Sam Bankman-Fried On Trial

Paris Marx: Jacob, welcome back to Tech Won’t Save Us.

Jacob Silverman: Glad to be here again. Thank you.

PM: Always great to chat. Obviously people will probably be aware that our good buddy Sam Bankman-Fried, by the time you hear this, will be heading into his trial over the collapse of FTX. And just for people who might not remember of the story, because it happened a number of months ago now, or a bit longer than that, I guess. Can you give us a quick recap of the FTX collapse and what actually happened to expose this company for what it was?

JS: Well, I’ll try to give the quick version, I tend to riff sometimes. But in early November of 2022, a balance sheet was leaked to CoinDesk, an industry publication tha tbasically showed that Alameda Research, Sam Bankman-Fried’s hedge fund, and the other pillar of his empire besides FTX, was built on shitcoins. They had very little real money. They had very little even of the “goo,” crypto like Bitcoin and Ethereum. And they had a lot of FTT — FTX’s own token, their own made up money — and some other shitcoins or illiquid coins. Some of them were called Sam’s coins like Solana and Serum. Basically, these were tokens that FTX or Alameda had a big hand in and often in subsidizing. So when that balance sheet was leaked, it created a lot of market turmoil. There was essentially a run on FTX. The other contributing factor was that CZ — the biggest figure in crypto, the CEO of Binance — said: I don’t like what I see here. And he essentially said he was going to sell all his FTT, which he had a bunch of, which we could talk about later. And that of course, sparked more market panic.

Really within a week FTX was done, there was the run on the bank of regular people, and also some very rich partners of FTX, I think, trying to get their money out. And then the price of FTT, which helped underwrite FTX, also plummeted. The main problem, though, was that once there was the run on the bank, we learned that FTX didn’t really have the money. Not only were they built on this sort of rickety empire of shitcoins, but about $8 billion, possibly more, basically went out the side door to Alameda, and then from there was gambled all over DeFi and crypto. Billions of dollars, probably, went to Sam and his colleagues into real estate in the Bahamas and elsewhere, and a lot of investments. So within a week, FTX had to stop withdrawals and close its doors. And then about a month after that, after this weird media tour, Sam Bankman-Fried was arrested in the Bahamas and then sent to the US a few days later in an extradition agreement, that he agreed to. And that’s basically what happened.

That was a great, quick summation of everything that happened, so I appreciate that. What was particularly notable in that moment was just how much the narrative shifted so quickly. Because FTX was supposed to be the good crypto exchange and Sam Bankman-Fried was getting all this really positive press coverage, despite how he presented himself in public and whatnot. And it was like, overnight, this kind of darling of the crypto industry, maybe there’s ponzis and maybe there’s bad stuff there, but not at FTX. And that was very quickly shaken, right?

It was pretty stunning, even for us skeptics or people who have a pretty jaundice opinion of crypto, it just happened so rapidly was so dramatic. The week before Sam had a multibillion dollar fortune, at least on paper, the company, again on paper, was worth over $30 billion. And he was the nice guy of crypto, the one leading the lobbying charge on Capitol Hill, which, of course, led to all kinds of political corruption. But he was the guy, the face of crypto in the English speaking world. CZ, who’s Canadian, mostly lives overseas and keeps away from North America. So, for a lot of people — even people who may have doubted Sam — I don’t think anyone predicted such a rapid fall and that this guy would become corporate public enemy number one so rapidly. There was a lot of drama for people like us who like to watch this stuff. He really went from someone who was powerful and mostly admired, in some cases lauded as a great philanthropist, to a total fraudster in the public imagination of the Elizabeth Holmes or Enron variety.

PM: That’s really important to note. And I think that this is a particularly important case coming after the Elizabeth Holmes case where, that was seen as the first big tech founder to fall from grace and be sent to prison. And now I think the question is: Is this going to happen again, with Sam Bankman-Fried and is this part of something bigger that’s going to begin happening with these sorts of people?

JS: I think for some of us, it’s less about the specific prosecution of Sam Bankman-Friend then this question of white-collar crime and corporate accountability. Some people like to say that the crime wave is white-collar. Certainly we know about things like wage theft and other crimes like tax evasion, or even the kinds of bank fraud and money laundering that Sam Bankman-Fried is charged with are pretty common, I would say. Or at least happen way too often in the corporate world. And for someone like him, who is a big Democratic donor — and exerts a lot of political influence, splashed a lot of money around, in a deliberate plan to curry favor and influence — to now see him prosecuted is actually a little bit reassuring. I mean, we can be appropriately cynical about the American justice system. But you don’t often see people, especially in such a quick reversal, who exert so much influence and are rich and powerful, and then are suddenly facing life in prison, potentially.

PM: Absolutely. And you talked about the potential of life in prison. What are the things that Sam Bankman-Fried has been charged with as we head into this trial?

JS: There are seven charges. Just to quickly clarify for some people, because there’s been some understandable confusion: I think that we’re on the third indictment against Sam. So there were a couple of superseding indictments, as they’re called. There were charges added and then removed. You had right-wingers flipping out that charges were removed. But basically what’s happening here is there were seven charges. The government is trying to get this to trial pretty quickly. And they’re focusing, right now on, one, charges that were covered under the extradition agreement. So, there are things that they’re going to probably charge him on in a second trial that might happen next March. And all of this right now is centered around this question of: Did $8 billion or more of FTX customer money — the money that regular people put into gamble on crypto, which is supposed to stay in bank accounts so that it can be redeemed or withdrawn when people want it —was that money funneled to Alameda at Sam’s direction, and then used for all kinds of purposes, and now is basically gone?

