Crypto Critics' Corner

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Episode 137 – SBF asked FTX’s lawyer to make up excuses for missing money (feat. Danny Nelson)

Sam Bankman-Fried asked FTX's lawyer to explain away stolen funds (feat. Danny Nelson) – Crypto Critics' Corner

Bennett and Cas are joined by Danny Nelson of CoinDesk to discuss the ongoing trial of Sam Bankman-Fried and the testimony of Nishad Singh and Can Sun. CoinDesk coverage of the trial https://www.coindesk.com/sam-bankman-fried-trial-live-coverage-news/ Danny Nelson's newsletter about accounting Santa Clause https://www.coindesk.com/policy/2023/10/19/judge-kaplans-ire-hits-all-lawyers-in-the-sam-bankman-fried-case/ Danny article about Nishad Singh cross https://www.coindesk.com/policy/2023/10/19/judge-kaplans-ire-hits-all-lawyers-in-the-sam-bankman-fried-case/ Protos coverage of the trial https://protos.com/sbftrial/ Sam Bankman-Fried on Good Morning America https://youtu.be/0Hxf4Vf54PI Sam Bankman-Fried's defense finally wakes up https://www.theverge.com/2023/10/17/23921745/sam-bankman-fried-nishad-singh-house-loan This video was recorded on October 19th, 2023.

Cas Piancey and Bennett Tomlin are joined by Danny Nelson of CoinDesk to discuss the ongoing trial of Sam Bankman-Fried and the testimony of Nishad Singh and Can Sun.

This episode was recorded on October 19th, 2023.

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English Transcript:

00:00:05:02 - 00:00:11:17
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?

00:00:11:17 - 00:00:12:19
Bennett Tomlin
I'm doing pretty well. How are you,

00:00:12:19 - 00:00:13:04
Bennett Tomlin
Cas?

00:00:13:04 - 00:00:13:21
Cas Piancey
I'm doing good.

00:00:13:21 - 00:00:15:06
Cas Piancey
We're joined by a very special guest,

00:00:15:06 - 00:00:17:10
Cas Piancey
Mr. Danny Nelson, reporter for Coindesk,

00:00:17:10 - 00:00:20:08
Cas Piancey
first time guest. It's a pleasure to have you on today, man. How are you?

00:00:20:08 - 00:00:21:18
Danny Nelson
I'm doing well. Great to be here.

00:00:21:18 - 00:00:22:18
Cas Piancey
Danny has been

00:00:22:18 - 00:00:25:11
Cas Piancey
at the courtroom for the SBF trial along with his

00:00:25:11 - 00:00:26:10
Cas Piancey
compatriots.

00:00:26:10 - 00:00:28:11
Cas Piancey
Nik De, who we had on last week,

00:00:28:11 - 00:00:31:08
Cas Piancey
and Sam Kessler, who we're hoping to have on at some point as well.

00:00:31:08 - 00:00:32:20
Cas Piancey
yeah, Danny, I would love to hear

00:00:32:20 - 00:00:33:14
Cas Piancey
some of your insights.

00:00:33:14 - 00:00:42:15
Cas Piancey
know you weren't there for the first day with Nishad, but we can still go over it. We are. We all read the summaries and you have other friends in the courtroom, so yeah.

00:00:42:16 - 00:00:45:09
Cas Piancey
What was the take away from Nishad Singh?

00:00:45:09 - 00:01:08:20
Danny Nelson
Nishad, I mean, he was, of course, one of the three insiders that were one of four insiders, along with Sam, who really knew what was going on inside that inside FTX, which is to say, knew that everything wasn't what it seems to be. He was on FTX left side of things. And the testimony that he brought to the courtroom really had this.

00:01:08:20 - 00:01:16:15
Danny Nelson
From what I heard from my colleagues, this cinematic flair. He was really talented in coloring the scene, like talking about

00:01:16:15 - 00:01:27:11
Danny Nelson
the discussion when everything went to shit. It wasn't just a discussion. It was at night on a balcony. People were talking it through. And that kind of stuff makes for really compelling testimony.

00:01:27:11 - 00:01:33:08
Danny Nelson
all those elements started to fall away on day two of his testimony during cross-examination when

00:01:33:08 - 00:01:45:05
Danny Nelson
the defense attorneys, they didn't really discredit him, but they started to poke holes in this picture that he was painting of a guy who maybe sort of knew what was going on, but really felt morally torn by it.

00:01:45:06 - 00:01:45:21
Danny Nelson
I mean,

00:01:45:21 - 00:02:06:18
Danny Nelson
on one hand, he's saying, well, I learned in, let's say, early fall, late summer 2022 that there was this hole and that we were using customer funds. But, by the way, in October 2022, I used a loan that I took from FTX to buy a house at Washington State that was $3.7 million. So I was like, Well, which is it, buddy?

00:02:06:19 - 00:02:21:01
Danny Nelson
Do you feel bad that you're still across the river, buddy, or are you looking forward to your house? Which by the way, we looked into it, has a hot tub. Not that a hot tub is any more or less nefarious, but it is actually I looked at it as it is more nefarious, usually.

00:02:21:01 - 00:02:24:14
Cas Piancey
So your point here is that they were discrediting him

00:02:24:14 - 00:02:25:06
Cas Piancey
by

00:02:25:06 - 00:02:25:16
Cas Piancey
him

00:02:25:16 - 00:02:33:14
Cas Piancey
pretending he has empathy and sympathy and and cares while his actions were perceived differently.

