Sam Bankman-Fried Goes on Trial

from The New York Times I'm Sabrina. tavernice and this is the daily. [Music]. Sam bankman freed the Fallen Golden Boy. of crypto goes on trial starting today. for what prosecutors say was the largest. financial fraud in recent history. [Music]. my colleague David yaffi Bellamy on the. trial of the man who supposed to save.

crypto and what its verdict could tell. us about why he didn't. [Music]. [Applause]. it's Tuesday. October 3rd. [Music]. David welcome back to the show thanks so. much for having me so the last time you.

were on the show David that was almost. 10 months ago we talked about the. spectacular rise and pretty incredible. fall of the crypto firm FTX and of. course its founder Sam bankman freed and. as a way to remind people FTX and. bankman freed weren't just another. crypto firm they were the crypto firm. that was going to legitimize crypto make. it mainstream. but then it turned out that what we.

thought was this success and this. example this model. was actually smoke and mirrors you had. to refresh all your memories Sam bankman. freed was the kind of figurehead of the. crypto industry the Michael Jordan of. crypto if you will. his parents were Stanford law professors. he had this kind of fancy academic. background he drives a Toyota Corolla to. ftx's offices in the Bahamas he lives. with 10 roommates and a golden doodle.

named gopher and he was saying all the. right things. maybe I should try earnings gift which. is to say try seeing how much I could. you know get to be able to donate ten. years ago when he was uh in college he. decided that he wanted to dedicate his. life to doing good for the world he had. this sort of veneer of Ethics he was. this guy who was gonna make crypto clean. I think what this highlights is the need. for federal oversight of the. cryptocurrency industry he was going to.

turn it into something that could help. everyday Americans and that would. provide this sort of useful alternative. to the inefficiencies and the. inequalities of the traditional. Financial system meme stocks and. cryptocurrency allowing several. Millennials to make a splashy debut on. the Forbes 400 and that whole project. also made him extremely rich the FTX. founder is now worth an estimated 11. billion dollars she was worth billions. and billions of dollars he was donating. to politicians he lived in a fancy.

Penthouse in the Bahamas nobody has ever. gotten that rich that young except for. Mark Zuckerberg. and then everything changed for him very. quickly it does appear that they are. filing chapter 11. uh at FTX FTX went. from a 32 billion dollar company to. bankruptcy in the matter of just four. days or so there's so much we don't know. well here's what we know he's broke and. he's in big trouble he's in big trouble.

he was arrested in his luxurious. Penthouse in the Bahamas where he and. his colleagues had lived for the past. year and a half and quickly extradited. to the United States to face the charges. he tweeted this morning he says I'm. really sorry again that we ended up here. hopefully things can find a way to. recover and he was charged by the. federal government in the U.S with a. series of very serious Financial crimes. and remind us what exactly Sam bankman.

freed was charged with the prosecutors. charged him with things like wire fraud. Securities fraud and money laundering. but what the charges really boil down to. is that he misused his customers money. and remember FTX is a crypto exchange. it's the place that everyday investors. go where they can deposit their dollars. and use those dollars to buy different. types of cryptocurrencies like Bitcoin. but it's also kind of like a bank they. keep their dollars and their Bitcoin and. their other crypto on the platform and.

effectively in the possession of Sam. bankman freed and they assume that when. they come back and want it it will be. there exactly and what Sam is accused of. doing is taking that money and instead. of keeping it for his customers spending. it on all sorts of things donations to. politicians charitable contributions. investments in other companies even. luxury real estate purchases in the. Bahamas and what the prosecutor says. that the mechanism for this was that Sam. would transfer this money over from FTX.

to a related hedge fund that he also ran. called Alameda research in theory. Alameda was just another customer that. could trade cryptocurrencies on FTX but. in reality the companies were deeply. entangled Sam and his friends ran this. whole business empire together the CEO. of Alameda who is hand-picked by Sam was. his on and off girlfriend Caroline. Ellison Caroline also lived with him in. a penthouse in the Bahamas with eight.

other FTX Executives the Alameda offices. were in the same areas the FTX offices. you know in public Sam and Caroline. would insist that there was a wall. separating the two companies but as. we've learned more about it it's become. clear that was a complete fiction I mean. pretty cozy relationship quite literally. between these two companies yeah. absolutely and this actually ended up. becoming the seeds of the downfall of. the whole business Empire. because in the middle of last year when.

