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Language: en
do you think he is incompetent insane or
evil the following is a conversation
with coffee Zilla an investigator and
journalist exposing frauds scams and
fake gurus he's one of the most
important journalistic voices we have
working today both in terms of his
integrity and fearlessness in The
Pursuit Of Truth please follow watch and
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coffeezilla this is Alex Freedman
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dear friends here's coffee
Zilla how do you like your coffee dark
and soul crushing that was the uh number
one question on the internet do you like
your coffee to reverberate deeply
through the worst of human nature is
that how you drink your coffee I've gone
through a lot of phases on coffee I used
to in college I would go super deep into
you know grinding fresh beans all of
that kind of stuff water temperature
exactly right and then I hit a phase
where I was just it was the maintenance
dose then I went to like espresso
because I could get a lot more in yeah
and now I go through phases of like
sometimes I like it with a little oat
milk sometimes a little half and half in
sugar if I'm oh you've gotten soft in
your old age I've gone a little I I have
but hey if I'm doing a SP SPF interview
it's black that day nothing less yeah
there's black no Su the lights go down
what do you actually do in that in those
situations like uh leading up to a show
do you get hyped up like how do you put
yourself in the right mind space to
explore some of these really difficult
topics I think a lot of its preparation
and then once it happens it's mostly
fueled by sort of adrenaline I would say
um I really deeply care about getting to
like the root cause of some of these
issues because I think so often people
in positions of Power are let off the
hook so I really care about holding
their feet to the fire and it translates
into like a lot of energy the day of so
I I never find myself like funny enough
I usually drink a lot of caffeine
leading up to the interview and then I
try to drink like minimum the day of
because I have so much adrenaline I
don't want to be like hyper stimulated I
have to say of all the recent guests
I've had the energy you you had when you
walked into the
door pretty excited people not excited
to be
here I don't know
deal scar I felt like you were going to
knock down the door or something you
were very excited um Like That Just
Energy um it was terrifying because I'm
terrified at social interaction anyway
uh speaking of terrifying you chose a
good living of interviewing people for
face your fears my friend uh so let's
talk about SP SPF and FTX who is uh Sam
banin freed can can you tell a story
from the beginning as you understand it
yeah so Sam bakman freed is
a kid who grew up sort of from a
position of huge privilege both his
parents are lawyers I believe both of
them were from Harvard he went to MIT
went to like or sorry backing up a bit
more he went to like this top Prep High
School then to MIT then he went to Jane
Street and after that he get started a
trading firm in I think 2017 called Alam
research with a few friends some of them
were from Jane Street some of them
worked at Google and they were sort of
the smartest Kids on the Block or that's
what everyone thought they made a lot of
their money on something called the
kimchi premium or at least this The
Story Goes which just to explain that uh
the price of Bitcoin in Korea was
substantially higher than in the rest of
the world and so you could Arbitrage
that by buying Bitcoin elsewhere and
selling it on a Korean exchange so they
made their money early doing kind of
smart trades like that they flipped that
into Market making which they were
pretty early on that um just providing
liquidity to an exchange and it's what
it's a strategy that is considered delta
neutral which means basically if you
take kind of both sides of the trade and
you're making a spread like a a fee on
that you make money whether it goes up
or down so in theory there shouldn't be
that much risk associated with it so
Alam kind of blew up because they would
offer these people you know people who
are giving out loans they'd say hey
we'll give you this really attractive
rate of return and we're doing
strategies that seemingly are low risk
so we're a low risk risk bet were these
smart kids from Jane Street and you can
kind of trust us to be this smarter than
everyone else kind of thing uh around
2019 Sam started FTX which is an
exchange uh specifically it specialized
in derivatives so like margins kind of
more sophisticated crypto
products and it got in with binance
early on so binance actually has a prior
relationship to FTX which we'll explore
in a second cuz they're going to play a
role in FTX is collapse actually binance
is the number one uh crypto exchange and
they're led by uh he's called CZ on
Twitter I don't want to butcher his full
name but um really smart guy has played
his hand really well and built up a
quite large exchange and binance was
funding a bunch of different like
startups so they funded they helped
invest into FTX early on they invested
100 million so these guys were kind of
like teammates early on SBF and C easy
and FTX quickly grew they got like
especially in 2020 20 21 they got a lot
of endorsements they got a lot of
credibility in the space and eventually