00:02:33:14 - 00:02:37:23
Danny Nelson
It’s little pieces, right? And I mean, I have to say, I'm starting to really think Sam did it

00:02:37:23 - 00:02:41:02
Danny Nelson
I'm just kidding there. Of course he did it allegedly. But

00:02:41:02 - 00:02:50:16
Danny Nelson
am there for the entertainment and for the information. And I find myself rooting for the defense. Like the case is pretty cut and dry. He's I think he's going to get convicted.

00:02:50:16 - 00:02:52:21
Danny Nelson
I still want the defense to put up a good fight.

00:02:52:21 - 00:02:55:00
Danny Nelson
I want them to to throw some good punches

00:02:55:00 - 00:02:55:12
Danny Nelson
because

00:02:55:12 - 00:03:14:11
Danny Nelson
it's much more interesting that way. And otherwise, you're just sitting in a courtroom all day. And so you want there to you don't want to see the prosecution be doing well because they are doing well so that the defense, the strategy that they're taking during their cross-examinations is just how do we chip away at people's credibility, which is a cornerstone of being a good defense lawyer.

00:03:14:17 - 00:03:18:06
Danny Nelson
And for Nishad, one of the ways they were doing that and it's something they've tried with

00:03:18:06 - 00:03:35:09
Danny Nelson
all of the witnesses taking statements that the witnesses made, the prosecutor is in their extensive interviews pretrial and bringing them up and seeing if their memories match. And for most of the witnesses, the major ones, anyway, their memories match up pretty good for Nishad.

00:03:35:09 - 00:03:49:01
Danny Nelson
There were a whole bunch of moments where he wasn't quite remembering the very specific, jarring things he had been telling prosecutors months before. Now, that doesn't mean that everything he says is bull,

00:03:49:01 - 00:04:00:21
Danny Nelson
it does, I think, serve the purpose of making the jury think, well, maybe this guy who really had a wonderful, very clear of mind story to tell about how everything went down.

00:04:00:21 - 00:04:20:12
Danny Nelson
Well, he remembers it was night on the balcony and like, I don't know, there was a big dipper up or something. He didn't say that part, but would have been a nice little flare. He remembers all those things really well, but he can't remember this other thing he told prosecutors. So little bits like that made me think and I think made other people in the courtroom to also think

00:04:20:12 - 00:04:21:17
Danny Nelson
this guy

00:04:21:17 - 00:04:24:00
Danny Nelson
might be a little too polished in some

00:04:24:00 - 00:04:38:18
Bennett Tomlin
I have open on my computer right now an article that you co-wrote with Nik and Sam about this period of the trial where we see kind of the cross-examination and I thought some of the things you highlighted that came up in that cross were particular really funny.

00:04:38:20 - 00:05:03:11
Bennett Tomlin
Like at one point they're discussing the penthouse apartment at the Orchid that they were living in. And apparently what the defense attorney tried to ask was, was this penthouse really that extraordinary for you all? I mean, you were all rich, right? So shouldn't you live in a penthouse, which I thought was an interesting little detail When you consider the nature and source of their wealth,

00:05:03:11 - 00:05:05:19
Bennett Tomlin
did you have thoughts on that particular moment?

00:05:05:19 - 00:05:10:06
Danny Nelson
before I get to Nishad’s response, I will go back to Yedidia Adam Yedidia

00:05:10:06 - 00:05:20:08
Danny Nelson
he worked at FTX. I don't think he knew of things going the way they went until they went to shit, which is I don't think he knowingly committed crimes,

00:05:20:08 - 00:05:23:04
Danny Nelson
unlike some of the people that are appearing in the courtroom.

00:05:23:04 - 00:05:25:02
Danny Nelson
Yedidia was asked

00:05:25:02 - 00:05:33:21
Danny Nelson
to compare the co-living $30 million apartment to a dorm room he had, and he was like, it was just like a dorm room, but more luxurious,

00:05:33:21 - 00:05:37:13
Danny Nelson
which was quite a telling sign for Nishad. I mean,

00:05:37:13 - 00:05:39:10
Danny Nelson
I think it's kind of a fair point.

00:05:39:10 - 00:05:40:01
Danny Nelson
Like

00:05:40:01 - 00:05:44:23
Danny Nelson
the we actually use our customer funds to buy this thing.

00:05:45:04 - 00:05:46:07
Danny Nelson
Notwithstanding,

00:05:46:07 - 00:05:51:01
Danny Nelson
if you think you have $1,000,000,000, you probably shouldn't be living in

00:05:51:01 - 00:05:52:23
Danny Nelson
like a ranch home.

00:05:52:23 - 00:05:59:14
Danny Nelson
Now, Warren Buffett still lives at a ranch home, so maybe that's not true. But most of the billionaires don't. They live in big, big, big places.

00:05:59:14 - 00:06:05:05
Danny Nelson
His response, which was basically, I don't know, billionaires. I don't really know what's right and what's wrong.

00:06:05:12 - 00:06:10:22
Danny Nelson
I don't know. It's I don't know about that because he also lives in, by his words, the nicest room in the house.

00:06:10:22 - 00:06:12:10
Danny Nelson
So he

00:06:12:10 - 00:06:15:03
Danny Nelson
just had a lot of mixed messaging from that guy.

00:06:15:03 - 00:06:20:16
Bennett Tomlin
Well, and at a fundamental level, in a very real sense, none of them were billionaires.

00:06:20:16 - 00:06:28:00
Bennett Tomlin
I mean, they were in a certain sense in paper, but but that that all depended on a certain fiction being maintained.

00:06:28:00 - 00:06:34:18
Danny Nelson
exactly. Even if the money wasn't stolen, they were at best paper billionaires. They did not have the liquid capital.

00:06:34:18 - 00:06:41:05
Danny Nelson
And of course, there weren't even actual billionaires in that respect because it wasn't their money.

