Pushkin. Hey there, it's Michael Lewis. Before we get to this episode, I want to let you know that you can listen to each episode of Judging Sam The Trial of Sam Bankman Freed ad free by becoming a Pushkin Plus subscriber, and with your subscription you'll also get exclusive access to ad free and early bingeable podcasts like Paul McCartney's new podcast, McCartney A Life and Lyrics, Malcolm Gladwell's revisionist history, The Happiness Lab from Doctor Lorie Santos, and
tons of other top shows from Pushkin. Sign up an Apple Podcasts or at Pushkin, dot fm, Slash Plus. Welcome to Judging Sam The Trial of Sam Bankman Freed. I'm Michael Lewis, and we're recording this on October seventeenth today on the show Matt Levine. Matt's a business columnist at Bloomberg News, where he writes the terrific newsletter Money Stuff. He's covered SPF and FTX closely, and he knows more about how crypto markets work than just about anybody else.
I wanted to talk to him about a lot of things, among them how his early conversations with Sam might have foreshadowed the FTX collapsed and where are the eight billion dollars this whole trial is about actually went And I also wanted to talk to him about how is reading of the portrait I painted of Sam in my book has changed now that Sam's on trial. I have a question to you. I don't want to forget you were bewildered by the response to the book, like it was
just weird the initial response to the book. Am I misquoting you?
I don't know, Like the days lying after the trial, I think there was like a desire for people to either be pro or anti SPF. And to be clear, everyone in the world except for like his parents, is anti SPF, and so it was sort of convenient for you to be the pro SPF guy, even if he were being like, yeah, I think this guy's innocently like, is not that necessary to get mad at that, Like it's okay, everyone thinks he guilty, but people were about it. You for like kind of defending him.
But you said something interesting to me when I sent you this note asking you to come on. You said that when you finished the book, just on the basis of the facts in the book, you thought, I don't want to put words in your mouth, but it actually sort of like convinced you even more of his guilt, maybe slightly changed the way you felt about what he'd done.
I feel like there have been two narratives of this, which are one his narrative, which is, I like made a series of understandable mistakes and lost all that money, and then everyone else's narrative, which is he's an evil genius who stole all this money to spend on political donations and Bahama's real estate and like, you know, cackled gleefully as he stole the money. And neither of those
is that compelling. And like between those two his like, ah, I'm just an innocent guy, you know, had had some legs. But I think that like what came clear came clear to me in the book, and like the somethings that I should have known this already. He's sort of a classic scammer figure in the sense of, like the core thing he did was take ridiculous risks with his investors, with his customers money while saying and probably believing himself
that he wasn't right. Like part of the problem is that the guy loves taking risks, but part of the problem is that like he can sort of like sit down and look at you in the eye and say, oh, no, I'm not taking risk. This was all totally safe and like kind of believe it himself. And I think that's like the what I got from the book is like a real portrait of a guy who is like that, who is a wild risk taker who sort of doesn't
perceive it that way. And like that's like a really classic profile of someone doing a financial fraud, right, Like that's that's kind of how everyone does it. And so to me, reading the book like like sort of made sense of what happened in a way that is like less bad than like the worst story people tell about Sam bekmunfreed, but also in a way that is like fully sufficient to convict him of fraud, like and like and is in fact the normal way forra it happens.
What was the emotional takeaway when you when you look at what's happening now and you look at the likely that he's going to go to jail for forty years or whatever, how do you feel about it?
Look, I feel bad for everyone to whom bad things happen, which includes you know, the people who lost money on ft X and also him and his parents. You know, like I think that, don't you know, it's it's sad for anyone to go to prison. But that said, I mean like it did like make like a little bit make me a share in like the outrage that people have at him, because like, you really can't do that.
You're not supposed to do that. You know. I've talked to him, you know, not like this week, but in the past, and I think that he he does like really coherently and convincingly present this picture of like, oh no, it all made sense. And I think that like having the fuller portrait of like what he thought all made sense makes me kind of mad and like, you know,
it didn't make sense. You just were you know, you just you had like a blind spot in your mind about like the risks you were taking and like and like your own sort of status is a charmed person who would definitely get all the money back and it was no problem. I mean, the story in your book that is so damning, I think is the thing about the very early days of Alameda where they like, thank he just placed some money, and he's like, oh, it's like an eighty percent chance we'll get it back. It's
no problem. We don't have to tell you about it. And then like they get it back and he's like, ah see, I'm always right, and like that's like that's like the worst possible lesson for him to learn, right, Like had like had they never gotten the money back, and like, had he been fired, that would have been it. He would be like, go be a trader at Jane Street orriever, right, Like he'd been fine, right, But instead
he's like, I can never mess up. And then he lost like eight billion dollars instead of four million dollars, and now he's like gonna go to job forever.