the crypto Market entered a steep. decline Alameda started losing money. it was a hedge fund and it made a number. of bad bets and before long there was a. giant hole in alameda's accounts and. we're not talking about just some minor. financial difficulties here we're. talking about a hole on the scale of. eight billion dollars crazy. and the leadership of the FTX Alameda. Empire started looking for ways to solve. that problem and what prosecutors say.

they ultimately did was fill the hole in. alameda's accounts with customer funds. from FTX. okay so huge hole and when customers go. to retrieve their money it wasn't there. it had gone out the door through a. secret trapdoor according to prosecutors. to Alameda right on paper it's a totally. different company but in practice it's a. company whose fortunes completely. depended on FTX exactly there was a.

classic Bank Run scenario kind of. frantic three or four days where. everybody was trying to withdraw their. money and it just wasn't there. eventually FDX had to shut down. withdrawals and a couple days later it. was filing for bankruptcy and the. prosecutors say this was an intentional. fraud that FTX and Alameda had been set. up so that Alameda could effectively. steal customers deposits and that Sam. and his closest lieutenants had. defrauded investors in the company's. defrauded lenders and of course.

defrauded customers as well those are. very very serious crimes if Sam bankman. freed is convicted he could face decades. in prison what would amount to a life. sentence okay so at a high level. according to prosecutors this was. actually a plot it wasn't some. accounting era or just bad business luck. it was a conspiracy and as we know from. other cases like this unraveling these. kinds of schemes can take years of. painful Financial forensics yet. prosecutors in this case charged him.

really quickly you said within weeks. how'd that work so the crucial break. that prosecutors got is that they. convinced several close colleagues of. Sam bankman freed to flip on him and. those colleagues were under enormous. pressure I mean they were facing charges. with the potential to lead to decades in. prison but they weren't the main target. Sam was and so they flipped Caroline. Ellison the Alameda chief executive. who's Sam's ex-girlfriend she pleads. guilty says I participated in a criminal.

conspiracy with this guy another top. executive at FTX actually one of the. co-founders of the exchange a guy who. Sam had known since high school math. Camp also flipped and then there was the. third guilty plea from another top. executive someone who'd known Sam and. his family for years he was the best. friend of Sam's younger brother and. between the three of them that gave the. prosecutors the ability to sort of bring. this case very very quickly and so that. basically means that they decided to be. Witnesses for the prosecution to testify.

against their friend in court exactly. his best friends his closest. professional colleagues standing up and. saying this guy is guilty the kind of. incredibly dramatic Dynamic of friends. turning against friends but Sam pleads. not guilty insists that he's innocent. and vows to fight the charges okay so. he's back in the U.S and he's going to. fight exactly and instead of getting. thrown in jail he's released on bail and. Sam sort of settles into a relatively.

comfortable existence he's under house. arrest wearing an ankle monitor and. under house arrest Sam spends a lot of. time working on his legal defense but. he's also working on his image in. advance of the trial and we actually. have a lot of insight into how he was. thinking about defending himself because. while he was under house arrest he. started writing and he wrote a kind of. series of treatises that run to more. than 250 pages on Google Docs including. one long one that took the form of a. giant self-justifying Twitter thread.

which he never posted but which is full. of various legal defenses and. justifications for his actions and what. did he say so at one point and I think. this is probably the the best example of. his mindset he says quote I'm broke and. wearing an ankle monitor and one of the. most hated people in the world and the. truth is that I did what I thought was. right you it doesn't really sound like. the words of someone who's contrite no. and and this was definitely part of his. strategy you know he would be a little.

bit kind of self-flagellating and take. some blame but ultimately shift. responsibility onto others as well and. that was a narrative that he was. advancing all the time while he was. under house arrest meeting with. reporters inviting other guests and. really trying to sort of replace the. image that people had in their minds of. him right I remember from our last. episode he spent a lot of time talking. to reporters yeah absolutely I mean he. talked to reporters all the time and. that actually continued during his house. arrest and in fact last summer I took a.

trip of my own to his parents house in. Palo Alto. um kind of a surreal experience they. live in this sort of quiet Suburban. neighborhood but there was a security. guard out front who had to collect my. phone on the way in that was part of his. bail conditions that nobody could bring. a kind of Internet connected device into. the house and you know I walked in the. front door or I think one of his parents. actually opened the door for me and and. met with him so this is pretty. incredible you're going to meet him and.

talk with him in person this man under. indictment whose every move could come. back to haunt him in court. what'd you guys talk about you know we. talked about a lot of things and most of. the meeting was off the Record so. obviously I can't go into all the. details of that but one significant. thing he did which he later made public. is that he shared with me private. writings written by his ex-girlfriend. Caroline Ellison who of course is also a. crucial witness for the prosecution. she and Sam would communicate using.