00:06:41:05 - 00:06:46:00
Cas Piancey
I guess this was the the the first time anyone has seen the defense kind of

00:06:46:00 - 00:06:46:14
Cas Piancey
wake up,

00:06:46:14 - 00:06:50:04
Cas Piancey
I've been mentioning Liz a lot. She wrote an article entitled

00:06:50:04 - 00:06:54:02
Cas Piancey
Sam Bankman-Fried defense finally woke up in the Verge and

00:06:54:02 - 00:06:55:10
Cas Piancey
seemed like even

00:06:55:10 - 00:07:00:12
Cas Piancey
Joe Bankston and Barbara Fried seemed to kind of agree, or like

00:07:00:12 - 00:07:01:21
Cas Piancey
at least their outward

00:07:01:21 - 00:07:05:15
Cas Piancey
emotions were that they were pleased with this cross-examination.

00:07:05:15 - 00:07:11:04
Cas Piancey
But the week didn't end with Nishad Singh, right? I mean, we had more witnesses after this

00:07:11:04 - 00:07:11:19
Cas Piancey
can you

00:07:11:19 - 00:07:12:19
Cas Piancey
clue me into

00:07:12:19 - 00:07:14:05
Cas Piancey
some of the other witnesses?

00:07:14:05 - 00:07:19:20
Danny Nelson
probably the best witness of the week was the expert witness, Peter Easton. He is

00:07:19:20 - 00:07:21:15
Danny Nelson
accounting professor at Notre Dame. He's

00:07:21:15 - 00:07:24:11
Danny Nelson
served as an editor of many of the top accounting journals.

00:07:24:12 - 00:07:26:21
Danny Nelson
we have to take his word for it, because I don't read the accounting journals,

00:07:26:21 - 00:07:30:10
Danny Nelson
And he came out guns blazing with really, really telling

00:07:30:10 - 00:07:35:11
Danny Nelson
charts that illustrated where the money was coming from.

00:07:35:11 - 00:07:37:23
Danny Nelson
let's say we have the customer funds in the way that

00:07:37:23 - 00:07:53:09
Danny Nelson
we now understand. FTX To have been set up was if you wanted to get your money into FTX, your cash, like your dollars, you wired those dollars to a bank account called North Dimension or some smaller accounts, but mostly North dimension.

00:07:53:09 - 00:08:14:07
Danny Nelson
And they were controlled the beneficiary of Alameda. And then once your money's in there, you have access on the FTX's side to use that money. But the money never actually always completed the transfer from North Dimension to FTX. Instead, they just did some really bad bookkeeping,

00:08:14:07 - 00:08:25:07
Danny Nelson
and the results of this set up was they could then take the money out of those bank accounts and move them, move that money into all the other different things that they were really spending the money on, like real estate,

00:08:25:07 - 00:08:26:14
Danny Nelson
political donations,

00:08:26:14 - 00:08:28:00
Danny Nelson
charities like

00:08:28:00 - 00:08:31:17
Cas Piancey
Venture capital, specifically. Half a billion dollars to anthropic.

00:08:31:17 - 00:08:36:01
Danny Nelson
I don't even remember what point of the trial this was, but there was this whole argument in court about,

00:08:36:01 - 00:08:45:15
Danny Nelson
well, look, they made this bet, this bet on anthropic, and it did well. And so they were he was using the money responsibly. But then Judge Kaplan said, look,

00:08:45:15 - 00:08:48:15
Danny Nelson
you can't if I if I robbed the Federal Reserve

00:08:48:15 - 00:08:56:08
Danny Nelson
and I take $1,000,000 and I buy a lot of Powerball tickets and one of them hits, well, I still robbed the Federal Reserve.

00:08:56:08 - 00:09:16:19
Danny Nelson
So it doesn't mean that I shouldn't that that I was okay to have robbed the bank. I still robbed the bank. You can't say, well, everyone got their money back because we the stolen money was used in a way that made more money. No, that's not valid. So yes, they did. They did. They got lucky with their ill gotten gains on Anthropic.

00:09:16:21 - 00:09:19:01
Danny Nelson
But all that notwithstanding

00:09:19:01 - 00:09:22:23
Danny Nelson
Peter Easton, the accounting professor, used these charts to show

00:09:22:23 - 00:09:27:11
Danny Nelson
there's not enough other money to passive the in any way

00:09:27:11 - 00:09:31:19
Danny Nelson
pay for many of the things that they paid for, whether it was paying back lenders,

00:09:31:19 - 00:09:35:05
Danny Nelson
I don't think they spoke specifically about Anthropic in the in the charts but

00:09:35:05 - 00:09:42:12
Danny Nelson
buying the Genesis Digital Assets the bitcoin mining company in Kazakhstan, that was I think $1,000,000,000 investment.

00:09:42:12 - 00:09:43:06
Bennett Tomlin
1.1.

00:09:43:06 - 00:09:56:00
Danny Nelson
Yeah 1.1 billion thanks. I don't remember the exact breakdown, but hundreds of millions of those dollars could have only come from customer deposits. There was just no other money. And so that was really compelling testimony because we've heard

00:09:56:00 - 00:09:57:05
Danny Nelson
people say

00:09:57:05 - 00:10:06:02
Danny Nelson
we used the money in ways that weren't for the customers. We've heard them say that, but we haven't seen how it actually happened until then.

00:10:06:02 - 00:10:10:03
Danny Nelson
And so for me, that was a very powerful moment where I actually got to

00:10:10:03 - 00:10:23:20
Danny Nelson
piece together these statement allegations over here with the outcome. Well, now I see how the money flowed, and that's a it's a really important part, right? Because otherwise it's it's just he said she said to an extent.