So, from that you get money laundering and various types of fraud, really classic financial crimes, which is another good thing to keep in mind here. This story has not that much to do with crypto. Crypto is part of it, but you certainly don’t need to know anything about it to understand or follow this case. Crypto perhaps helped facilitate some of this, because there’s an implication or an accusation actually, that Gary Wang — who was one of Sam’s executives, and a star-coder and a longtime friend of his — had coded a backdoor into the FTX system that allowed Alameda to just withdraw money, or borrow as much money as it wanted at an unlimited line of credit. And this is something that, allegedly, most people at the company didn’t know, but that Sam allegedly ordered. And Gary Wang has already pled guilty. It’s worth noting that three of the top executives have pleaded guilty and are testifying against him. A fourth, Ryan Salame, which is I believe is how you pronounce it. Ryan Salame has pled guilty, he’s the fourth, but he’s not testifying, at least so far.

So, that’s the basic set of crimes there. And any one of those charges, could land them in prison for 10 or 20 years. And they center basically on a few main things which was that he deceived investors, he lied to bankers, and he embezzled money. And a lot of those fundamental facts are disputed by Sam, of course. But given what we know from these other guilty pleas from the documents that have come out from internal communications that are already in court filings, it seems real bad. It seems like he did this stuff. One last thing that’s worth noting too, is that, as a lot of folks are familiar with, most people who are charged with federal crimes end up in jail, 90% plead guilty. These are federal criminal cases, I think, 8% have the charges dismissed and something like 2% go to trial. Of those 2% about 1% walk away free or are found not guilty, or that also includes mistrials. So we’re talking last year it was less than 300 people. I mean, we have a lot of people in prison in this country. And so the odds are really long. I know it’s some people say: Well, he has money and influence, or did. And he’s a nice white guy and the political valence of the case, but I don’t know, it seems like they have him dead to rights.

PM: I can’t not feel happy hearing that, to be honest.

JS: No matter how much you would like some carceral reform or there is something satisfying, I think — especially if you’re a journalist allowed to have an opinion — in seeing this guy, who ran roughshod over the industry and Congress, and was sometimes very obnoxious about it. Now, having some comeuppance. And the one other thing, perhaps related to what you were asking earlier, is that Damian Williams, the US Attorney here in the Southern District of New York, has made a point of, because it’s part of his mandate too of going after white-collar crime, financial crime. He’s prosecuted a few Wall Street people, which the crypto people probably aren’t paying attention to. But in other crypto ponzi-schemers, Sam is definitely the biggest one. But so far, I’ve been mostly heartened by what he’s done. I mean, he’s not directly prosecuting the case, it’s an Assistant US Attorney, but his office seems to care about what his job is, which is to prosecute the felons of Manhattan who tend to be white-collar criminals.

PM: And he even pulled this one out of tthe Bahamas.

JS: It’s gone quickly. I mean, he’s given a few stern speeches at the podium and he’s said that this this case isn’t over. That’s one thing we could talk about. I think there’s a lot more to come, whether about Sam, or all these other people connect it to him. And a lot of that will be civil litigation, but there certainly could be more criminal charges, more people arrested.

PM: When I look at this list of charges that he’s up against, it basically revolves around wire fraud, and conspiracy to commit wire fraud, and then some conspiracies on money laundering and securities fraud as well. So your traditional financial crimes, and I feel like we talk a lot about, or use to talk a lot about, how crypto was trying to transform the financial system and all this stuff. But ultimately, what journalists, like yourself, were doing was really to make us understand how this was part of a much broader trend among companies to continually try to do these sorts of things, and just find new ways to kind of get around it. And so it was not really surprising to see crypto companies doing something that we’ve seen time and again, in the financial industry or whatever.

JS: I would say, broadly, a lot of the modern economy can seem like financial engineering. Just a quick aside — look at someone like Vivek Ramaswamy, actually, who I have to say, I worked for his company very briefly. But everything I’ll say is public knowledge and not NDA. But years ago, I worked for his biotech company, Roivant, which very much, I would say, is a product of financial engineering, he comes to the private equity world. A lot of people who are very rich, arguably, didn’t make anything, or just move various types of money around. And I think we see that a lot in crypto. Obviously, Sam invented his own money, they just created FTT. What we’ve certainly learned from the last couple years of crypto is that they need the mainstream financial system, everyone wants to get back to fiat, that’s still how the world runs. And that a lot of these companies are willing to break the law, or do whatever it takes, to maintain banking relationships, or to bank under assumed names, as FTX did. And for all the emphasis on “building,” and to be a builder in crypto, there’s very little that’s being built, to go back to this financial engineering idea. It’s three-card monte, or choose your metaphor, it’s just shuffling around a lot of real and fake money. And in the process, almost as a matter of course, breaking these laws around money laundering and wire fraud and things like that.

PM: I think put really well. And just to be clear, Vivek is one of these folks who is running for the Republican presidential nomination.