Google Docs writing long messages that. were sent back and forth and so these. documents were kind of very raw personal. Reflections not just like short emails. or text messages but like pages and. pages of sort of diary-like Reflections. addressed to him and the writings are. just very sad they're the reflections of. somebody who is deeply insecure she. expresses concerns about her own ability. to run a company as successful and big. and important as Alameda she expresses.

all sorts of insecurities about her. relationship with Sam talks about how. difficult it is to work with somebody. that she's recently broken up with how. difficult it is to hear people praising. him all the time it's really a window. into the mind of somebody who is. incredibly unhappy for the you know nine. months to a year leading up to her her. guilty plea so he gives you the private. writings of his girlfriend who's also. someone accused in the case why would he.

do that you know obviously I can't read. his mind and and figure out exactly what. he was intending but one thing we know. about this guy is he's someone who's. constantly trying to shape PR narratives. about himself and about what happened. and I think it's fair to assume that he. saw some sort of benefit from getting. this information out so that is a real. legally risky move for him right it was. certainly very risky I mean the legal. backdrop to this is that twice already. during his house arrest he'd pushed the.

limits of what he was allowed to do. first he tried to contact another. witness in the case sending a message. that basically said hey let's talk and. get on the same page and he'd also used. a virtual private Network to access the. internet a sort of secret way to. navigate the web and these two incidents. were seen by prosecutors as examples of. Sam behaving in a way that was sneaky. and manipulative and seemed as if he was. trying to evade their scrutiny and the. judge basically agreed and said hey.

you've got two strikes here if you cross. me one more time I'm gonna throw you in. jail. and that's exactly what ended up. happening after I got a hold of those. documents that Caroline had written we. immediately decided that they were worth. publishing because they provided a. window into the thought process of. someone who pleaded guilty to a massive. fraud. so we put them out there and they were. sourced anonymously we didn't say where. we'd gotten them but once the story was. published the prosecutors became Furious.

and the defense lawyers immediately. admitted that Sam had been the source. it's not totally clear why but in the. end the judge said this is enough he had. essentially tried to intimidate. Witnesses in the case and he could no. longer remain free oh wow so in August. he traveled from his home in Palo Alto. to court in New York because Bale was. revoked and he was immediately taken to. the Metropolitan Detention Center in. Brooklyn which is this notorious jail. where Federal defendants are held that's.

had all sorts of complaints over the. years you know heating problems Staffing. shortages you name it and he's had a. hard time he's a vegan and his lawyers. complained in court that he hasn't been. able to eat vegan food he's essentially. been surviving on bread water and peanut. butter and he also you know more. importantly sort of struggled to get. medication that he needed did and he's. also had a very hard time accessing. documents that are important to the case. this is a really complicated White. Collar case with millions of pages of.

evidence for him to review ahead of the. trial and his lawyers have said you know. the laptop that he was given couldn't. connect to the internet its battery life. wasn't long enough and he's effectively. had no ability to prepare for trial. so David listening to this whole Saga it. really seems like this is the moment. when things are starting to become real. for him like he was just this Wonder Boy. Who seemingly was able to get away with. everything he spent his bail at his. parents very nice California house even.

talked to reporters but when his bail is. taken away and he goes to this Brooklyn. jail this would seem to be the time that. reality does start to sink in jail is. not a nice place to be and for the first. time he's really not in control. yeah I I think that's fair. going to jail in New York is one of the. most serious tastes of a major. consequence that that Sam bankman freed. has faced as this is all played out and.

the thing is it could be about to get. even worse for him. foreign. we'll be right back. so David Sam bankman freed is facing. these really serious charges. his trial is about to begin. how are prosecutors in this case gonna. go about arguing that he intentionally. defrauded people that this was in fact a.

conspiracy almost from the moment FTX. collapsed the prosecutors started. collecting huge quantities of evidence. they issued subpoenas to people who had. worked for and with the company they. gathered emails text messages. spreadsheets with transaction data slack. exchanges that had happened within the. company all sort of illustrating how FTX. and Alameda operated and they ended up. with a trove of more than 6 million. documents that will help them build. their case and that's on top of the.