FTX actually bought out binance they
gave them $2 billion so pretty good
investment for for CZ in a couple years
um and now lead that up to 2022 what
happens Luna collapse three arrows
Capital collapse which if you don't know
there's just these kind of cataclysmic
events in crypto uh led by some pretty
risky Behavior whether Luna was a token
that promised really attractive returns
that were unsustainable ultimately and
it just kind of spiraled it did what's
called a stable coin death spiral which
we can talk about if we need to the
stable coin death spiral I I can't wait
till that like actually enters the
Lexicon like a Wikipedia page on it like
uh e economics students are learning it
in school yes that's like a chapter in a
book anyway um I mean this is the
reality of our world is this is a really
big part of our
of the economic system is cryptocurrency
and stable coin is part of that yeah
it's weird because on the one hand
cryptocurrency is supposed to somewhat
simplify or add transparency to the
financial markets the idea is for the
first time you don't have to wait for an
SEC filing from some corporate business
you can look at what they're doing on
chain right um so that's good because a
lot of big financial problems are caused
by lack of transparency and lack of
understanding risk but ironically you
get some people creating these
arbitrarily complicated Financial
products like algorithmic stable coins
which then introduce more risk and blow
everything up so anyways uh three hours
Capital blew up and all of a sudden this
crypto industry which everyone thought
was going to the Moon Bitcoin to 100,000
is in some trouble and FTX seems like
the only people who besides like binance
who's also really big and stable and
coinbase uh they seemed like they were
doing fine in fact they were bailing out
companies in the summer I don't know if
you remember that SB F was likened to
like Jamie Diamond who's the you know
CEO of Chase who like kind of was like
the buck stops here uh you know I'm like
the back stop right so SPF was
supporting the industry he was like the
stable guy so come to like around
October and November there's all this
talk about regulation everything's been
blowing up spf's leading the charge on
regulation and CZ the CEO of binance
gets word that maybe SBF is kind of like
cutting him out or making regulation
that would maybe impact his
business and uh he doesn't like that too
much they start kind of feuding a little
bit on Twitter so when it comes out a
coindesk report came out that ftxs
balance sheet wasn't looking that good
like it looked pretty weak they had a
lot of coins that in theory had value if
you looked at their market price but for
a variety of reasons if you tried to
sell them they'd collapse in value so
it's sort of like this thing a house
built on Sand and uh a friend of mine on
Twitter he goes by Dirty Bubble media he
released a report and he basically said
I think these uh these guys are
insolvent well CZ saw that and he
retweeted it and started adding fuel to
the fire of like the speculation because
up to this point everyone thought FTX is
super safe super secure there's no
reason to not keep your money there Tom
Brady keeps his money there whatever and
CZ kind of fuel adds fuel to the fire by
saying not only am I retweeting this
adding kind of like validity to this
speculation but also I'm going to take
the ftt that I got which part of their
balance sheet was this ftt token which
is FTX is like proprietary token and
Alam and uh FTX controlled A lot of it
they were using this token to basically
be a a large amount of collateral for
their whole balance sheet so it
accounted for this huge amount of their
value and the CEO of binance had a huge
chunk of it as well and he said I'm
going to sell all of it and the the fuel
that that introduced to the market is if
he sells all this ftt and this ftt is
underwriting a lot of the value of FTX
does ftt is almost approximate like uh
similar things if you were to buy a
stock in a public company is that kind
of like a stock in FTX it sort of was
this proxy because what FTX was
committed to doing was sort of like
buying back ftt tokens they would do
this thing called the buy and burn I
think there was some amount of sharing
in the revenue fees of FTX it was kind
of this convoluted thing in my opinion
the exact value of ftt was speculative
from the beginning and it was clear that
it was very tied to the performance of
FTX which is important because we'll get
to later FTX sort of built their whole
scaffold on ftt which meant that this
scaffold was very wobbly because if FTX
loses a little bit of confidence then
your value goes down when your value
goes down you lose more confidence and
this goes down so it was kind of like
this thing that this flywheel that when
it was going well you got huge amounts
of growth when it's going bad you get a
uh exchange death spiral s so to speak
actually this structure it's a pretty
non-standard structure did the uh
architects of its initial design
anticipate the wobbliness of the whole
system so putting fraud and all those
things that happen later aside do you
think it was difficult to anticipate
this kind of ftt FTX elemented research
weird dynamic no because I think
sophisticated Traders always think in
terms of diversification and correlation
so if you're trying to the way to think
about risk in investing is like if I
invest in you Lex fredman and then I
