Bloomberg Audio Studios, podcasts, radio news. You can expect to see a familiar name, or at least a familiar set of initials in your news feed this week. SBF, Sam Bankman freed, will be back in a New York City courtroom where he'll be sentenced. In November, a jury found the disgraced cryptomogul, the former head of the cryptocurrency exchange FTX, guilty of orchestrating one of the largest financial frauds in history.
A jury here in New York has reached a verdict in the Sam one long trial, and the verdict coming out after lessons five hours of delivery.
SBF faces decades in prison after swift guilty verdict.
I covered that month long trial and it was a spectacle. Reporters would line up every day hours before sunrise, hoping to score one of just a few dozen seats in the courtroom. Do you think that people will camp out again?
Yes, and I actually, I mean, I've been wrong before, but I think it'll be worse.
That's Zeke Fox, an investigative reporter here at Bloomberg and someone I bumped into a few times in that pre dawn darkness.
Everyone's rested and there's only one day, and yeah, I don't think it's going to be like a show up at six and you're you get in day.
I made that misjudgment once. Zeke and Max Chafkin, who's a senior reporter at Bloomberg BusinessWeek, have been digging into what was uncovered during the trial and the history of FTX, and their latest story out today up ends a lot of what we think we know about SBF's downfall and how his crypto empire collapsed. Today on the show, the sentencing of Sam Bankman Freed. His defenders argue he was a brilliant entrepreneur who got in over his head into
a few wrong turns. But our reporters uncovered a very different story that financial recklessness and a blatant disregard for the rules may have been the key to bank and Freed's success from the start. I'm David Gerrat, and this is the big take from Bloomberg News. Sam Bankman Freed was once the golden boy of crypto, and with a few friends, he built FTX into a company that was
at one time valued at forty billion dollars. SBF also presided over its implosion he's now thirty two years old, and Thursday he'll learn how much of his life he'll spend behind bars once again. He'll face Judge Lewis Kaplan in a federal courthouse in Lower Manhattan.
The setting, I mean, one thing that is sort of different from what you might see on television is incredibly quiet right there. Like there's not a lot of movement. No one's with a few exceptions are they're not reacting to things. It's almost it's deliberately shorn of emotion and all of the kind of pomp and circumstance that somebody like SBF kind of relied on for a lot of his you know, sort of rise like he was this
media darling. He's like often playing to crowds in various ways or playing to Twitter.
Max Chafkins says it's one reason why Sam Bankman Freed's decision to take the stand in his own defense backfired so spectacularly.
And I think one it was sort of staggering watching him when he testified. He kind of gave the same testimony that he had been doing on like podcasts and interviews, like sort of kind of just like talk and talk and talk talk about all the nuances and complexities.
There were no cameras or recorders allowed in the courtroom, but by the time SBF testified, he'd talked to reporters hundreds and hundreds of times.
So it's a thrill to have him here and get his perspective.
Sam, thank you so much for joining us.
Yeah, thanks for having me as always.
So today you're running ft action.
What does it actually do. It's a back end you know, match engine, risk engine, custody system, say, front end, mobile app, website, API and everything in between.
So that before I feel like you would hear that and you would think, wow, this must be the quirky kind of thinking that's turned him into the richest person under thirty in history.
Someone who seemed so at ease in front of TV cameras and congressional committees was out of his element in court.
And now he's up there accused of fraud and you're like, oh no, this is like a kind of made up story that doesn't even hang together very well.
But for a long time it did. Bankman Freed was this almost mythical figure with a compelling story. He was seen as a genius, one of the youngest self made billionaires, ever and a man on a mission to save the world by getting rich.
So Sam Bangmnfreed, before he got into cryptocurrency, was a trader, very smart, mit educated trader. He worked for Jane Street and was also closely involved with the effect of Altruism movement, which is a charitable sort of extremely online kind of hip with the Kid's charitable thing where it's about trying to essentially trying to give your money in the most
effective way, in a way that benefits people. Sam Mgmunfree brought into like a very specific version of that, which was that earning to give it's called and it's where you try to earn as much money and then give it away.
Max has written the definitive piece on SBF's mom and dad, who are on the faculty at Stanford Law School.
His parents are both famous in different ways. His father is a tax lawyer who's friendly with a lot of business people in Silicon Valley. His mother is an ethicist, a pretty well respected ethicist. And I think that second thing, his mother's identity, really gave some credibility to his whole thing.
With effective altruism. It was like there were pieces written, you know, serious pieces that essentially said, you got to believe this guy because of who his parents are, which now when you say it in retrospect, seems kind of crazy, but I mean it's kind of like an example of the way that privilege protects people. I mean, he was a very, very privileged guy and he used it to his advantage.
SBF basically grew up on the Stanford campus, very familiar with the unique culture of Silicon Valley, and he looked the part like he.
Had this kind of crazy curly hair, he wore T shirts and these like really like baggy saggy shorts, and these like old running shoes, and like it was all a part of this presentation which suggested, I think to a lot of people, especially a lot of very sophisticated investors, who in one way or another have internalized a lot of stereotypes from Silicon Valley about like what a brilliant guy looks like that this was another Mark Zuckerberg.