00:10:23:20 - 00:10:28:14
Cas Piancey
This is exhibit. I'm looking at it right now in front of me. Exhibit 1041.

00:10:28:14 - 00:10:34:04
Cas Piancey
And this exhibit shows customer funds from customer bank accounts and other inflows amounting to

00:10:34:04 - 00:10:36:04
Cas Piancey
a little over $500 million.

00:10:36:04 - 00:10:58:08
Cas Piancey
And they go to Alameda Research like you just described. And then that those deposits are sent to Silvergate and then those deposits then get mised out to Silvergate and Signature and Signet, which is Signet for anyone who was unaware, was like the internal distribution ledger for cryptocurrency companies within Signature Bank.

00:10:58:08 - 00:11:05:00
Cas Piancey
And then it goes to Signet and then it goes to Prime Trust, and then it goes to prime trust and then it goes to Anthropic and,

00:11:05:00 - 00:11:15:19
Cas Piancey
yeah, that's just bank fraud, right? Like, this is it's what they're showing is bank fraud. And there's really I don't know what else you could possibly call this. I don't know how the defense

00:11:15:19 - 00:11:18:01
Cas Piancey
can in any way suggest this

00:11:18:01 - 00:11:19:10
Cas Piancey
isn't bank fraud.

00:11:19:10 - 00:11:31:23
Cas Piancey
I guess the suggestion is that it's bad bookkeeping and Sam wasn't necessarily the one doing it. Am I getting that right? I don't know what they're. I have no idea what the argument is against this.

00:11:31:23 - 00:11:41:04
Danny Nelson
Well you know, I'll give it to them there. It was definitely bad bookkeeping, but that bookkeeping is an essential element of bank fraud, at least in this case.

00:11:41:04 - 00:11:52:03
Danny Nelson
So, no, Sam may not have been the one always like pushing the button to execute the bank transaction, but he doesn't need to have this is a conspiracy case as well.

00:11:52:03 - 00:12:07:03
Danny Nelson
It's not just a bank. It's such as a wire fraud case. It's a conspiracy to commit wire fraud. So sometimes that would have been Nishad. Maybe that was Ryan Salame. The point is, well, the CEO of these companies, according to the witnesses, knew about this all

00:12:07:03 - 00:12:11:09
Danny Nelson
it was just a fraud all the way down I think, in and cross-examining.

00:12:11:14 - 00:12:28:01
Danny Nelson
the defense try to discredit Peter Easton. I mean, I don't quite remember how they went about it because they didn't really do a successful job and it was it's interesting because the defense did score some points on other witnesses brought by

00:12:28:01 - 00:12:30:05
Danny Nelson
the prosecutors that were trying to

00:12:30:05 - 00:12:37:06
Danny Nelson
illustrate how the bank fraud aspect of this went down, like the one of the last witnesses of the day

00:12:37:06 - 00:12:37:17
Danny Nelson
on

00:12:37:17 - 00:12:38:13
Danny Nelson
Wednesday or Thursday.

00:12:38:14 - 00:12:41:16
Danny Nelson
was an a forensic accountant from the FBI.

00:12:41:16 - 00:12:42:18
Danny Nelson
she was talking about

00:12:42:18 - 00:12:46:01
Danny Nelson
the different methods that accountants use to track money. Because

00:12:46:01 - 00:12:48:04
Danny Nelson
if a bank account has more than one inflow

00:12:48:04 - 00:12:53:22
Danny Nelson
then it's hard to say with certainty that the outflow came from more than one inflow because money is fungible.

00:12:53:22 - 00:12:57:04
Danny Nelson
Right? If I have a painting and I send you the painting and you send the painting, someone else will,

00:12:57:04 - 00:13:00:08
Danny Nelson
There's only one painting. We don't talk about JPEGs. There's only one painting.

00:13:00:08 - 00:13:08:09
Danny Nelson
I have $2 and I send Cas those $2. But Bennett you send him $3 and then Cas sends Burrito $1. Well,

00:13:08:09 - 00:13:09:13
Danny Nelson
Who's to say which

00:13:09:13 - 00:13:11:02
Danny Nelson
pot of money it came from?

00:13:11:04 - 00:13:14:09
Danny Nelson
So the accountant was saying, well, I used

00:13:14:09 - 00:13:17:00
Danny Nelson
LIFO last in first out that method,

00:13:17:00 - 00:13:20:12
Danny Nelson
but there's another method called FIFO first and first out.

00:13:20:12 - 00:13:33:17
Danny Nelson
I'll just summarizes by saying the defense actually caught her. It seemed like saying that she used this one method, but she seemed to have screwed up and that wasn't actually the right conclusion to have been made from whatever method she used.

00:13:33:17 - 00:13:55:18
Danny Nelson
I'm sorry. I got a little boring on this top tangent, but I'm just want to say the defense hasn't been feckless on these points and they have been able to score some hits. But on Peter Easton, I describe him as Australian Santa Claus. And then I use the very illustrative image of Santa Claus beating Sam Bankman-Fried with a sock full of coal.

00:13:55:19 - 00:13:59:14
Danny Nelson
One of my newsletters, which is a little much, but I stand by it.

00:13:59:14 - 00:14:01:21
Danny Nelson
They did not succeed in discrediting him

00:14:01:21 - 00:14:19:18
Bennett Tomlin
I thought some of the most interesting testimony of this past week came from one of his former lawyers, Can Sun, can you speak to some of the things that they were testifying about and what that reveals about Sam Bankman-Fried and the alleged crimes he committed?