So I think that's exactly right. When people ask me what chapter to if they're going to excerpt a chapter or read a chapter, you get a feel I say that chapter because that's the foreshadowing of what's going to happen. And what also happened in that moment was, you know, he had this pool of twenty effective altrus who were working with him. Half of them decide he's like a criminal or are so catastrophically sloppy that he might as
well be a criminal. But the half who stay in, you know, including Caroline and his shot and Gary, they become convinced to the narrative that like Sam's right all the time, that becomes the new rule. So that that creates kind of the psychology of FTX that it's it's sort of like that Sam is beyond questioning, and that obviously that leads to what it leads to. Anyway, you mentioned, I want to talk about your interactions with Sam bankman Free for a bit. One of your actual interactions with
Sam Bcmanfree has become evidence in the trial. Can you explain this interaction and can you explain how the prosecutors have used it.
So I've done two Bloomberg podcasts with him, and the first of them it was like maybe a little early in his celebrity. I was twenty twenty one, I want to say, and we just like we just have like a very geeky conversation about crypto market structure, just like how do these exchanges work? And I didn't really know anything, but like I come from a sort of you know, traditional finance equity market structure background, so we could have it.
And you know he does too, right, he came from Chan Street, so we could have an interesting conversation about like, you know, pre funding trades on exchanges, and like, you know, one thing we talked about a lot was there had been this epidemic of crypto exchanges blowing up, and like one thing that FCX was promising is we have a
better sort of risk management system. And he, in his role as sort of like an elder statesman of crypto, like walked through all the bad ways that all the other exchanges did it, which is basically like they didn't have any system. They like blew people out of trades sloppily and then lost a lot of money. They didn't have any sort of insurance fund, and so they had to like basically haircut winning traders in order to you know, make up for losses by losing traders. And he was like,
and we have a different system. We have an intelligence system for blowing people out. We don't just like put in market orders to sell stuff on the exchange. We like have liquidity providers who like step in, and we have an insurance fund too, but we never really had
to draw on that. And so the interaction that gets played at the trial is him saying we've never really essentially says, we've never really had losses in a day, like we've always been able to stop losing trades before they cause any material loss to FTX, And what prosecutors say is that that's not true, and they had a big loss early on that sort of like ate away
at their entire insurance fund. This is in the context of like also Gary Wan testifying that the insurance fund was essentially a fake and that they like displayed on their web page a fake number that was generated by a random number generator to say, this is how much
money we have backing FTX trades. So the thing that he told me about like ftx's risk management was in the prosecution story essentially false, and it's like, you know, that's like sort of the heart of the fraud is that he was telling everyone not only are we like not stealing the money, but we're like doing an extra good job of risk management to make sure that your money doesn't get lost. And in fact, it turns out they were doing kind of an extra bad job.
You had this other interaction with it than that. It gets repeated over and over and I think slightly misconstrued, but maybe I'm wrong. Like our listeners if they if they're loitering in the vicinity of this subject for very long? Are going to run across this thing that you did with him all night? It must have been the second podcast interview you did, Yeah, exactly, and it was on
the odd Lots podcast, the Bloomberg on Lots podcast. Can you explain what you were talking about and what he said and how it's been misconstrued?
We had him on odd loads repeatedly because he would just sort of like talk about whatever you wanted to in like the crypto world, in a way that seemed very like open and candidate and not always in his best interests. Yes, in hindsight, it was not as open and candidate as I thought, but it was even more not in his best interest to me. I don't remember what the topic of this. It was just like we were like, hey, let's like, you know, talk about crypto stuff.