He seemed above it all, you know, and that really impressed the venture capitalists who backed FTX at this big valuation. I mean, famously, he would play video games during interviews or important pitches, and when people noticed this, they were only more impressed They're like, Wow, this is a guy who he really doesn't need our money. He's playing League of Legends. Well, he pitches us on investing out a forty billion dollar valuation, Let's give him an even bigger check.
SBF presented himself as someone who wasn't concerned with appearances or with impressing people.
He had this image that he was kind of the responsible one in crypto, the one who was advocating for sensible regulations that would tame the market and make it safe for investors. And he became like the face of crypto.
And FTX became one of crypto's flagship companies in exchange where anybody could buy and sell bitcoin and other cryptocurrencies.
So, I mean, if you think of FTX, like E trade, customer might send in one thousand dollars, they buy a share of Apple the opener E trade app, they see that they have one share of Apple. It's just something that you don't really question. There's the same with FTX and you the customers sent in money by bitcoin or whatever, and they'd see it when it opened the app.
FTX promised it would keep customers money safe, but Bankman Freed and his colleagues were taking that money unbeknownst to customers, and they were using it to buy luxury real estate and to make big speculative investments. And when that came to light, there was basically a bank run. FTX. Customers tried to take out what they had on the site.
There was a rush of customers wanted to withdraw their money, and what they found was it wasn't there. There was an eight billion dollar hole.
Investors panicked, crypto prices collapsed, FTX went bankrupt, and then bankman Freed was arrested. He was convicted less than a year later, and right after the verdict was delivered, US Attorney Damian Williams stood outside the courthouse and told reporters the case was designed to send a message. It's a warning this case to every single fraudster out.
There who thinks that they're untouchable, or that their crimes are too complex for us to catch, whether they're too powerful for us to prosecute, or that they could try to talk their way out of it. When they get caught, those folks should think again and cut it out. And if they don't, I promise we'll have enough handcuffs for all of them.
Sam Bankman freed could spend the rest of his life in prison, and his fate rests in the hands of Judge Lewis Kaplan, who will decide on a sentence based on his understanding of the events that led to ftx's collapse. After the break, what Max and Zeke have discovered, and the real story behind SBF's downfall. Ever since Sam bankman Fried was found guilty, a narrative has emerged that SBF was a bad apple, that his decision it's tanked a multi billion dollar company.
Naturally, people are comparing Sam BigMan Fried to other famous fraudsters like Elizabeth Holmes or Bernie Madoff, and they're saying, hey, look at FTX. I mean, the app worked, it was kind of popular. Therefore, this isn't like a fake blood testing machine. There was something real there.
Which is what journalist Michael Lewis said. He believes he wrote a biography of SBF, and it's a conclusion. You can hear him emphasizing in response to a question on CBS News's Sixty Minutes, what's your response to someone who hears us and says it's a.
Fun story and it's crypto.
In the Bahamas.
But this is the oldest architecture.
Of a financial collapse that's been going on for centuries.
This isn't a Ponzi scheme. Like when you think of a Ponzi scheme, I don't know, Bernie Madoff. The problem is there's no real business there. The dollar coming in is being used to pay the dollar going out. And in this case, they actually had a great real business. If no one had ever cast a spurs on the business, if there hadn't been a run on customer deposits, they still be sitting there making tons of money.
Max and Zeke say that's just not true. After pouring over thousands of pages of court documents and interviewing insiders, they say the narrative of a good business gone bad doesn't square with what they uncovered.
I think what the record shows is that, in fact, this app would not have ever gotten to this level without the fraud from the start. It was bolstered by this misuse of the customer funds and by his willingness to lie to banks, to venture capitalists, to customers, to congress.
The thing that's funny about this is he's supposed to be this like ridiculously rich guy and he's splashing money. But when you kind of scratch below that he had money, he had cash flow of problems, like almost from before the beginning, right. The only way he was able to get this money to invest. He had a lot of friends on Wall Street, but the money didn't come from them.
Mostly it came from effective out Twist and they charged him, you know, insanely high interest rates page yeah, forty three percent. Like he's he's having to pay these like yousurius? Is that a word? You surius?
Uh?
You know interest rates? You know, this is not like nothing about this screams good business. And I think one of the reasons, not just because Michael Lewis is a famous journalist and a great writer that this has taken on, but also because the crypto industry, which is a you know, multi billion dollar industry. There are lots of other people who are very invested in this, in not not an FTX, but in the idea that this is a good business.
Very much wants to believe that. Very much wants to believe the story that Sam Bankman Freed was telling on the way to committing this massive front.
Like there was nothing fundamentally wrong with FTX, there's nothing fundamentally wrong with this idea that a crypto hedge fund could make billions of dollars, Like, actually, Sam was this bad apple who kind of inexplicably torpedoed the whole thing by stealing the customer money. But I think the truth is really that if he wasn't cheating from the beginning, he never would have gotten there.
