This Week in Crypto: SBF Arrested

Freed is now in a correctional facility in the Bahamas after his request for bail was denied by a judge. We said in that episode just a few days ago that the last couple of weeks have felt like thirty years. This one week has felt like a hundred. Here to recap some of the major events, including and most of portently, of course, what happened when Sam bang when Freed was

arrested in the Bahamas. Are my colleagues, Anna arera Less than two months ago, SPF was hailed as the next JP Morgan and you wouldn't think anything would go wrong and Miss re Lenna a gulf of polo. Part of the reason why he was denied bail was because people were scared that he would flee Anna. Mr re Lena, thank you for joining me on what has been a week of no sleep for me at least for me at least, Mr Lenna, I'm gonna start with you. Tell our folks who you are, what you're up to, and

why you haven't been sleeping this week. My name is Mr Lena and gulf of Ulu. I am the team leader for the legal news team at Bloomberg. I have been covering crypto for a while now, and this week I have not been sleeping because it appears to be the week where we essentially god perhaps when like the most important arrests in like crypto history play out after experiencing the most dramatic collapse of one of the biggest

crypto companies over the past months. So this week really sort of brought everything we've been seeing the past month like front and center. You. I'm tired just listening to you say that Sam bankmun Freed went from appearing on stages at conferences including the Bloomberg Crypto Summit, and you know, being fetted by various lawmakers in the US and in the Bahamas to being literally under arrest Mr Lena, How

did we get here? I mean, the bankruptcy of f TX occur exactly a month ago before this week, And I want to start by what we were experiencing last week, which I think is very indicative of how we got to where we are today. Last week we saw several meetings play out in the Manhattan Prosecutor's office where people from FTX bankruptcy teams, including the newly appointed CEO, lawyers for the company, as well as Manhattan prosecutors, were meeting inside the court. We didn't know why, but we knew

they were meeting. Later, we found out around Friday that those meetings were really to discuss possible charges and look into what the possible charges they could bring against same bankman freed for the collapse might be. We thought this was going to take a while to figure out, years, years. I mean really, the Monday's arrest and the following indictment on Tuesday was just brought in spectacular speed for the d o J. I mean, I have some examples of

how long it took to prosecute older cases. Let's talk about Enron, which happened back in two thousand one. It took two years for the prosecutors to build a is against the CEO, even most recently our cages Bill Hoong, that took over a year to build a case. Again, so when you think about the fact that it took a month for these prosecutors to pull a case together against Sa Makman Freed and indict him on eight charges,

I mean that was out of nowhere. But like at the same time, the speed at which these happened kind of makes sense if you think about the fact that same bankman Free is currently in another country that has an extradition treaty with the United States, the Bahamas, in order to get him to the United States. It's a complicated process, and the first step to that process is US officials need to present an official indictment to behaving authorities.

That is what gets the extradition process started, which could take up to years to complete. And so really here I think the speed was partially done so that they can start that process immediately, really just bring charges against him that we're basic in their nature. The sdn Y press conference that we saw happened this week was clear

and that the investigation is still ongoing. So if we were to expect more charges against Bankman Freed, that wouldn't be out of the question, and so really speed here was to get extradition process started. We expect more charges to potentially come about later as prosecutors dig deeper. They really truly were very clear about the fact that they are not done. I mean, there's two things that are

playing out here. First of all, Damon Williams, who is essentially the new U S District Attorney in New York City, has clearly said since he started that crypto is a priority for him in his office, and so of course it makes sense for them to basically jump in and capitalize on a case that's created so much online cry. I mean, the fact that so many people were questioning how Sam Bankman Freed was still free after this collapse

and so many allegations that came against him. Really, I think most prosecutors to speed up the process so that online cry sort of capitalizing on that sentiment, I mean, I think helps the st N wise message be louder, and I think they want that right now. I know one of the things that we've both had to cover over the past month or so, is bank when Freed's media tour, is it the done thing? For someone whose company has just you know, filed for bankruptcy to be

on a like a self flagellation slash apology slash. I don't have any recollection tour, No, absolutely not. It's not common. It is common for crypto to have very senior people just lead their own comms on Twitter essentially, but it is not common for someone who's been accused of so many different things to go and say sorry, right yeah, um,

I mean, I'm deeply sorry about what happened. Part of it is if you say sorry, then someone could ask you what are you saying sorry for if you didn't do anything wrong, right, Like, if you have to defend yourself, then it doesn't excuse Saying sorry doesn't doesn't really help. And when with any kind of scandal that has a legal component, you don't really see the main person going on the TV and doing interviews right right straight after, like even before they even appear in any court. Right.