00:14:19:18 - 00:14:27:09
Danny Nelson
Can Sun was the general counsel of FTX. He had worked with FTX prior to joining it when he was at Fenwick and West, which is

00:14:27:09 - 00:14:29:05
Danny Nelson
law firm that works with crypto companies.

00:14:29:05 - 00:14:31:02
Danny Nelson
I guess all that's the description that I'll use

00:14:31:02 - 00:14:32:22
Danny Nelson
He was their in-house counsel, and

00:14:32:22 - 00:14:49:22
Danny Nelson
he came in to finish up the terms of service in, I think late 2021 and early 2022. He did that by his telling he was not aware of any of this and ultimately when he found out or what he said, he found out about it all, which was, I think November 9th or whenever the big reveal was

00:14:49:22 - 00:14:50:22
Danny Nelson
he quit the next day.

00:14:50:22 - 00:14:51:18
Danny Nelson
But the most

00:14:51:18 - 00:14:58:18
Danny Nelson
compelling part of his testimony was that day when he found out from Nishad and

00:14:58:18 - 00:14:59:18
Danny Nelson
from Sam

00:14:59:18 - 00:15:10:13
Danny Nelson
what had happened, because there were all these calls with I think it was Apollo that Sam was trying to raise money because the customers were having trouble getting money out of tax. He was going to the venture investors trying to

00:15:10:13 - 00:15:11:10
Danny Nelson
plug the hole.

00:15:11:11 - 00:15:18:04
Danny Nelson
Now the hole, How big is the hole? No one was really not no one outside of the inner circle at FTX at that point

00:15:18:04 - 00:15:35:14
Danny Nelson
knew really how big the hole was. And Can Sun says he didn't either. He he knew bits before like that. Alameda had special access and he had said, this is terrible. Well, he said he he said he said to Sam at the time, this is terrible.

00:15:35:16 - 00:15:36:11
Danny Nelson
We need to

00:15:36:11 - 00:15:38:18
Danny Nelson
get rid of this weird allow negative feature.

00:15:38:18 - 00:15:52:20
Danny Nelson
And he on his side, he said he wrote up all the legal stuff to take care of it. On the business side. He later learned they never actually took care of it, even though they told him they had. On the day it all went down, he found out that

00:15:52:20 - 00:15:53:18
Danny Nelson
there was this hole.

00:15:53:18 - 00:15:56:21
Danny Nelson
He found out how big the hole was. And then Sam went to him saying,

00:15:56:21 - 00:16:04:07
Danny Nelson
Apollo has come to me. They want a justification for why we've used like billions of dollars of customer deposits.

00:16:04:07 - 00:16:09:21
Danny Nelson
Can you make me a justification? At first, Can Sun said, like, this is this is not. No.

00:16:09:21 - 00:16:12:14
Danny Nelson
And then he like, looked I guess he's the lawyer, right?

00:16:12:14 - 00:16:22:20
Danny Nelson
So he looked into it and he came up with some theoretical explanations. But he was he said he told Sam, like none of these actually hold any water. Right. We can't say that

00:16:22:20 - 00:16:28:15
Danny Nelson
the money came from the spot margin account, which customers of FTX could put their money in to loan it out

00:16:28:15 - 00:16:30:21
Danny Nelson
because there just wasn't enough money in that account.

00:16:31:05 - 00:16:35:13
Danny Nelson
hundreds of millions of dollars for $1,000,000,000 hole. So that doesn't work.

00:16:35:13 - 00:16:39:02
Danny Nelson
And then he he told Sam a couple of different

00:16:39:02 - 00:16:43:02
Danny Nelson
theoretical explanations, none of which would actually work.

00:16:43:02 - 00:16:50:04
Danny Nelson
And then Sam sort of said, Yep, yep. That's actually the quote from Can Sun, Sam's responses at the time was,

00:16:50:04 - 00:16:50:16
Danny Nelson
Yep.

00:16:50:16 - 00:16:51:04
Danny Nelson
Yep.

00:16:51:04 - 00:16:53:17
Danny Nelson
Got it. It's really compelling stuff.

00:16:53:17 - 00:16:59:14
Danny Nelson
And then Can Sun quit the very next day. He resigned because he was like, This is illegal and we're all going to jail.

00:16:59:14 - 00:17:02:20
Danny Nelson
He didn't say we're all going to jail in the courtroom, but I bet he was thinking it.

00:17:02:20 - 00:17:04:08
Bennett Tomlin
It's subtext. It's

00:17:04:08 - 00:17:05:14
Danny Nelson
Yes, definitely.

00:17:05:14 - 00:17:08:04
Bennett Tomlin
subtext of all of his testimony.

00:17:08:04 - 00:17:26:22
Bennett Tomlin
I thought this testimony was so interesting because it was this lawyer for FTX who apparently was not aware of these things, which kind of explains why a Sam Bankman-Fried defense have not gone for like a formal advice of counsel defense, which is

00:17:26:22 - 00:17:29:22
Bennett Tomlin
when you're charged with criminal defense, is one of your defenses.

00:17:29:22 - 00:17:53:09
Bennett Tomlin
You have could be to say that you talked with a lawyer, you asked them, is this illegal? The lawyer said, no, this is not illegal. And you believe that in good faith. And that is an actual defense for crimes and it involves a certain set of requirements and at times SBF's defense lawyers have been asked if that's what they intend to do because they keep mentioning FTX’s lawyers, and who saw certain loans and things like that.

00:17:53:14 - 00:18:14:12
Bennett Tomlin
So I think Can Sun testimony is really important because it shows that Sam Bankman-Fried was not asking his lawyers, can we take these customer funds to do this? It was much more of after the fact, Hey, we took customer funds. Do you have any lawyer tricks that can get me out of this? I've got some interviews I need to do in some tweets to make What's the best combination of words?