JS: He’s one of the Republican nominees and is sort of in the insurgent. I pay a little more attention to him because I worked for Roivant, briefly as a ghost writer, but he’s sort of the most emergent, would be Trump-heir figure in the latest round. And a far-right firebrand, who reflects a certain kind of extremism or radicalization that’s happening in the corporate world that we’ve talked about, that we see in Silicon Valley, the David Sachs, Elon Musk kind of right-wingers.

PM: So after you know, FTX collapsed, and in the process of Sam Bankman-Fried being arrested, there was this whole media campaign that he was on in trying to tell his side of the story and make it look like he was not at fault here. And then when he was extradited back to the United States, he was quite active on social media for a while, he was giving interviews even had a Substack. Does that give us any indication of how he was trying to present his narrative for what happened here?

JS: So, Sam has always been very active in the media. He’s not shy; he talks to people. And he’s always communicated a lot with journalists, both in public interviews and appearances, and he texts people. I mean, he DMed me a little bit, and it started on his end, which surprised me. I don’t normally hear from billionaire CEOs directly like that. This is common in crypto, in some ways, that they don’t necessarily do PR how other industries do, but Sam took it to a further extent, I’d say. He was up at all hours, and would just be messaging people all the time. And while he was on his rise, that kind of thing works. People found him charming; the availability was very appealing to the media. On his way down, of course, he’s been just as active trying to play the media. It was very unusual and weird for people to see this apology tour that he went on from, basically, the second week of November to a month later, when he was arrested in the Bahamas.

That day, I think it was our friend and colleague, Molly White, maybe who asked him on Twitter Spaces: Do you worry about arrest or being apprehended if you go to the US? Because he was supposed to go testify on Capitol Hill, there was a New York Times event he had done via video. And he sort of gave a typical same answer about how he hadn’t thought about that much, and he needs to look into that. He was arrested, I believe, that night, certainly less than 12 hours later in the Bahamas. So it was all a strange kind of way of doing things, but it made some sense for who he was. I think it’s certainly backfired. One set of lawyers dropped him, I know he had a lot of conflicts with lawyers. This summer, I was in court for some pretrial hearings. He had gotten in trouble because he had shown some of Caroline Ellison, the co-CEO of Alameda, and a former girlfriend of Sam, who’s going to testify at trial. He showed some of her diary-like writings that he had access to, to New York Times reporter, David Yaffe-Bellany, and those are published in The Times

It actually, I think, in a lot of people’s eyes, created some sympathy for Caroline Ellison. It was just stuff about her being kind of overwhelmed and feeling like she let Sam down, various emotional feelings about their broken relationship. Nothing that I would call scandalous, certainly intimate. But given that it emerged that Sam was the source for this stuff, I think it actually backfired and was part of Sam’s general blowback from his media campaign and attempts to play the media. The actual material result of that was that the prosecution in this case said: This is witness intimidation through the media. The judge, Judge Kaplan, in the case agreed. And there was a somewhat dramatic hearing over the summer in which, ultimately, at the end, the judge simply said: I’m remanding, bail, or remanding bond. Sam was forced to take off his tie, his shoelaces, empty his pockets, and was taken to the MDC jail, here in Brooklyn. Which is a pretty grim place, like a lot of American jails and prisons.

The media was a big part of his rise and it’s been a big part of his fall, in his attempts to defend himself. In court, his lawyers have basically said: Your Honor, he was just using his First Amendment rights to try to defend himself in the media and respond to all this bad press. He kind of said: It’s not my fault that my client might be reckless, but it’s legal. It may not be a good strategy, but it’s a legal strategy. And the judge ultimately disagreed. He said: Talking to reporters is a lawful use of his First Amendment rights, but if it’s in the service of a crime, i.e., witness intimidation, then it’s not. It’s like Trump having these phone calls and messages with other people when he was indicted in Georgia, and people say: Well, it’s just free speech to tweet x, y, z or something like that. But the prosecutors say: No, that’s in service of a crime, of this RICO conspiracy.

Same kind of thing — if you use free speech in service of a crime, then you can go to jail. So, eventually he had this gag order put on him, or partial gag order. He couldn’t use Signal. He stopped the Substack and the tweeting, but he couldn’t help himself. He still was inviting journalists over to his home. He had something like 400 phone calls with Michael Lewis. Of course, there’s a book coming out this week from Michael Lewis, and he had about 100 phone calls with New York Times reporter, David Yaffe-Bellany, who’s a good reporter and doing his job. If Sam is going to pick up the phone, reporters should be calling him.

PM: As you say, Sam Bankman-Fried is in prison now, as this trial kind of kicks off. Can you tell us a bit more about what that has been like? Because I know that he and his lawyers have been arguing that he should be outside of prison, or he should be having more internet access and things like that. But the judge keeps pushing back on these requests, as I understand.

JS: There’s been a lot of procedural stuff, not necessarily out of the ordinary. I talked to one former prosecutor who said: The procedural stuff is all they have because there, frankly, does seem to be a lot of evidence against Sam and three star witnesses. Well, first, they didn’t really like some of the restrictions earlier, but then by putting him in jail last month, he has limited internet access. I don’t know the exact situation today, as we speak, but he definitely can meet with his lawyers at the courthouse or at their offices, I believe, under supervision. There’s a laptop that is loaded with documents. But the basic complaint is really just the extent of access he has to an internet connected laptop, or to these documents. They’re supposedly millions of documents produced as part of discovery.