It was a sort of unusual tactic, and he admitted himself at several points that his lawyers would have advised against it, so it was quite surprising. And then after a while, I guess it became a bit tired to like because he was just saying sorry many times. Whatever happened, why ever happened. I had a duty, clearly I do a good job of that. Really I made a lot of mistakes. Are things I would give anything to be

able to do over again. Um I didn't. And you know, it's it was hard to see what the point was. I don't know whether you know it was kind of to portray himself in a certain way like I obviously I don't want to expect it because who knows. But it's definitely not not common for someone if you think of all the biggest financial scandals you know, think of

like Librar recently. He didn't see the people there, the CEOs of the companies, or even if a company a big bank gets you know, a big fine for money laundering, you don't have the ceo go and do an interview thing. You know, this is what we did. I'm really sorry we we left up. That was kind of surprising for sure, And just to not coin a phrase, but to quote

one I censored. Left up was going to be the first line of the testimony that bank when Freed was due to deliver on Tuesday before he was arrested Monday, nights. But Mr Lena, I want to go back to something that you said about like the speed of this and that it feels like it's happening in Internet time, which is you know, accelerated in ways that are probably bad for all of us. The whole thing about not just crypto, but the ascent of FTX has really felt incredibly fast.

Right that they go from here's a bunch of folks who left Jane Streets and are taking interesting risks and doing stuff with you know, japan based arbitrage to this is showing up on Capitol Hill trying to inform the future direction of massive markets. Two, there's a bankruptcy. To the rate at which that bankruptcy is filed has you know John J Ray the third who Enron connection was the liquidator for Enron, saying things like he's never seen

something more disorganized in his entire life. Like there's something about this that just feels like we've speed run through a crisis that would ordinarily take years. If this we're playing out at a slightly slower pace or in a slightly more like normal fashion, what would have been the next things to happen? Right, So, we've now had all of these indictments. We've had all of these charges in

record time. What would normally happen next, What prosecutors need right now is to get san Baateman freed back into the United States. Um, there's a hearing scheduled on his extradition in February. That is the priority. Ordinarily that would take a very long time. There is an extradition treaty between the US and the Bahamas, as I mentioned. But you know, anyone in that position has rights, and they

have the right to essentially reject extradition. And we have examples in the past of people who have been able to successfully fight for that right and have stayed in the Bahamas. Like this is something the US has had to deal with before. In this case, though, you know, there's just several factors that are in play. I mean, one big factor is, like SBF was denied bail. He's going to have to go to prison in the Bahamas. Their reports out that explained that the conditions in the

Bahamas are not ideal. I mean, how long can SBF potentially, you know, put up with those conditions. And part of the reason why he was denied bail was because people were scared that he would flee if he were to be in the United States, you know, bail could come back on the table because maybe you know, authorities and prosecutors in the US wouldn't be as scared that he was going to flee the country as they are with

him being in the Amas. So I guess the question now is, you know, do the circumstances and conditions that surround same bankman freed in the Bahamas discourage him from fighting extradition. And you know, there's still a question here, I think, on the table on whether he will cooperate with the government and whether that's going to offer something for him, because I think, you know, when you talk about the fact that so many charges could still possibly come,

we're still very early in this story. If you were to cooperate, is that even an option on the table for for authorities and and what would that mean, like

we could see that play out now. To your point about cooperation, one of the things that folks have been speculating on is, you know, of the charges that he's facing, and we haven't specified what they were, but they're largely in the area of like fraud, misappropriation of customer funds, misrepresentation, of like what it is that you are up to and why you wanted money and what you're going to

do with up money. But if you were to kind of do some very like legal arithmetic and just like add up the maximum potential sentences for each of these, he if found guilty on any or all of these, could be facing a significant amount of time in prison. Is it normal in cases of financial crime for people to actually go to jail? I would compare this more to like a thora nos kind of collapse. I think

that's what we would be seeing here. I mean, the charges are not identical, they're similar, the effects are not identical, but they're similar. Lenders teated out and customers teated out. I mean that is what we're talking about here. Elizabeth Holmes got sentenced to prison time last months. I mean, this is how I see this playing out for for

same bankman freed if he's found guilty. If he's found guilty, And I think another thing about cooperation is also you know, and these charges that were brought against him is in all of the suits that we saw, whether it was from the d O J SEC or CFTC, he was the only defendant mentioned in those suits and we know

that he definitely didn't run FTX alone. There are other individuals that are involved, including Caroline Ellison, Gary Wang or the director of engineering saying who are still m I A and and we don't know whether this means that they're cooperating with the government on their end, and what it means about how guilty or not guilty they will