testimony that they've got from those. three cooperating Witnesses who were. really the three most powerful people in. Sam's Empire Underneath Him. and what's an example of something that. they have actually found so remember. that prosecutors have alleged in the. charges that this money from FTX went. out a kind of back door to Alameda. prosecutors actually say they found the. snippet of computer code that allowed. this to happen it was literally. programmed into the system and the.

prosecutors say that bit of code like a. chain of numbers that wouldn't mean. anything to an average person that. that's how this crime was committed so. basically the computer of one secretly. talks to the computer of the other and. that's how the money went through yeah. absolutely and this is crucial because. prosecutors have presented it as. evidence of intent that had to be. programmed in deliberately someone had. to make a decision let's put this piece. of information in the code. so the back door appears to be proof.

that it wasn't just an accounting error. that money flowed from FDX to Alameda by. Design and it's not the only useful. piece of evidence they've got they've. got contemporaneous material they have. notes that Caroline took during meetings. with Sam and probably most important. they have a recording that somebody made. of a company-wide meeting an Alameda. staff meeting that Caroline held just as. FTX and Alameda were collapsing it where.

she explained to her employees this is. what's happening a few months ago we had. this massive hole in our accounts we. needed to fill it and Sam and I and a. couple of other people authorized the. decision to fill that hole using. customer funds and this recording sounds. like an admission of guilt and it's. pretty clearly going to be a powerful. bit of evidence in the courtroom wow I. mean it sounds kind of like a Smoking. Gun. yeah definitely the prosecutors have. made a big deal out of it they've posted.

the whole transcript of the recording in. court filings and I think everyone who's. followed the case closely is looking. forward to actually hearing the thing. okay so that's the prosecutions case. what defense will Sam bankman freed make. it's not entirely clear yet but based on. what his lawyers have indicated there. are a few possibilities. one thing that Sam has said all along is. that this was just a massive screw-up. that there was an accounting mix-up at. FTX he never had any idea that Alameda.

had taken this much money and there was. no conspiracy at all it was just a. mistake another thing that Sam's been. saying though is that it was everyone. else's fault in particular he's tried to. shift a lot of blame to Caroline the CEO. of Alameda he's claimed he really didn't. have much visibility into what was going. on on that side of the business and that. frankly Caroline wasn't that good at. risk management at like making sure. Alameda wasn't making dangerous bets. that could cost both companies money.

and he's also tried to blame lawyers. that worked with FTX and Alameda over. the years he said you know look. everything that we did at this company. went through lawyers I was constantly. getting authorization for basic business. decisions and how could it be a crime if. these legal professionals signed off and. what he said specifically is that two. law firms that worked closely with FTX. one's called Sullivan and Cromwell the. others Fenwick and West that those firms.

advised him super closely and signed off. on a lot of what he did. and interestingly Sullivan and Cromwell. is actually still very involved in this. whole case after FTX collapsed they were. appointed to take over the bankruptcy. essentially do the work of trying to. recover whatever funds could be. recovered and redistribute them to. creditors and it's been incredibly. profitable for them they've made. something like a hundred million dollars. and one thing that Sam has argued over. and over again is that this whole notion.

that he was at the Forefront of a. conspiracy is something that's partially. concocted by Sullivan and Cromwell he's. complained that you know these lawyers. are just setting him up as the Fall Guy. maybe to protect themselves to Shield. themselves from any kind of legal. responsibility are any of these defenses. expected to work. I mean you never know a jury's always a. wild card but most legal experts think. that he's very likely to lose this case. for a lot of Reason partly it's those. three Cooperators partly it's the fact.

that he's been sitting in jail as the. case approaches but there is one other. wild card here which is that Sam might. testify that's very unusual in these. types of cases defense lawyers almost. always advise against it then again in a. case like this it could be sort of a. useful Hail Mary Type move by the. defense you know whenever a defendant. testifies it really changes the tone of. the whole trial suddenly you know the. jury becomes fixated on is this guy. credible do I believe what he's saying.

and if they don't that's a problem for. him if they don't he's in big trouble. but he might be banking on the fact that. he has successfully Charmed huge numbers. of people over the years and might think. that he can do it again and you know. we'll find out. so David's stepping back for a minute. here you know this alleged scam doesn't. seem like it really had that much to do. with crypto itself like it's not about. the blockchain right it's just kind of. old-fashioned plain vanilla stealing.

people's money and lying about it that's. what prosecutors are saying yeah and on. one hand that's true you don't have to. understand the intricacies of Bitcoin to. understand what happened here money that. belonged to one person was taken and. used for something else. but I do think that simplifies the. situation a little bit in a lot of ways. this case is all about crypto it's about. a set of behaviors that was enabled. because of the freewheeling lack of.