I think the real lesson or kind of takeaway is that Sam is very involved in his own defense. And both in his media tour before but now going to trial, he seems to think, perhaps, genuinely, that there’s something in these documents, or that he can somehow talk his way out of this. It really did seem like he thought he could talk his way out of it before he was arrested. And that now that he’s going to trial, somehow the exculpatory information is in these records of trades and communications that do exist. He says a lot of the communications don’t exist, because they’re auto-deleted. But he says that wasn’t my order. You can see how the contradictions kind of pile up, and the government says that Sam did order use of auto-deletion on Signal and things like that. They’re going to bring that up at trial.It’s some murky sense that if Sam only had access to all the trading data and everything, he can show how this was a confluence of errors, and no one’s fault, really. I don’t know how he’ll do that.

He also seems to intend to claim that he had bad legal advice. The government has seemingly, or I believe the judge has ruled, that they don’t want to hear that in opening statements, but it may be presented at trial. I’m not a lawyer, so I can’t necessarily explain that distinction. But even that is not a very good defense, because he may have gotten bad legal advice, but he’s an adult male, CEO who knew what he was doing. And supposedly some of these commands or decisions which came directly from Sam. Furthermore, one of his lawyers was his dad, and his dad also encouraged him to hire a guy named Daniel Friedberg, who was the in-house fixer, the Michael Clayton type. And supposedly the dispenser of potentially illegal advice. I mean, the basic lines then are: Oh, there’s something in the data and bad legal advice. Maybe he’ll have another defense at trial, but that’s what we can probably expect from him.

PM: It really sounds like grasping at straws. I want to come back to his father in a little bit before we dig more into what is likely going to be the argument made in this case, I just want to check on some more logistical points. This trial begins on October third, or will have begun on October 3rd, by the time that this episode goes live. Do we have an idea of how long the trial itself is going to take?

JS: It could be as long as six weeks. Right now I have a schedule here that shows it going through, at least, November 9th. You know things could happen — he might reach a plea deal. I don’t think so though because he seems pretty intent on fighting this stuff. And he seems to genuinely believe, to the extent that he can, in his own innocence. We don’t really know yet when some of these people will testify. But the big days will be number one with a bullet will be when Caroline Ellison testifies, but also Gary Wang and Nishad Singh, his former friends and executives, are key witnesses. And there are a few days — it’s just the way the system works here — where the trial won’t meet. Right now, there’s nothing scheduled for October 23rd through 25th. There are a few of those kinds of days. It’ll be a little plodding, a little boring at times, but to us who are interested in this stuff, it’ll be very dramatic sometimes, too. And there can be a lot of journalists like me there. There aren’t cameras or recording of any sort of allowed in the courtroom. So this will all be told pretty much via writing, via the courtroom sketches, which were charming. But the one from one of the last hearings showed him next to this US Marshal, who in real life was enormous, and Sam is not exactly a built guy. But it kind of showed Sam as this hulking guy next to an equally big Marshal. But that’s that’s the fun of courtroom sketch artists.

And it’s gonna be mostly nine to five, I think, with some variation. I don’t expect any stops. One thing is that the judge kept saying: Well, you’re complaining about your internet access and access to documents, and now you’re going to jail? Do you want to request more time, basically, a continuation of the trial or delay? And this happened back and forth a number of times between Sam’s lawyers and the judge. And Sam’s lawyer said no, every time. I mean, he was given an opportunity. They are seeming to take seriously some of his complaints about internet access and trying to accommodate him. He seems eager to go forward. My pet theory is that we know that he is funding his legal defense with $10 million plus dollars, that he just gave to his parents. So maybe there’s some concern that that will be clawed back in the bankruptcy process. That’s a legitimate possibility. Maybe he just wants to get this over with, but for whatever combination of reasons, Sam’s side, they’re raising some procedural complaints, but they are not asking for a delay.

PM: Interesting. And this is a jury trial, as I understand it, do we have any idea if that could add any complications or nuances to what is going to go on here? And do we have any idea, if this trial was going to take six weeks, how long it would ultimately take to get a verdict and what his sentence would be if he’s found guilty? Those sorts of details.

JS: It is a jury trial — twelve Jurors here in New York. It has to be a unanimous verdict, so there’s a possibility. One of his best hopes is for a mistrial, which means that they just can’t come to a unanimous agreement, or a unanimous guilty agreement. And basically, the way you get there is by muddying the waters. One, through the media, even though the ideal jury doesn’t have much foreknowledge of this case. And the other way is just to confuse people in court, or trying to make certain arguments about his own innocence, at least convince one or two people. But I’ve explained what the odds are, they’re not great. And there are, of course, things about the case, a hotshot young, overnight billionaire that might not rub jurors the right way. Sam is not necessarily that sympathetic. Some people might find him so, but the jurors will deliberate at the end of the trial, that could be, I would say, at minimum, a day. It could be weeks, but that would be unusual.

I mean, usually, I think these kinds of things are a week or so, sometimes you might hear them going back to the judge for clarification on things, stuff like that. But if he’s found guilty, each charge carries a dozen plus years, in prison. Between all of this, he could go to jail for the rest of his life, or the rest of his natural life. And jail is not a good place for people either, health wise or whatever, and obviously, very violent places. This is for everything and it’s possible a judge could take a relatively more lenient approach and say: Oh, 20 or 30 years. I don’t have the exact sentencing guidelines next to me, but this is a long time. You’re talking potentially dozens of years in prison. If he gets paroled, he will be a middle aged or old man, even. This is it. It felt to me, I went to a few pretrial hearings, the one where he was remanded into custody — you could just see it on his face, he was pale. He was sort of surprised and struck. And that’s when it really felt real for a lot of people. I don’t know if it felt real then for Sam, but that was a very dramatic moment where we realized like: He might never be free again.