also invest in some product you produce
those those the performance of those two
things will be pretty correlated so
whether I invest in you or I invest in
this product that you like are
completely behind I'm not drisking I'm
basically counting all on you doing well
right and if you do bad my investments
do very bad so if I'm trying to build a
stable thing I shouldn't put all my eggs
in The Lex Freedman basket unless I'm
positive that you're going to do well
right and these people as your financial
adviser I would definitely recommend you
do not put all your eggs in this basket
right and so so you can think about it
like if I know that these people were
trained to think like this and so the
idea that you could start this exchange
you're worth billions of dollars and you
underwrite your whole system by betting
putting most of it on your own token is
is insane and what and what's crazy is
we'll later find out that they were
basically taking customer assets which
were real things like Bitcoin and
ethereum with with risks that were not
so correlated to FDX and were swapping
them out they were using to go go
basically gamble those and putting ftt
in its place as quote value so they were
increasing the risk of the system in
order to bet big with the idea that if
they bet big in one we'd all be singing
their praises if we bet big and L if
they bet big and lost I don't know if
they had a plan but I think they were I
think they were being extremely risky
and there's no way to avoid their
knowledge of That So when you say
customer assets is I come to this crypto
exchange I have Bitcoin or some other
cryptocurrency and this is a a thing
that has pretty stable value over time I
mean Rel as crypto relative relatively
so and I'm going to store it on this
crypto exchange and that that's the
whole point this is
uh so this thing to the degree that
crypto holds value is supposed to
continue holding value there's not
there's not supposed to be an extra risk
inserted into the thing right and FTX
was pretty clear from the beginning that
they wouldn't invest your assets in
anything else they wouldn't do anything
else with it they wouldn't trade it
that's what made FTX so such like a
horror story for investor confidence is
basically they made every signal that
they would not do anything nefarious
with your tokens they would just put
them to the side put them in a separate
account that they don't have access to
and they just kind of wait there until
the day that you're ready to withdraw
them uh that's explicitly what they told
their customers so going back to the
story a little bit CZ then says hey I'm
selling this token that underwrites the
value of FTX there's a total panic SPF
during this time makes said says several
lies such as FTX assets are fine we have
enough money to cover all
withdrawals um and a day later he
basically admits that that wasn't the
case they don't have the money they're
shutting down and then a few days later
after that they declared
bankruptcy there's I should be clear
there's Alam research FTX International
and FTX us which is the US side of
things these are three different
entities all of them are in bankruptcy
and it's not clear to the extent that
they were co-mingling funds but it's
clear that they were co-mingling funds
to some extent so they kind of were
taking from each other and that is where
the fraud happens right because if going
back to our earlier analysis if you're
supposed to set funds aside and I find
out you were using it to go make all
these Arbitrage trades or do Market
making or all these activities you were
known for for your like hedge fund
trading firm thing that's a huge problem
because you he basically lied about this
and uh especially when he's saying
explicitly that we have these things we
have these funds and these things turn
out to be lies well again the question
of fraud comes in and it's just like
there's no way he didn't know so the
obvious question might be well why isn't
he locked up why why is he running
around and it's because um really his
story is that he didn't know any of it
he found out that they had to steal
man's position he would say he was
totally disconnected from what Alam was
doing he had no idea that they had such
a large margin position that they had an
accounting Quirk and that accounting
Quirk hit 8 billion from um
from his View and so when he was saying
that they had money to cover it he was
saying that truthfully to the best of
his ability and he just was so
distracted at the time that he made a
series of increasingly embarrassing
mistakes and now he owes it to the
people to write those wrongs by publicly
making this huge apology to her you
might have seen him on I mean he's been
talking to nearly everyone um about
basically how he's just didn't know what
he was doing he's the stupidest man
alive uh basic what what what are some
interesting things you've learned from
those
interviews I think I've appreciated why
you don't talk in that position uh most
people wouldn't talk most people would
listen to their legal counsel and and
not talk I do not think he's any lawyer
what their Sal would tell him to talk
because right now I think the danger of
what he's doing is he's locking himself
into a story of how things happened and
I don't think that story is going to
hold up in the coming months because I
think it's impossible from The Insider
conversations I've had with Alam