be found. These are all things that we are looking at moving forward, right, And you know, to your point, it's not clear if or when they will even be charged with anything, especially because of the rates of which this is unfolding. Right. It's not that folks have taken two years to build a case and say these are the charges against the whole bunch of people. They've taken like a month and built a case against one person

so far, exactly. And I think that if you go through these suits, you'll realize that a lot of like perhaps like the mislabeling of where money was going in the balance sheet within f t X, wasn't just Sam BigMan free. There were other individuals that were perpetrating that mislabeling. That hasn't been a reason for prosecutors so far to bring any charges against them. And so that to me

raises a question of what's going on right. So to your point, the big thing that's going to continue to keep us awak for the foreseeable future is just that it seems like there's more to come here reassuring. So but but please don't call me at like six am again, say may because I I had like a panic attack when I woke up and I saw three miscalls from you. I was like, oh my god, this is what happened. I did. I did call Mr Leam and be like, hey,

news such as the life of a crypto editor. We'll be right back with more of the week's top crypto stories, featuring Anna Errera, senior editor at Bloomberg and Misfilena, a Gulf FA polo. We spent a lot of time talking about SPF and f t X, as we should, but there's been another pretty big crypto story this week. Can you just give us in, you know, like as non

technically as possible, what's been happening with finance. So finance has been facing massive amounts of withdrawals essentially, so people who are worried, are you know, you understandably if you had money on ft X and as you said before. You know, it's like a less than two months ago, SPF was hailed as the next JP Morgan, and you wouldn't think anything would go wrong. Then in a week

you've lost all your money on the platform. Then you might start getting a bit wary about having money on any centralized crypto exchange, and Finance is now by far the biggest. It's like a gigantic compared to anyone else. And so you know, people are getting worried and they're pulling out their money from from Finance. So the situation has stabilized a bit from earlier in the week, but that in a Nutchell is what is going on. And obviously I guess it's kind of like a vicious cycle.

If people get worried, then they keep withdrawing more and then it keeps spreading. It's the next one to watch. And you know they've they've tried to reassure customers before that they had all the money and that they're they're obviously not f t X, and they have if you want to withdraw your funds, your funds will be there. But you know they've they've fallen short of I guess what people would want, which is a full audit. They've not given that, and so people are still worried, basically,

and it's one to watch because they're so big. It's one watch because they're the biggest, right like they they are by far the largest crypto exchange by pick a metric, and increasingly, in with the decline of FTX, they're absorbing in theory at least even more customers who are looking

for a new place to put their money. But as you say, you know, the folks of Bindance, including the CEO, have tried repeatedly to reassure folks that anything that they might be hearing out there is you know, to use crypto's favorite word, fud, the unhelped full spreading of fair uncertainty and debt. And just as a closing question for you, what exactly do you think the prospects are for crypto companies like finance and others to really embrace audited financials.

Not in the here's a quick snap shals in time of what's going on, but here's an actual audit of everything that's happening. I mean, you know, crypto hasn't been regulated as much as other sectors, so it's hard to have to do something that's tough as a firm if you're not forced to write. Lots of companies preferre prefer to stay private for longer because being a public company comes with, you know, disclosures that you don't really want

to make, and so that's obviously for crypto. You could argue that, you know, some would prefer not to get audited because that requires a different level of disclosure and you need to have your house in order, and maybe you have not running your company as you should have in any like it might not be anything massive like obviously now we have the FDx example, which is I would hope pretty extreme. But you know, if you've not had any rules, then what rules where you're gould have

fall other than I guess ethics. But if more institutions come in and more mainstream firms come in, and even also now just regular customers, if you've been burned by FTX, you might want to say and tell you the exchange you're going to, Yes, I will put my money on your platform. Yes I will trade there if you do an audit, and maybe they will be pushed by customers

rather than regulation. But tends to be the case that regulators and you know, not men with guns, but sort of have more sway than just like I'm doing it because I love the world and I want to you know, behave well, you know, a soup. It's just cryptos. I guess the way the world is unless you have repercussions for doing things well. This has certainly been a week of consequences. Um, Mr Lenna, Anna, thank you both for

joining me. Thank you. You can find more of Anna and Mr Willias reporting on the Bloomberg Terminal and on Bloomberg dot com, and be sure to check out our twice weekly newsletter, Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions or suggestions for the show to Crypto

at Bloomberg dot net. The supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior producer is Janet Babin. Our producers are Mohammed Farouk and Sharon Barriro. Our associate producers are Ty Butler and Moses on Them. Desta wonder At is our engineer, original music by Leo Sidron. I'm Stacy, Marie Ishmael. Have a great weekend.