And so one thing that was on my mind at the time was like a corner of decentralized finance called yield farming, which is basically I mean, you can read his explanation because it's famous now, but I was like, explain to me yield farming, and he was like, well, it's like you have a box and you have you put some token, you get some money in the box. Then you're just some tokens, and you say the box is like the greatest thing in the world and it's
going to replace all banks. And then you sell the tokens for a lot of money and you can put more money in the box, and then like the tokens go up and people are like, oh, I should buy some more of this, and like that's the sort of explanation of yield farming. And if you're like, that doesn't make any sense, like that's what I said, and that's
what everyone said. I said to him something like you just said I'm in the ponzi business and it's pretty good, and he was like, yeah, I kind of what I think that, Like people misinterpreted from that is like, if you take that out of context, it sounds like I'm saying to him, your business is a ponzi And he's like, yeah, but that's not true at all. What he was saying is that a lot of this, like yield farming, like token stuff in crypto in like decentralized finance, is pretty
ponzi ish. Yeah, And when I said it sounds like you're in the ponzi business, I just meant like he was, you know, running in exchange where you could train those tokens. But I think that at the time, when people listen to this, when people who like are involved in crypto listen to this, what they what they took away was Sam Bankman Fried is trash talking his competition, right, Like
his competition in some sense is decentralized finance. Right, Like he runs one of the biggest at the time centralized exchanges. He wants people to trade with him rather than on the blockchain and decentralized finance exchanges, which like at the time seemed like a real competitor to the more traditional financial system that he was kind of imitating at FDx. And so he's saying all that stuff is like Ponzi stuff,
and I'll trade the tokens. But like, I don't, you know, like he was not he was not putting it in its best light. And I think people he wasn't confessing to run now, he wasn't confessing, and he was being very cynical about crypto, right, he was being cynical about narrowly DeFi but more broadly like the philosophy of crypto that made people in crypto mad but it all so like it sort of explains why people like me found him interesting, because he just never seemed like a crypto
true believer. He seemed like a guy from traditional finance who's like, Wow, here's this huge pot of money that I can make. He didn't like he was like, oh, yeah, crypto is gonna change the world. He's like, yeah, it's a box. You put money in the box. It's fine.
So I think that, Like it seemed at the time like he had a sort of like charming and refreshing level of cynicism, but then of course, in hindsight, like not only did he have much more centicism, but also like the trade he described, he ends up by being like, you can put all that you can, like say, this box has like a huge market value, and then you can borrow against it, and then when you borrow against it, you never have to pay the money back, and like
when the market value collapses, you have all the money and someone else has left with the losses. And he was like describing like a hypothetical trade and decentralized finance. But of course he was also like precisely describing what FTX and olimedia ended up doing, and so it is in that sense, you know it was foreshadowing.
We'll be right back. Welcome back to judging Sam the trial of Sam Bankman freed. So you've taken I think more of an interest in crypto finance as serious than anybody in the world. You've described it better than anybody in the world. You've written really well about crypto. You've written sometimes kind of cynically about crypto. I'm curious when you make crypto people angry with what you write. Are they different from other groups who get angry with what
you write. Is there a different kind of tone around crypto than there is around other parts of finance.
It's funny. My go to example for years of people who get angriest about what I read are the people who are mad about high frequency training. That's just true. So that's like kind of your fault. It is kind of Seriously, people get really mad at me about like
hiratingryto people. I don't know. I mean, like I definitely mute a lot of people on Twitter, right, but like I don't I wouldn't say that, like like contrary to stereotypes, I would not say that I get a lot of like weird or furious reactions When I write cynically about critic I think that, you know, it's a big world and there are a lot of people with different views. But I think that like, broadly speaking, people in crypto
think of me as being fairly generous to them. Like, you know, there's no there's no crypto like mindset, right, Like crypto isn't a thing, right, It's just like a
collection of people, right, And so it is. I think it's I think it's like really true and sociologically interesting that like the beginning of crypto is really oppositional to traditional finance, where like, you know, the openness of the blockchain and storing your money yourself rather than at a bank that's going to use it to make risky bets.
Is like those are the obvious appeals of crypto, and then over time the numbers keep going up, and so all these people flock into speculate and you have people like Sam Bankman Freed who are like, I can make a fortune arbitraging bitcoin prices between you know, Asia and America.
And when those people get into it, they just want to make money, and they come from in many cases, is like in his case, in three hours case, they come from traditional financial firms where the way you make money is like you spot an arbitrage and you lever it up one hundred times, and it just looks exactly like the sort of traditional financial system that blew up in two thousand and eight, except it's unregulated, it's offshore, and you know it's taking money from retail speculators, and
it's like run by twenty eight year olds, and it blows up like as terribly as you could hope for, and like everyone goes to jail. Its shape is very reminiscent of two thousand and eight.
Right, I want to swerve for a second and talk a bit about your career, if that's all right, Can we do that? Sure? I want to know where you come from, Like where'd you grow up and how did you end up getting into finance and then end up writing about finance.