PM: I remember in the Elizabeth Holmes case, she was found guilty, but then it still took a while, I believe, for the judge to actually decide on the length of her sentence. And then it took quite a while for her to finally actually be sent to prison.

JS: All this stuff can move in fits and starts like that. The trial itself, obviously, is pretty much six weeks and we’re done. But, you have deliberation of the jury, sentencing. Then when he actually asked to report to prison, he’ll almost certainly appeal while he’s probably incarcerated. The Elizabeth Holmes trial also took some years, I think, to get going. This is pretty quick turnaround from when he was arrested. It was something like 10 months ago. But if Sam is eventually found guilty and sent to some medium security prison somewhere in the country, you’re right, he may not actually report to prison for another six months or something.

PM: But I guess one big difference between him and Elizabeth Holmes is that Elizabeth Holmes was out during her trial, whereas he is in prison already. One of the things that I was reading, as I was preparing for this interview, was about the government’s approach to this case. And I was reading that it was explained that they had what was called “a thin to win approach,” where they weren’t trying to go really heavy on details and stuff. They were kind of trying to give the jury the details that they would need to find this guy guilty and not overburdening them with the minutia, and the technical details of crypto and all this kind of stuff. Do you have any insights into the case that the government is likely going to present as it tries to seek this guilty verdict against Sam?

JS: That’s an interesting phrase — “thin to win.” I mean, I think that’s probably pretty smart, to be honest. Again, I’m not a lawyer, but if I were presenting a case against Sam, I would try to do what I try to do, frankly, with my journalism, which is to simplify and translate for a lay audience. And to tell people the facts which are: Crypto is not that important, you don’t really need to understand how it works to understand this case, or this company. And you don’t want to get bogged down in technical details. But I think that’s something that Sam will want, and that’s why he’s going through the data and writes these long wonkish Substack posts and stuff. Because if he is the only one that really understands what happened, then how could a jury understand it? But the main question, again, really revolves around some of the banking relationships, which there’s documentation that they lied. Silvergate Bank in San Diego, I believe, rejected them as a client. And then they formed this shell company called North Dimension, which was a fake electronics retailer complete with a website, and then banked under that name at Silvergate. I mean, they may have known or looked the other way. But that’s what happened, these are simple things that people can understand.

If they ask Gary Wang, on the stand: Did Sam order you to create a backdoor so that Alameda could borrow unlimited money? That’s something that jurors should be able to understand, and Gary Wang is going to say yes unless he wants to perjure himself. So I think you’re right, and that’s probably a wise approach just in that, while there’s this technological gloss and celebrity — and Sam is this public figure and any other number of things, complicating factors you can point to or use to filigree or fill out the story — is about these fundamental ideas of theft and embezzlement and breaking long standing laws around wire fraud and other things like that. You may also hear from Sam’s side: Hey, crypto is new and innovative and complicated. Existing laws can’t quite apply; Sam was working overseas, things like that. That’s the kind of thing you hear from the industry a lot because they want their own new regulatory regime written for them.

Of course, that was something that Sam was spearheading. But what we’ve seen and what is obvious in this case, is that existing laws around finance, money banking, fraud, conspiracy — those covered this industry pretty well. You just need to have actual regulatory action enforcement and trials to show that you can charge crypto ponzi-schemers and fraudsters under the same laws that you charge the one banker that’s ever charged every decade here in the US, or that you charge some hedge fund or as Damian Williams is prosecuting a hedge funder or two right now.

PM: We obviously talked about the media campaign that Sam has been on and how Sam used to give a lot of interviews, even before the FTX collapse. There’s a notable interview with Bloomberg, where he basically describes what the business was doing as being a Ponzi scheme, without really specifically saying the word. Do you think that the interviews that he has given or the Substack posts that he’s written could actually help the government in incriminating him?

JS: I do. I don’t necessarily know what the legal arguments might be around that. But he had a tendency to say too much. I was actually talking to some folks the other day, and they reminded me there are basically three main incidents. The famous Bloomberg interview on Odd Lots, where he talked about yield farming on DeFi, which is this whole blackbox metaphor, it doesn’t matter. But Matt Levine said that sounds like a Ponzi scheme. And he said yes. There was a magazine interview where he said that some exchanges were secretly insolvent. Well, certainly sounds like him. There was something else that he said in Congress, I think, about concern that some tokens weren’t fully backed by real money, which is, of course, the big fear about Tether, who was Alameda’s number one business partner.

So it can often seem as if Sam was — call it a Freudian slip or whatever else — but confessing almost in public, whether that might just be used to paint a picture of recklessness, or he knew, I’m not sure. Or used, perhaps more towards the fundamental charges. But there’s certainly a lot of things that he has said and written, that could be turned back against him and brought up in court. Well, you said this, were you thinking about your own company? That kind of thing. I don’t expect him to necessarily take the stand, but that stuff could certainly be brought up in court.

PM: I think that makes perfect sense. And if he does take the stand, that would be a big day, or a few days.