00:18:14:12 - 00:18:28:07
Bennett Tomlin
I can say that, you know, make it all go away. And so I thought that was the really powerful thing about Can Sun's testimony is it kind of stripped away the vestiges of that kind of defense that his lawyers have been hinting at this whole time.

00:18:28:07 - 00:18:30:12
Danny Nelson
And they had they have been hinting at it a little bit

00:18:30:12 - 00:18:31:11
Danny Nelson
in the crosses, I guess.

00:18:31:11 - 00:18:42:11
Danny Nelson
But in the opening statements, they were actually barred from making, referencing the advice of counsel defense by Judge Kaplan. He said like pretrial, he said, you just can't do this.

00:18:42:11 - 00:18:51:23
Danny Nelson
In a way, Sam actually did take the advice of counsel ultimately because Can Sun told him, look, there's this theoretical explanation, this borrow lend

00:18:51:23 - 00:18:54:06
Danny Nelson
program we have that could explain the hole.

00:18:54:08 - 00:19:00:20
Danny Nelson
And then Can Sun said, But it doesn't actually work because it was hundreds of millions of dollars versus billions of dollars. Well,

00:19:00:20 - 00:19:14:22
Danny Nelson
after it all went down. And in that month, before he was arrested, before Sam was arrested in the Bahamas, he went on his media tour and he went on, Good morning America with George Stephanopoulos. They played this in the courtroom, this clip where

00:19:14:22 - 00:19:18:01
Danny Nelson
George asks them, like, what happened to the money?

00:19:18:01 - 00:19:18:20
Danny Nelson
And Sam

00:19:18:20 - 00:19:22:14
Danny Nelson
was very halting, Doesn't sound very convincing,

00:19:22:14 - 00:19:25:23
Danny Nelson
searching for words and ultimately was one of the things he says is,

00:19:25:23 - 00:19:30:07
Danny Nelson
well, we have this borrow lend program. And the people were

00:19:30:07 - 00:19:33:04
Danny Nelson
consenting to their money being loaned out. And that's how the hole

00:19:33:04 - 00:19:45:08
George Stephanopoulos
But as you know, the terms of service. Yeah. Tell the people who signed up none of the digital assets in your account are the property of or shall be or may be loaned to FTX trading. But you're saying that happened?

00:19:45:11 - 00:20:01:13
Sam Bankman-Fried
My understanding is a few things happened. The first is there is a margin trading facility on FTX by which users can lend out funds, by which other users borrow funds. And so there are explicit cases where there is, you know, margin and where there is borrow lending.

00:20:01:15 - 00:20:10:17
George Stephanopoulos
If Alameda is borrowing the money that belongs to depositors, that's a bright red line, isn't it?

00:20:10:19 - 00:20:16:07
Sam Bankman-Fried
There are a lot of cases where that's actually explicitly part of the programs and that are..

00:20:16:10 - 00:20:19:19
George Stephanopoulos
Hot here. Here it says that the digital assets may not be loaned to FTX

00:20:19:19 - 00:20:26:01
Danny Nelson
Well, that's true to a very limited respect. And it's also just not at all the reality of the situation.

00:20:26:01 - 00:20:29:00
Danny Nelson
But his lawyer did say it. So maybe that was advice of counsel.

00:20:31:09 - 00:20:35:21
Bennett Tomlin
Anything you hear, any lawyer say in any context is advice, right?

00:20:35:21 - 00:20:36:16
Danny Nelson
I guess so.

00:20:36:16 - 00:20:41:00
Bennett Tomlin
talk to a friend of mine who's a lawyer and he says, do you want a beer that's advised to have another beer? I think,

00:20:41:00 - 00:20:42:12
Danny Nelson
Absolutely.

00:20:42:12 - 00:20:43:20
Bennett Tomlin
pretty sure that's the way it works.

00:20:43:20 - 00:20:48:16
Bennett Tomlin
I want to give it a little bit of extra context and Can Sun, because we've actually talked about him on the show before.

00:20:48:22 - 00:21:23:16
Bennett Tomlin
He's not a super important character in cryptocurrency, but he does show up in episode 122. Can Sun previously worked at Fenwick in West with Daniel Freedberg, as Danny mentioned before, eventually coming over to FTX. What's interesting is the former CEO of Trust Labs, which used to be behind some of the TrustCoin tokens, Daniel Jaiyong An in his pro se lawsuit against Archblock, the company that is now what was once trust token alleged that Can Sun was representing Justin Sun and Tron in their attempted acquisition of TrueUSD.

00:21:23:18 - 00:21:41:00
Bennett Tomlin
And so I just wanted to make sure everyone was aware that concerns connections apparently. Bridge from Sam Bankman-Fried, Alameda Research, Justin Sun, Tron, ˇrueUSD, Daniel Friedberg, Fenwick, you know has just that cluster. I want to make sure everyone sees that cluster before we move on.

00:21:41:00 - 00:21:43:06
Danny Nelson
The exhibit has been entered into the record.

00:21:43:06 - 00:21:44:03
Cas Piancey
Yeah, that's right.

00:21:47:10 - 00:21:50:12
Danny Nelson
goody. that was so that was so painful.

00:21:50:12 - 00:21:54:01
Danny Nelson
Actually, it was great because I love when the judge gets fiery.

00:21:54:01 - 00:21:55:02
Cas Piancey
He's been amazing.

00:21:55:02 - 00:21:55:23
Danny Nelson
those witnesses,

00:21:55:23 - 00:22:03:21
Bennett Tomlin
and hey, listen, this was him getting angry at the prosecution for Wednesday, and it was giving the defense a fighting chance. Keeping your underdog story alive.

