a lot of arms and Oz and there's a lot of I'm sorry, Judge also.

00:37:16:02 - 00:37:37:09
David Z. Morris
And so it's just not coming off. Yeah. So I am actually because of my lay off, I'm going to ask I'm kind of doing a bunch of stuff I've already mentioned my my own news editor David z Morris dot Substack dot com. Check that out. I am also contributing occasional columns to Laura Shin over at Unchained, so go check out Unchained.

00:37:37:11 - 00:37:52:04
David Z. Morris
And and as we've mentioned at Protos, I don't have the address to all of my staff, but I'll be filing hopefully every day or very close to it. So you'll get a granular view every day of what's going on inside the courtroom.

00:37:52:07 - 00:37:54:17
Cas Piancey
Awesome. appreciate it. Thank you.

00:37:54:17 - 00:37:59:11
David Z. Morris
Thank you, David. On Twitter @DavidZMorris, also sorry.

00:37:59:13 - 00:38:00:19
Cas Piancey
Perfect.

00:38:00:21 - 00:38:04:04
Bennett Tomlin
We'll link all that in the description and on the website for anyone listening.

00:38:04:09 - 00:38:18:22
Cas Piancey
Awesome. Obviously, I know that Cass Quinn was going through some issues last week, but I have provided myself a $65 billion credit line and everything is good for now, so no need to worry anyone out there. I know that it was troubling, but we're good. We're good.

00:38:19:01 - 00:38:21:08
Bennett Tomlin
We'll be bulletproof in least.

00:38:21:10 - 00:38:22:01
Cas Piancey
A couple of years.
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8 responses to “Episode 133 – Did Sam Bankman-Fried’s Defense Blow It? (feat. David Z. Morris)”

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