JS: That would be a big one, too.

PM: You’ve talked a number of times about how Caroline Ellison, who was the co-CEO of Alameda research, which was the trading firm that was attached to or sister companies with FTX, which was the crypto exchange. As well as Gary Wang and Nishad Singh, who I believe were executives at FTX, have all pleaded guilty, and from as far as we can tell, are working with the government and are going to be helpful to the government’s case. Do we know what they can bring to the government’s arguments to try to ensure that Sam is found guilty?

JS: I think the basic thing they seem to know about was that Alameda was losing a lot of money, and that eventually, that line of credit that they already had with FTX was made unlimited, specifically through this backdoor, that was coded by Gary Wang, which he’s admitted to. But also in conversations with them. So there’s a line from Caroline, that’s been in some documents, someone asked her who ordered the line of credit or something like that. And she said: Sam, I guess. That can seem a little waffle-y, but in court, we expect them to say: We started to know, or at least summer 2022 or even before, that FTX was insolvent, and that we’re funneling all this money through Alameda. But they’re also things like huge loans that were made — and loans, perhaps in quotes, some of these had no collateral or even no documentation — that are made to Sam and other executives.

We’re talking over a billion dollars in Sam’s case, hundreds of millions of dollars for some executives. Hundreds of millions of dollars worth of real estate that was purchased. Again, this is money that came from FTX, went to Alameda. And because it was all mixed in a few bank accounts, that is also illegal commingling of funds. But it was all being transferred to Alameda, or access Alameda, and then that was their big pot of money to spend on politicians, celebrities, real estate, investments, and themselves. So, that kind of thing implicates all of them, or involved all of them. They were all reaching into the register and they were all spending. I think the basic argument, and basic confession as it might be, will be: Oh, yeah, we knew and Sam was in charge and ordered some of this stuff. And that may be enough.

PM: I guess what’s distinct is that those three people have pled guilty, and they’re basically saying that Sam is guilty along with them.

JS: I think some of them may go to jail, maybe all three of them, it might just be a few years, I would expect, for their cooperation, because they weren’t number one on the masthead, so to speak. But they’ve said it, that they are cooperating, that means producing evidence. That means turning over phones and things like that, even already. Yes, Sam may have used disappearing messages on Signal, but stuff tends to stick around, people take screenshots, things like that. There are plenty of emails and other forms of communication that, put together, could paint a pretty damning portrait. Just even ask, before even talking about any theft of funds, why was a hedge fund investing hundreds of millions of dollars, or billions of dollars, in startups. For example, like that company, Anthropic — one these big new AI darlings that just got billions of dollars from Amazon, in an almost a friendly takeover of sorts — one of their key early investors was Alameda, gave them $500 million. And Colin at the Financial Times was telling me: VC investments are supposed to be long term, hedge funds, generally dealing short-term investments.

None of this stuff made sense. Why were you buying real estate with your hedge fund? Why were you giving money to Sam’s parents who gave money to Stanford? Just those kinds of transactions don’t make sense. And ultimately, you have to account for them and the way you, honestly, account for them in this case was: We were spending like there was no tomorrow. There is a quote from Sam floating around that he felt like they had infinite money. And honestly, I’ve heard that from people at other crypto companies during the peak of the bubble. There was this sense of irrationality — I mean, that it’s not exculpatory, anything — there’s still crimes committed, but like, people were thought they had unlimited money. And some cases they did, because they were lying and printing their own tokens and things like that. Those things have to be accounted for and I think the only way you really account for stuff like the billions of dollars that was funneled through Alameda is that: We committed crimes.

PM: We’ll definitely see all that laid out over the next six weeks. One other person, beyond those three that I saw written about, was Sam Trabucco, who was the other co-CEO of Alameda. As far as I know, he’s off the radar, and we don’t know where he is. Is there any indication that he could be assisting the government or not really?

JS: It’s possible, there’s just no real public evidence. Off the radar is the right term because a few months before the whole thing collapse, Sam left the company around the time that Brett Harrison, the CEO of FTX US, who has so far escaped any legal consequences, left the company. And Caroline was put in charge of Alameda by herself. Sam, at the time he made it seem like he bought a boat called Soak My Deck or Soak My Decks, I think. It’s something juvenile I imagined, I guess it sounds like a sex act, whatever. Anyway, now we know that that boat was bought by Alameda, something like, I think, $42 or $52 million. And he said he was going to go enjoy his boat. He posted once after FTX went down, saying he wished everyone well, in November 2022. And he literally hasn’t been heard from since as far as I know. He is exactly the kind of person that the government would be interested in and that could possibly face criminal liability. So I would expect that the long arm of the law has somehow reached out to him, even if he’s sailing around the Caribbean.

But there are people like that, I do wonder even as a spectator, what’s going on with them. Daniel Friedberg, again, that lawyer-fixer guy who I think is very key to the story, has been supposedly been talking with the government, but we don’t really know what his status is. I would still wonder about Brett Harrison, even though he had a lot of conflict with Sam and was somewhat insulated being the CEO of FTX US. There are other executives, people who are involved with their venture investments. Ryan Salame has pled guilty. He’s really important on the political operation, but he has not agreed to testify or cooperate. So, there’s a lot more that could happen. I expect some of the political corruption will be worked out next year, through the legal system, through charges, and some people pleading guilty. I mean, Nishad Singh has already pled guilty to being a straw donor in a scheme, partly, orchestrated by Sam’s mother. There are all these characters floating around, former executives, business partners too — who I think could still face legal liability. And there is a game I play sometimes of trying to list all the people who are still floating around out there wondering: What are they up to? Who do they talk to?