I grew up on my island. I precociously read Liar's Poker as and I was like, this sounds fun. If you had found me at some point, like in high school, I would have been like Alvia, you know, Salid Brothers, Bond Trader or whatever. But then I like got to college and very much swerved and I was a classics
major and I did not take economics. I had friends who took like X ten, the big economics class, and I would like leave the lunch table when they were talking about it was like this is boring, and like there was you know, recruiting senior year when it's like, oh, like, you go work at an investment bank, and I didn't really do it. I graduated with no job. I was like, she got a job, and I was able to use connections to get a job teaching high school Latin for
a year. And I did what everyone in that situation then does, which is I went to law school. And in law school I sort of rediscovered my interest in like, you know, financial markets and mergers and acquisitions and stuff. And so then I became an M and a lawyer. And in two thousand and seven, if you were an M and a lawyer, what you wanted to be was an investment banker. So then I became an investment banker.
And then I did that for a while, and then I really didn't want to do that anymore, so I became a writer on the internet.
So that transition, Why did you decide?
So it's not like liar's poker directly sent me to investment banking, but like it did, like pave the way a little bit, And I know that that's like you regret that or whatever, but you know, it's fine.
Your path resembles my own path, Like I had this hostility the economics department when I was in college and didn't have a job when I graduated and all that. Anyway, it's I'm curious about that transition out of investment banking to writing. Why did you decide you didn't want to be an investment banker anymore.
I started as an investment banker as like an associate in a weird desk where I was like structuring stuff and I was doing interesting stuff involving like math and law and like getting into the guts of things. But then as you get more senior, you know the job is ultimately a sales job, and so I was spending less time, you know, learning and understanding things, and more time getting on planes to give clients updates. So I
was getting worse at it. I was enjoying it less, and I vaguely imagined being a writer, and so like the sort of you know, the lines crossed and it became a good time to leave.
I want to talk to you a bit about there's a there's a part of my book. I almost called you. I called you. It's just just to clear the air here. I thought it was really funny that I was a few months into like hanging around with Sam and I was questioning whether this was the character I wanted to be with. And I thought, I'll call Matt Levine and ask him for advice. You remember this call, I said, I called you, and I said, I said, I said, if you were going to put me with any character
in Crypto, who would it be? And you said, we're not even thinking about Sam Bay and Freed. And it was one of those little things that gave me confidence I was in the right place because I hadn't actually been paying all that much attention to Crypto, and I thought I was in the right place. But I didn't know.
And that's why you're giving me ten percent of the movie though, right, did you.
Get the check yet? We'll be right back, welcome back. I'm still wrestling with this. When I all blew up and all right, there's some pile of money missing, it was a little unclear how big that pile of money missing was it seems to see it still be a little unclear.
It's completely unclear to me. I have no idea, and.
So are you even watching if you've noticed that, Like the bankruptcy people, the number they keep they say they found keeps going up, and the last number was like seven point three billion, and the customer deposits missing was eight point six billion. What I'm wondering is to what extent the money is lost, like lost in a bad trade, and to what extent's lost like, oh, it's in some exchange in South Korea or some bank they didn't pay
attention to. And I was just wondering whether you were one following that doesn't sound like you're following that.
My sense is that there was a lot of money lost on bad trades. I think that, like.
It's unclear what it's unclear what those bad trades were. That's there.
I agree. I think that, like there are interesting theories that Alameda was sort of a lost leader to get people onto FTX, right, there's like a theory that Alameda was sort of regularly losing money on trades, either because it was a market maker that was not doing a very good job of market making and so you would always like get a good trade on FTX because Alameda was always losing money on the other side, or because Alameda was the sort of counterparty for a lot of liquidations,
and so if you got liquid on FTX, because the trade moved against you, Alameda was on buying it, and Alameda was constantly losing money by taking position by catching falling knives. Basically, I think there's like probably some truth to both of those theories, but not that much because I don't think by the end when FTX was huge, I don't think Alameda was a huge percentage of volume.
I think like the shape of those answers is probably like a little bit true, but it's not, like it doesn't really explain where a lot of the money went.
And in addition, if that were true, the prosecutors would have teased us have Caroline.
Yes and no, because I like, to me that story is like that story sounds like a Ponzi scheme, but it's not intuitively obvious that it's a Ponzi scheme. Like I think, like if you heard that story, you're like, oh, like they were they lost money by doing trades that were good for clients, and like that was good, and like they were just on the losing side of trades and that was innocent. Right, It's not that bad a
story intuitively. It's just like when you sort of trace it through, you're like, oh, so it was a Ponzi scheme. They were like giving investors money by taking it from other investors.
Are there any other theories bouncing around? Oh?