Regulation that has defined crypto for. the last few years FTX was a company. that was set up in the Bahamas partly. because it wanted to avoid stricter. rules that other governments have it was. enabled by all sorts of fancy. experimental Financial engineering. that's really proliferated in the world. of crypto and the consequences from it. have had a dramatic effect on the crypto. industry the market crashed prices have. gone down other crypto companies that.

were tied to FTX in all sorts of ways. have faced major issues some of them. have even filed for bankruptcy and in. response to this whole Fiasco the U.S. government including some politicians. who were taking money from Sam bankman. freed not that long ago has conducted a. major Crackdown on the industry the. Securities and Exchange Commission has. sued a couple big companies that were. ftx's major Rivals and it's much much. harder to operate in the U.S as a crypto. company now than it was before FTX.

imploded. it's funny you know we started this. conversation talking about how Sam. bankman freed wanted to clean up the. crypto industry and from what you've. just described he has just not in the. way that he might have expected because. FTX and its spectacular fall was really. the Catalyst in a lot of ways that is. driving the change the industry is. experiencing right now so from all of. the conversations you've had with people. in the crypto World David what are they.

saying to you about the trial what are. they thinking right now. so a lot of people in crypto are not. happy that we're even talking about this. they want us to forget about Sam bankman. freed and just to move on I was actually. at a dinner a few weeks ago with a bunch. of crypto guys who when I brought up Sam. Beekman freed said oh we haven't thought. about it in months you know we've. totally moved on from this but there are. other people in the industry who are. watching this very closely and really. want to see Sam Beekman freed convicted. why I mean he's the Paragon of crypto.

why would they want him to be put in. jail I mean doesn't that say something. bad about them. I think it's a combination of things. there's some genuine desire for. vengeance like a real bloodlust among. the crypto boosters who trusted this guy. and then saw him basically taint the. reputation of their entire industry. but I think there's also a sense among. some of these people that maybe if he. gets convicted that will kind of close. this chapter and offer this kind of.

moment of catharsis so that the industry. can can really move on. I mean isn't that a little delusional I. mean to think that people are just gonna. forget everything that happened. oh I think it's completely delusional. for one thing this trial is going to put. a huge Spotlight on the crypto industry. and on its worst behaviors for the next. six weeks and that's going to be really. embarrassing.

is over regardless of what happens in. the courtroom they're going to be. Netflix documentaries and movies made. about this it's just going to continue. to occupy an important place in the. public imagination. no matter what happens the story of FTX. is gonna linger for years and years and. it's going to be a memory of how a guy. who presented himself as crypto savior. turned out to be a fraud and for a lot. of people it's going to be a sign that. he was leading the industry that's full. of frauds.

foreign. [Music]. thanks for having me. [Music]. we'll be right back. here's what else you should know today. on Monday representative Matt Gates of.

Florida moved to oust Speaker of the. House Kevin McCarthy from his post in an. act of Vengeance that posed the clearest. threat yet to McCarthy's tenure. the move was a rare form of political. punishment and if it succeeds could. plunge the house into chaos it came just. days after McCarthy moved to avert a. government shutdown by relying on. Democratic votes to push through a. stopgap spending bill.

he did it over the objection of a block. of hardliners in his own party including. Gates. under house rules McCarthy will need to. address the motion within two. legislative days. and former president Donald Trump spent. the day in court on Monday for the start. of a weeks-long Civil Trial in a lawsuit. that could cost him control of Trump. Tower and other prized New York. properties.

the suit filed by New York attorney. general Leticia James charges that Trump. committed fraud by inflating the value. of his assets. James seeks a financial penalty in the. trial which is before a judge not a jury. will determine the size of that James. also seeks to stop Trump from doing. business in New York state the. properties are currently in legal limbo. pending the outcome of the trial. on his way into the courtroom on Monday.

Trump said James had charged him because. he was performing so well in the polls. [Music]. today's episode was produced by Will. Reed Ricky novetsky Michael Simon. Johnson and Eric kromke it was edited by. Liz o'balen with help from Michael. Benoit contains original music by Marian. Lozano and Dan Powell and was engineered. by Alyssa Moxley our theme music is by.

Jim brunberg and Ben lansberg of. wonderly. [Music]. [Music]. that's it for the daily I'm Sabrina. tavernisi see you tomorrow. [Music].