PM: Fun game, but I think you see that a lot with crypto, just these random people that are hard to kind of pin down.

JS: Sometimes geographically!

PM: Absolutely. You’ve mentioned Sam’s parents a few times, Joseph Bankman and Barbara Fried. There’s been some reporting recently and they were recently sued, I believe, by FTX, what’s remaining of the company. Because of all the money that they received. Can you talk to us a bit about who they are and what it’s alleged that that happened?

JS: Everyone knew that Sam’s parents were both very close with him, and very influential on his life and development, as many parents are. But I really mean on his political philosophy and what he chose to do for his work and things like that. But they’ve been involved with the company, the last few weeks, though has really open this up. So there’s a great piece in Bloomberg by Max Chafkin, and I’m sorry, I’m blanking on his co-writers name. And there was a very instructive piece, but I would say not good, in the New Yorker by Sheila Kolhatkar, about the parents. And then there was this lawsuit by the new leadership of FTX, who is charged with cleaning up the company, getting the money back, suing people who should probably be sued. And reading these indictments or not, sorry, the civil complaint, that civil lawsuit was also very instructive. I encourage people, if you really want to nerd out, read court documents, read indictments, or civil complaints, you’ll learn a lot. Some of the best reporting is done by law firms, I have to say, because they have access to messages and internal documents and things like that.

PM: Not to mention resources.

JS: They have more money than you and me, and more people to work on this stuff, and private detectives and all that good stuff. So what we really know now is that, and this has come to the fore more through these stories and last few weeks, is that the parents were deeply involved in the company, the dad especially. Everyone knew that Joseph bank and took a salary from the company. There’s a document, or an email, in the civil complaint that says: He was getting $200,000 a year. He complained to Sam, in email, and CC’d the mom, that he wasn’t getting a million dollars. Just cringe worthy and like ‘oh my goodness’ kind of stuff.

PM: It was such a wild story when I read that!

JS: And, so Joe was ostensibly advising on philanthropy, which is important to Sam and the company. A lot of pandemic preparedness kind of stuff and some other political ventures. But he was involved in a lot. He was the main consigliere to his son, besides, in-house people, like Dan Freeburg, or some of Sam’s close friends, who are now testifying against him. Sam turned to him a lot. He came to meetings, he was on campus, so to speak, at FTX. We know that Sam’s parents signed the deed to a $16 million beachfront apartment that FTX bought. They claimed that they thought that FTX was the beneficial owner, but it’s a little ridiculous. Sam’s parents are highly lauded legal scholars at Stanford, they are experts in some of this stuff, in corporate malfeasance in tax law in the case of the Father. So to think that they signed a deed to a $16 million residence and didn’t really know what they were doing is ridiculous. And they spent part of their time there, and they billed FTX for landscaping and things like that. And they called it “our house.”

Jacob Silverman So another key thing is that they got $10 million, basically a lump sum. It was called a loan — there was no documentation, really, no collateral, no agreement. They just kind of gave it to Sam’s parents. And Sam’s dad said: Now, your mother can retire from Stanford. So very deeply enmeshed in this thing, to an extent that I think a lot of people didn’t, including me, didn’t really understand until recently. We knew that they were important; we knew that they could face some legal exposure, even. Especially on the political corruption front. But now it’s a lot more than that, especially because Sam is ostensibly using bad legal advice as part of his defense. Well, that includes your dad, who was coming to all these meetings with you, who’s going to Capitol Hill with you. That’s a little awkward and strange. And then worth noting is that Mind the Gap was this progressive organization that Barbara Fried help run. Sam and various FTX affiliate people donate money to it, there is an email in which Barbara Fried seems to just tell them to do a straw donation through Nishad Singh to Mind the Gap, and the donation did happen. So that looks like a crime.

I would think that they would face some kind of legal pressure in the next year. I don’t know if that means charging them. I mean, they’re a little on the elderly side, that may not, but at the same time, these are crimes. They seemingly, if not legally facilitated, they encouraged the recklessness of their son. I mean, the drama surrounding them is rather extraordinary. There are these quotes from the mom about how Sam could never tell a lie and stuff like that, which is a little absurd and sad. They seem like very devoted parents who are talking about saving their son, but frankly, they seemed to help get their son into this mess. And if they were there cheering from the silence the whole time, I don’t see how they can avoid some liability, or credible accusations that they knew. It seems via some comments —actually from Anthony Scaramucci of all people, who became a business partner of Sam’s — that Joseph Bankman might have known, before a lot of people did, that the company was insolvent. And as I said earlier, Joseph Bankman and helped bring in Daniel Friedberg, who crushed an important lawsuit against the company in 2019, that essentially accused them of fraud and market manipulation.

So you have all these areas in which the parents are really there, participating, sending emails, being recognized by people in the company, as influential people. They’re giving advice to Sam, making decisions, taking money. And I think that’s important. It speaks to the corruption of the milieu he came from. It speaks to the fact that just because you rise through good institutions in the meritocracy, doesn’t mean you’re a good person. It also shows that even, if you’re an effective altruist — or you sleep on a beanbag chair, as Sam does — that you’re not above greed, and when a billion dollars falls in your lap, you might want it.