Zeke and Max say Bankman Freed used FTX as a piggybank. In twenty twenty one, FTX faced a one billion dollar loss after a trader exploited a bug in its software. A loss of that size could have been devastating to FTX, but Bankman Freed used his hedge fund to make it disappear. This chapter of SBF's life could end in one of
a few ways. The judge could side with Bankman Fried's lawyers and give him a pretty short prison sentence that you could go with what the prosecution suggests, that's forty or fifty years, or Judge Kaplan could sentence SBF to decades more.
There's a big leeway in the prosecution memo. They essentially say that he's very young, and although we want to make sure that he doesn't become a recidivist, doesn't like come out of prison and start another crypto company. He needs to be basically in prison during his working the rest of his career, but that when he's an elderly person he can get out. That's what the prosecution is asking for. Yeah, his lawyers are essentially saying, he's such
a good guy, look at his charitable giving. I mentioned the effect of altruism. You know, he's got his whole life ahead of him. That's why you know five or six years would be more appropriate.
It's up to Judge Lewis Caplan. He's been a federal judge since the early nineteen nineties, and Caplin presided over SBF's trial, during which bankmin Freed tried his patience over and over again. Let me ask you first just about the role that Judge Lewis Kaplan is going to play in all of this. It's his decision. Ultimately. I think you as eyewitnessed over the course if yes, the trial, but the pre trial proceedings a frosty dre I say,
skeptical outlook that the judge had toward Sam bagmanfree. There were all of these missteps that made throughout the course of this.
I mean even before the trial began, he had Sam sent to prison. Sam had been on house arrested his parents house, and then just kept violating the rules of this house arrest. Among other things, he used a VPN to watch the Super Bowl, and that's what he said.
Yes, Judge very skeptical of this. That's argument. Yeah, the defense is holding out hope the judge will be sympathetic to a new argument tied to a pretty significant development, something unexpected that's come up in ftx's bankruptcy proceedings. It turns out many FTX customers may get their money back, and that's because bankruptcy lawyers have been very successful clawing back assets and also some of the investments SBF made have done pretty well.
And Sam's lawyers are arguing, well, in that case, this guy should not be sentenced like he was the architect of an eight billion dollar fraud, and they're asking for a six and a half year sentence.
The defense is arguing, if customers are likely to get their money back, who did SBF's actions really hurt. They're making the case that a harsh sentence isn't justified.
And this question of how much money was lost really is critical because the sentence and guidelines depend on the amount of the fraud, and the prosecution cited a number of other fraudsters and the sentences they got and noted how much money was lost in those frauds to say, well, in this case, we think even longer sentence would be appropriate.
But what Zeke and Max's reporting concludes and what prosecutors have argued in court is that's just not how this works.
The weird thing is that just because the money has been found now, it doesn't mean that the fraud didn't happen.
And the defense had actually tried to introduce this argument during the trial, and the judge had ruled before the trial he didn't think that that was relevant, and he actually had sort of a biting put down of this argument, and he told sam slawyers trying to say that the money has now been found, it would be like if you robbed Fort Knox, you went and bought a lot of lottery tickets, you hit the lotto, and then you said it meant that you shouldn't be found guilty of,
you know, breaking into the fort and stealing the gold bars. So now they're trying that argument again maybe it's a maybe the judge will find it more relevant at sentencing, but he seemed pretty skeptical of it before.
There were people then who thought that the collapse of FTX and Sam Bankman Freed's conviction could spell the end of crypto, But today the world of bitcoin is booming again.
I honestly don't think it makes any difference to what's happening in crypto, because what is going on in the in the crypto industry, it is good times are happening, you know, And it's not just that the prices are going up. You have industry players, you know, going on TV and writing huge checks to you, members of Congress and political candidates, all trying to essentially make this industry less regulated than the one that allowed for you know, crimes.
It's kind of wild how successful the industry has been at sort of cutting itself off from from the bad actors. And that's their argument, right, Their argument is that, hey, we've gotten the bad actors out. This is you know, now we're ready to build strength on strength or whatever, and it's clean and like giddy up.
Prosecutors said they wanted this case to send a message. The length of the sentence the judge imposes will determine how powerful it'll be. But as Max said, many in the crypto industry have moved on Bitcoin is back trading your record highs, and it's unclear how much that message will resonate. What is clear is that the three of us, Max, Zeke, and I have an early bedtime before we go back to the courthouse one more time. This is the Big Take from Bloomberg News. I'm David Gera. This episode was
produced by David Fox. It was edited by Stacy Vanick Smith and Mark Million. It was mixed by Ben O'Brien. It was fact checked by Naomi oung. Our senior producers are Naomi Shaven and Elizabeth Ponso. Nicole Beamster Gore is our executive producer. Sage Bauman is our head of Podcasts. Thanks for listening. Please follow and review The Big Take wherever you listen to podcasts. It helps new listeners find the show. We'll be back tomorrow.