00:22:03:21 - 00:22:06:13
Danny Nelson
absolutely. Got to love a good underdog story .

00:22:06:13 - 00:22:09:14
Cas Piancey
Bad underdog story. I don't. It doesn't have to be a good underdog.

00:22:09:21 - 00:22:14:22
Danny Nelson
Well, it's a yes. I want the story to be good, even if it's about bad people.

00:22:14:22 - 00:22:22:09
Bennett Tomlin
if this court case doesn't get any more exciting. All the many movies they're going to make about Sam Bankman-Fried are all going to end in November 2022.

00:22:22:09 - 00:22:26:19
Cas Piancey
no, no, no. So. So we know it's going to get more exciting in some sense, right? Because.

00:22:26:19 - 00:22:30:09
Cas Piancey
going to be taking a break in terms of the trial next week

00:22:30:09 - 00:22:31:05
Cas Piancey
for most of the week.

00:22:31:05 - 00:22:33:20
Cas Piancey
does trial start again on Friday? Thursday.

00:22:33:20 - 00:22:41:06
Danny Nelson
trial starts on Thursday. The judge is going to a conference. So he has given us, in his words, an intermission.

00:22:41:06 - 00:23:12:01
Cas Piancey
So most of the week is going to be off. But what we're being told and there's been some craziness around this, but what we're being told is that Sam Bankman-Fried has been given his extended release, Adderall. So they believe he's good to go when it comes to taking the stand, which I'm not sure his lawyers actually want him to do, but it sounds like he wants to do that.

00:23:12:01 - 00:23:17:08
Cas Piancey
And so it's going to happen. Is that is that supposed to happen next week or the week after that?

00:23:17:08 - 00:23:24:06
Danny Nelson
The defense has been coy about whether they're even going to bring a case at all because they don't need to bring a case.

00:23:24:06 - 00:23:28:10
Danny Nelson
The way that I'm thinking about this, though, is, well, first off, if you're a criminal defendant,

00:23:28:10 - 00:23:34:00
Danny Nelson
starting point in your mental model is it should be I should not take the stand because

00:23:34:00 - 00:23:36:23
Danny Nelson
one, you get to tell your side of the story, which is great for you. But then

00:23:36:23 - 00:23:41:02
Danny Nelson
prosecutors get to cross-examine you and ask you like Sam.

00:23:41:02 - 00:23:55:00
Danny Nelson
So in this in this testimony that you wrote for Congress that you never got to give, you start out with, I fucked up. What did you mean by I fucked up? Right? So that's what they get to do.

00:23:55:00 - 00:24:02:16
Danny Nelson
And that's not very good because you did fuck up in your words, you fucked up and they get to figure out why you did, and that will make it look not good.

00:24:02:18 - 00:24:07:14
Danny Nelson
But he is. So the trial has been going so poorly for him,

00:24:07:14 - 00:24:08:13
Danny Nelson
in my opinion.

00:24:08:13 - 00:24:16:17
Danny Nelson
It's not like he's going to nuke the whole thing by testifying. He can only go up from here, so he may as well do

00:24:16:17 - 00:24:22:06
Cas Piancey
I don't know. I don't know about that. I don't know about that. I think it is absolutely.

00:24:22:06 - 00:24:26:09
Danny Nelson
it's a it's a binary, right. It's a well, it's not a binary because there could be a hung jury.

00:24:26:13 - 00:24:26:23
Danny Nelson
But

00:24:26:23 - 00:24:30:15
Danny Nelson
maybe on the sentencing side of things, it can get worse. But

00:24:30:15 - 00:24:48:06
Cas Piancey
Yeah. He can definitely make himself look worse. Here is what I'm saying. Like everyone keeps saying, might as well a Hail Mary it. And I'm like, I don't know about that as a like a legal methodvology maybe don't just, you know, Hail Mary it I don't know.

00:24:48:06 - 00:24:51:12
Danny Nelson
well, I hope he does, and I think he will. And if he does

00:24:51:12 - 00:24:52:22
Danny Nelson
scheduling side of things,

00:24:52:22 - 00:24:59:10
Danny Nelson
the defense is going to have its opportunity to bring a case starting on Thursday after lunch.

00:24:59:10 - 00:25:04:05
Danny Nelson
if they do bring a case, which I believe they will, they'll probably have a couple of witnesses

00:25:04:05 - 00:25:05:05
Danny Nelson
and then it would be Sam.

00:25:05:09 - 00:25:12:11
Danny Nelson
I don't know why they would have Sam as anyone but the last person. It doesn't make any sense to have has anyone but the last person. In fact,

00:25:12:11 - 00:25:23:01
Danny Nelson
the way that this trial is working. Judge Kaplan said to Sam at the very beginning, look, it is ultimately your decision to testify or not. You can take the advice of your counsel on this, or at least.

00:25:23:01 - 00:25:42:18
Danny Nelson
But if let's say they don't let you testify and you want to anyway, you could just stand up. That's what he said. He said, stand up and I'll send the jury out of the room and I'll ask you why you're standing up. And then you'll say, if this is why I want to testify, And then even if it's after the defense has rested its case,

00:25:42:18 - 00:25:44:13
Danny Nelson
Judge Kaplan will let him take the stand.

00:25:44:13 - 00:25:49:19
Danny Nelson
Sam is the kind of guy who wants to say his piece. I think that

00:25:49:19 - 00:25:56:02
Danny Nelson
his lawyers are smart enough to manage the situation well enough that if he's going to just do it anyway, they're going to

00:25:56:02 - 00:25:57:16
Danny Nelson
bring it about themselves

00:25:57:16 - 00:26:03:21
Danny Nelson
instead of letting him just stand up after they rest their case so he could testify as early.