As I point out to people, sure, Sam drove a Toyota Corolla and slept on a beanbag chair in his office, but he had a $30 million apartment where he lived with his buddies. Sometimes he flew private. They pay to have Amazon packages delivered in Florida and then shipped, by plane, to the Bahamas. There was luxury here; there was extravagant spending. It just took different forms than some people might enjoy. Though, I think a lot of people would spring for a luxury apartment. It’s not like the picture of Sam as some ascetic, nerdy math whiz, who only cared about profit in the service of this effective altruists ideals, is totally wrong. We could debate how much he believes in effective altruism, or those particular ideas — and I think we both think that they’re very flawed — but in the short-term, day-to-day basis, he and his parents were enjoying the money.

PM: You put that really well, and that’s important to understand. I saw you tweet recently that people need to keep in mind that, Sam Bankman-Fried is not some child, he’s an adult man, who did these things and knows what he was doing. And we shouldn’t treat him as though he didn’t.

JS: And that was a huge problem on his rise, that he was this cherubic wunderkind, or whatever people often called him, like a boy or said he looked like a boy or kid,. Even now you hear that, I mean, Michael Lewis is or the elephant in the room in this conversation, because his book is coming out this week. I’ll hopefully have read it by the time this episode comes out, but there’s a 60 Minutes interview and excerpt and stuff. It seems like he’s fallen for Sam’s story. It’s not reassuring at all. And he also seems to take that wayward child view of Sam. It’s just really important not to. Especially because Sam is a rich white man from a very educated milieu, deeply connected. You can’t just say he didn’t know better or got out over his skis. I mean, yes, some of this stuff happened when he was in his mid 20s, but again, a well-educated adult, overseeing a huge operation, being advised sometimes by 50-year-old lawyers. I don’t know, just this whole narrative of Sam — which still exists, and you still see it cropping up — as some babe in the woods, really bothers me. I think is very unfair to the victims, who are mostly just everyday people who, for whatever reason, decided to gamble on FTX, and now their money is stuck or just gone.

PM: That’s always important to understand, do we have any indication as to whether there will be victims involved in the trial in the government’s case against Sam?

JS: I’m not sure. I doubt you would see any everyday people. It might be interesting, certainly from a reporter’s perspective, to hear from an average Joe who lost some money. We did that for my podcast, but it’s good to talk to those kinds of folks. I don’t know what the legal salience would be of bringing an everyday customer, or even some of these people who have cropped up in the media who would lost a couple of million dollars, just like that. Maybe some of the people who occupy these roles of celebrity spokesman, slash investors, slash advisor, like a Kevin O’Leary type, would be interviewed, perhaps, by investigators. But I think they’ll mostly keep that narrow approach, as you talked about earlier. I mean, they’ve got three insiders who are ready to confess and implicate him, and that seems pretty big to me.

PM: So, to close off this conversation, obviously, there will be a lot to watch in the weeks to come. Where do you think that this is all going? Are there particular things that you’ll be watching for over the next few weeks to determine what is ultimately going to happen here?

JS: Just the testimony of those three, Nishad Singh, Gary Wang, Caroline Ellison, especially Caroline, will be big. We’re looking for anything unexpected — which is, I know, a little silly to say — because there is almost an expected approach here. A surprise witness, maybe some documents that come up or communications that are particularly damning that we didn’t know about before, it’s very possible. A huge surprise would be if he suddenly reached a plea deal, or something like that. And then going forward, I’m wondering about the trial next year, which could very well happen. I mean, it’s scheduled, we don’t know which charges, but the judge put it on the calendar for March next year. And then the civil litigation. I have said, or joked darkly, that I think Sam will be in civil litigation for the rest of his life, there’s certainly enough out there.

A lot of this stuff has combined into one sort of blob of civil litigation — it’s called multi-district litigation that’s happening with all these civil cases against FTX. But I think they’re going to be some big ones, besides the celebrities. I think law firms or VCs — I mean some of VCs have already sued — the banks. It’s going to spread widely, in this search for accountability. It doesn’t mean anyone is actually going to, Sequoia isn’t going to step forward and say: I’m sorry, here’s some money for the victims. But these people are gonna be called to account in some way. I think that will be interesting to watch. Is this going to create some ruptures in Silicon Valley and elite law and stuff like that? Because, some of the people who are blamed for this whole mess are the elite law firms and VC firms that helped prop up Sam.

PM: It’s going to be fascinating to watch. Like the Elizabeth Holmes trial, this is another one that people are going to want to be paying attention to, because it’s going to reveal a lot about FTX and Sam Bankman-Fried. But I think it’s also going to reveal a lot about crypto and the tech industry more generally.

JS: And Stanford, he went to MIT but his parents are Stanford people. You can easily see this in the Holmes vein as a trial of certain slices of the American elite, of meritocracy, of the Zuckerberg type that we prop up as the young white male tech genius. And I think we should and especially in the commentary and analysis around this trial, those are the kinds of issues we should be thinking about, besides financial crime and crypto and stuff like that.

PM: Awesome. Well, I’ll be looking forward to watching what’s happening and keeping up with your tweets and reporting and whatever you’ll be doing to cover this. I’m really excited to see that. So thanks so much as always for coming on the show, Jacob, always great to chat.

JS: Glad to do it. Thank you.