I mean, like the standard theory is, like they spend a lot of money on political donations, they spend a
lot of money on real estate. Like part of the answers, they spent five hundred million dollars on a stake in Anthropic that was like a great bet and it's now worth probably billions of dollars, and so like, as like a legal matter, you're not supposed to like take your customer money and bet it on early stage AI startups, but like that might have worked out, right, And like the real estate stuff is like I don't really pretend to understand the Bahamas real estate market, but presumably they
can sell those things for you know, like around what they paid for. Right, So some of the money is not gone in the sense of like flush down the toilet, but it.
Is in the wrong place.
Yeah, it's like it's like a lot of fraudsters like take customer money and buy a mention for themselves and then you can sell the mansion and give them money back. But like it's still not okay.
Yeah, no, I get that. So what questions remain in? What questions are you still asking about this? Like to what extent is your mind not come to rest on the FTX story and you think there are things you still want to know?
I I mean, honestly, the main answer is, I assume that Sam will testify. I think that, like the public perception of him is really down right now for obvious reasons. But I do think that like he like made this work for a while people were buying what he was selling. And I think he was always a good talker, right, And he always like gave you the impression of being quite candid, right, And he always was, you know, sort of like quick witted and like in his weird way personable.
I assume he will testify. I assume he will tell a story that is like internally coherent. I assume that when he's asked even moderately challenging questions, he will have quick and like at least superficially reasonable sounding answers. Right, I'm interested to see like how he frames the story and how compelling it is to me and to everyone else and to a jury. And the other class of assets that we haven't talked about is the Bankercy estate
is trying to restart FTX. They're like, oh, we're gonna, you know, probably rebrand it and start up an exchange again and see what happens. You could imagine the government saying like, you can never restart this again. All this ip has to be thrown into the ocean, never speak of FDIX again. But like they're not doing that. There's on and so I don't I mean, there's some chance that they'll get back more than like a penny, more than the deposits. I don't think they'll do that before
sam sentencing. And I don't think that the you know, the legal system sort of frowns upon like talking about that, because like it feels like like a coin flip, right, it feels like luck. Right, it feels like you did the bad thing and you stole the customer money and you put some of it into these lottery tickets and then you put the rest of it into like private jet. It's for yourself, and like the lottery, your tickets won. But that's not like your that doesn't like go to
your moral guilt. It it's just like a you know, you have to get lucky. But what's interesting is like, you know, after the fact, like Sam was going around trying to save the firm, right, He's trying to find a buyer, and at the point when he was doing that, it was like a little too late, you know, like it was like a little you know, too obvious how badly things had gone and how much rest of the
money was missing. And so I think that like one story that Sam will tell is like if he had only waited twelve hours before signing the bankruptcy papers, he could have saved this whole thing, Right, I don't think that's true, But if it turns out that the thing has positive value, then he probably wouldn't be going to jail, And he certainly wouldn't be going to jail for as
line as he's looking at here. I think that filing for bankruptcy and then getting arrested and then getting the money back is just like a terrible order of operations for him.
That's right in addition to the story, Sam tells on the stand, is there anything else you I'm looking for out of this process? So do you feel like you now more or less know what happened? And not much that comes out is going to cause you to update your understanding.
So I'm always curious, like how many people knew and like, to the extent the number is small, how you could keep it small? And I think that, Like, I feel like I'm kind of getting satisfied with the answers to that, right, Like it does seem like all of the inner circle are testifying saying, yeah, we knew it was fraud, with like Nishad being like I learned late that it.
Was fraud in September and.
Yeah, which is weird because he's sort of integral to some of the coding of the fraud. But there is kind of an explanation for how other people didn't know that, right, which is like some combination of Garrio at.
Most of the code himself in shortand.
Sam was a weird passive aggressive manager. Yeah, nobody knew anything, but it's still weird, right, I mean, it's still weird that the accepted narrative is like five people knew it's it's still puzzling to me, but I think that like for sort of groping towards an answer on it.
Thank you for coming on. I really appreciate the time and see you down the road. All right.
Thanks.
We'll be back in your feed soon with more expert analysis and news from Sam Bangmanfreed's trial. Thanks for listening. Lydia Gencott is our court reporter. Katherine Girardeau and Nisha Venken produced this show. Sophie Crane is our editor. Our music was composed by Matthias Bossi and John Evans of stell Wagons. Symphonet Judging Sam is a production of Pushkin Industries. Got a question or comment for me, There's a website for that atr podcast dot com. That's atr podcast dot com.
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