research employees with FTX employees
it's impossible to square what they are
telling me with no like incentive to lie
with what SPF is telling me with every
incentive to lie which is fundamentally
that he didn't know they were comingling
funds he didn't know they were gambling
with customer money and it was basically
this huge mistake and it's alam's fault
but he wasn't involved in Alam a company
he owned so like a compassionate but
heart hitting gangster that you are uh
recent very recently you interacted with
SBF on I like how you adjust uh the
suspenders as you're saying this
um you interact on Twitter spaces uh
with SP
SPF and uh really put his feet to the
fire uh with some hard-hitting questions
what did you ask and what did you learn
from that interaction sure I should say
first this was not a willing interaction
I mean I thought that was kind of the
funny part of it cuz I've been asking
him for an interview for a while he's
been giving interviews to nearly
everyone who wants one big Channel small
channels um he didn't give me one but I
managed to get some by sneaking up on
some Twitter spaces and dming the people
and like being like hey can I come up so
I didn't get him to ask everything that
I wanted because he like would leave
sometimes uh you know after I asked some
of the questions but really what I asked
was about this eight billion and zooming
in on the improbability of his lack of
knowledge um it's sort of like if you if
you run a company and you know the
insides and outs and you're the top of
your field top top in class and all of a
sudden it all goes bust and you say I
had no idea how any of this worked yeah
I didn't I didn't know it's like the guy
who runs waterburger saying I didn't
know where we sourced our beef I didn't
know where we that's a Texas example
actually thank you I appreciate uh let's
let's take it like world Walmart like I
didn't know we used Chinese
manufacturers it's like that's
impossible to become Walmart you have to
know how like how your supply chain
works you have to know even if you're at
a high level you know how this stuff
works can I do a hard turn on that and
go sure as one must to Hitler uh
Hitler's writing is not on any of the
documents around as far as I know uh on
the final solution so in in some crazy
world he could theoretically say I knew
I didn't know anything about the death
cams uh so there's this plausible
deniability in theory so that's but that
most people would look at that and say
uh it's very unlikely you don't know
well especially if all the Insiders are
coming out and saying no no no of course
he knew he was directing us from the top
I mean um what was clear what's
interesting about the structure and like
I love the nitty Sor we're back to SPF
we went to Hitler now we're back to I
wanted to turn us as fast as possible
away from um I yeah I I so the Insiders
in what ala research Alam research what
was interesting is that there was this
sort of one-way window going on between
Alam and FTX where FTX employees didn't
know a lot of what was going on Alam
insiders and I would say by Design knew
almost everything that was going on at
FTX um and so I think that was really
interesting from the perspective of a
lot of the so-called like what you could
what he's trying to ascribe to as like
failures or mistakes or ignorance and
negligence when looked at closely are
much more designed and they sort of
don't arise spontaneously because like
let's say so there's this thing in
banking and like trading where if I run
a bank and you run like a trading firm
we need to have informational walls
between us because there's huge
conflicts of interest that can arise
right so the negligent argument might be
that like oh we just didn't know we're
sort of these dumb kids in the Bahamas
so we shared information equally but
when you see a one-way wall that starts
to look a lot different right if I have
a backend source of looking at or sorry
you're the trading firm so you have a
backend way to look at all my accounts
and I have no idea that you're doing
that that all of a sudden looks like a
much more designed thing when it would
be plausible let's say going to to to
use another another analogy too if
you're saying look I comingled funds
because I was so bad at corporate
structures you would expect those
companies to have a very simple
corporate structure because you didn't
know what you're were doing right but
what we see with FTX and Alam is they
had something like 50 companies and
subsidiaries and this in impossibly
complicated web of corporate activity
you don't get there by accident you
don't wake up and go oh I designed like
this watch that ticked a specific way
but it was all accidental if you really
didn't know what you were doing you'd
end up with a simple structure so even
just like from a fundamental perspective
what SPF was doing and like the
activities they were engaging in were so
complicated and purposely designed to
obfuscate what they were doing it's
impossible to subscribe to the
negligence argument and I want to
quickly say too like I don't think a lot
of people have honed in on this there
was insider trading going on from From
alam's perspective where they would know
what coins FTX was going to list on
their exchange there's a famous effect
where let's say you're this legitimate
exchange you list a coin the price
spikes M insiders told me it was a
regular practice for Alam insiders to