00:26:03:21 - 00:26:08:01
Danny Nelson
If he is to testify as early as Thursday, maybe Friday or

00:26:08:01 - 00:26:12:20
Danny Nelson
the week following that, which is a monday through Thursday week, which should be the last week of the trial.

00:26:12:20 - 00:26:23:16
Bennett Tomlin
The best scenario for those of us with newsletters to write though is that he does the choice where the defense rests and then he stays standing. That's the best case scenario for those of us newsletters to read.

00:26:23:16 - 00:26:26:13
Danny Nelson
Yes, that would be that would be very juicy.

00:26:26:13 - 00:26:41:10
Bennett Tomlin
think you're right, though, that they are trying to manage it to the best case scenario. That's why they're spending the time writing letters about this specific formulation of Adderall They hope to make available to him for his testimony because they want to make this as least damaging as possible.

00:26:41:10 - 00:26:53:16
Cas Piancey
that also gave them a nice, cute way to at least appeal. The sentencing and stuff is to be like, well, he was medicated incorrectly. They, they even said in the

00:26:53:16 - 00:26:58:18
Cas Piancey
whatever the memo the writ for medication they said specifically like

00:26:58:18 - 00:27:06:09
Cas Piancey
we want him to have extended release so that it covers the whole trial but we're not sure if it's going to work, which I'm just like, okay.

00:27:06:10 - 00:27:07:20
Cas Piancey
I mean, I see what you're doing here.

00:27:07:20 - 00:27:12:02
Cas Piancey
all of that being said, it sure sounds like he's going to take the stand.

00:27:12:02 - 00:27:17:19
Cas Piancey
it sounds like the defense is going to have a relatively short case if they have one at all.

00:27:17:19 - 00:27:21:04
Cas Piancey
his sentencing directly after that, is that how this is going to work?

00:27:21:04 - 00:27:23:03
Danny Nelson
That's a good question. I don't think so.

00:27:23:03 - 00:27:24:09
Danny Nelson
I've covered a lot of

00:27:24:09 - 00:27:26:02
Danny Nelson
criminal cases at Coindesk.

00:27:26:02 - 00:27:34:16
Danny Nelson
doesn't usually go to a jury trial. And so often when it does it and there's a plea or or or something else, I don't know,

00:27:34:16 - 00:27:37:03
Danny Nelson
there's a sentencing hearing that scheduled months later.

00:27:37:03 - 00:27:39:16
Danny Nelson
So I don't know what happens when you

00:27:39:16 - 00:27:42:22
Danny Nelson
get a conviction. I believe that it doesn't happen right away, though.

00:27:42:22 - 00:27:44:14
Danny Nelson
we'll have to see about that.

00:27:44:14 - 00:27:46:15
Danny Nelson
I think it probably wouldn't be right away, because

00:27:46:15 - 00:27:54:07
Danny Nelson
I think that when there's a sentencing hearing, you actually get to hear from a lot of victims who say what happened to them.

00:27:54:12 - 00:27:59:03
Danny Nelson
That might just be in the movies, but this is very cinematic. So it might apply here, too.

00:27:59:03 - 00:27:59:20
Cas Piancey
yeah, fair enough.

00:27:59:20 - 00:28:04:04
Cas Piancey
All right. Awesome. Thank you for joining us, Danny. For anyone who's interested, we're going to be having

00:28:04:04 - 00:28:10:04
Cas Piancey
Katie Baker on from the Ringer next next week. And and then we're going to be having some more guests after that.

00:28:10:04 - 00:28:10:13
Cas Piancey
So,

00:28:10:13 - 00:28:16:01
Cas Piancey
continue to check us out because we're we're getting to have all the cool journalists who were sitting in the courtroom on with us.

00:28:16:01 - 00:28:17:20
Danny Nelson
Are you guys going to come in front of it?

00:28:17:20 - 00:28:22:03
Cas Piancey
I'm in. I'm in Cali. So there's just no way it's going to happen.

00:28:22:03 - 00:28:23:10
Danny Nelson
a, it's a whole experience.

00:28:23:10 - 00:28:35:13
Danny Nelson
In fact, everyone should sign up for my newsletter. Please do. It's a great newsletter. I get to be very spicy in it. Not like in our normal, more straightforward press coverage. I get to write things like

00:28:35:13 - 00:28:38:21
Danny Nelson
accounting, Santa Claus beat Sam Bankman-Fried lawyers with a sock full of coal.

00:28:38:21 - 00:28:42:23
Cas Piancey
I want to add yes, there's a bunch of what I've been really enjoying is I've actually been taking in

00:28:42:23 - 00:28:44:09
Cas Piancey
different perspectives from

00:28:44:09 - 00:28:55:05
Cas Piancey
as many different media outlets as I can. And they're a little each one is a little bit different and I get a really great feeling for what it's like even being in line to go into the courtroom.

00:28:55:05 - 00:28:55:17
Cas Piancey
Like I feel.

00:28:55:17 - 00:28:59:05
Bennett Tomlin
Only one of them has accounting Santa Clause beating Sam Bankman-Fried

00:28:59:05 - 00:29:00:07
Cas Piancey
That's right.

00:29:00:07 - 00:29:06:14
Danny Nelson
well, actually, a few of them have accounting. Santa Claus, but only in only one of them is he violent with a sock full of coal.
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5 responses to “Episode 137 – SBF asked FTX’s lawyer to make up excuses for missing money (feat. Danny Nelson)”

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