know that FTX was going to list a coin
and as a company buy up that coin so
they could sell it after it listed and
they made millions of dollars how do you
do that accidentally yeah and that's
that's a Al totally illegal so that's
illegal from like and if an individual
does it it's illegal it's fraud what if
a company is systematically doing it and
you can't tell me that
FTX or someone at FTX wasn't feeding
that information of to Alam or somehow
giving them keys to know that and that
would happen at the highest level it
would happen at SPF level and this is
why his arguments of I was dumb I was
naive I was sort of ignorant are so
Preposterous because he's dumb and
ignorant the second it becomes criminal
to be smart and sophisticated right but
then also coming out and talking about
it which is um it's a bizarre move it's
a bizarre almost a dark move uh can you
tell the story of the 8 billion you
mentioned 8 billion what's the 8 billion
what's the missing 8 billion yeah so
it's really interesting because it's
sort of like wire fraud you're sort of
he's sort of copping to like smaller
crimes to avoid the big crime the big
crime is you knew everything and you
were behind it right the smaller crimes
are like a little wire fraud here little
wire fraud there so what the 8 billion
is is that FTX didn't always have
banking it's hard to get banking as a
crypto exchange there's all these
questions of like where's the money
coming from is it coming from money
launder so for a variety of reasons it's
always been hard for exchanges to get
bank accounts so before when FTX was
just getting started they didn't have a
bank account so how do you put money on
FTX well they would have you wire your
money to their trading firm their wiring
instructions would go to their trading
firm it's easier to get banking as a
trading firm so you'd put your money
with the trading firm and then they'd
credit you the money on
FTX okay first of all this is a whole
circumvention of all these banking
guidelines and
regulations that's the first like thing
that I think is legal
but basically what SPF argued is that
there was an accounting glitch error
problem where when you'd send money to
Alam even though they credit you on FTX
they wouldn't Safeguard your deposits
like your deposits would go into what he
called a stub account which is just like
some account that's not very well
labeled um kind of like a placeholder
account and he didn't realize that those
were alam's funds or they were playing
with those funds and that they basically
should have safeguarded that for
customers that's his explanation it's
Preposterous because it's $8 billion but
anyways um just poor labeling of
accounts of an eight billion dollar
account I mean a billion a billion this
is I do this all the time this is the
craziest thing like he Wasing he was
talking to me and at one point in the
conversation he's like yeah I didn't
have precise because he said I didn't
have knowledge of alam's accounts and I
said well Forbes a month ago was getting
detailed accounting of alam and he goes
oh that wasn't detailed accounting I
just knew I was right within 10 billion
or
so what is that error margin $10 billion
for a company that is arguably never
worth more than 100 million yeah
probably never never even worth more
than 50 billion your error margin is $10
billion you have to be this is a guy who
is sending around statements that like
there was no risk involved and you're
telling me he had a error margin of $10
billion that is the difference between
like a healthy company and a company so
deep underwater you're going to jail so
it you have to believe that he is
impossibly stupid and square that with
the sophistication that he brought to
the table it's I I think it's an
impossible argument I I don't even think
it's do you think he is incompetent
insane or
evil if you were to
bet money on each of those incompetent
insane or evil insane meaning he's lying
to everyone but also to
himself uh which you could which is a
little bit different than incompetence
he's not in
competent so the I think he's some
combination of insane and evil but it's
impossible to know unless we know deep
inside his heart how self like diluted
he is versus a calculated
strategy and I think if you look at SBF
he's such a I think he's a fascinating
individual just I mean you know he's a
horrible human being let's start there
but he's also somewhat um interesting
from a psychology perspective because
he's very open about the fact that he
understands image and he understands how
to cultivate image the importance of
image so well that I think a lot of
people even though they've talked about
it aren't emphasizing that enough when
interacting with him this is a man whose
entire history is about cultivating the
right opinions at the right time to
achieve the right effect why do you
think he would suddenly change that
approach when he has all the more reason
to cultivate an image so he is extremely
good naturally or uh I don't know if
he's good but he's like he's a hyper
aware so he's deliberate in cultivating
a Public Image in controlling the Public
Image you you know about the like
Democrat donations like he he knew to
donate to the right people $40 million
he says on a call that we released with
Tiffany Fong he says on a call that he
donated the the same amount to
Republicans there's speculation on
whether this is true cuz he's a liar
whatever so cave out there but he said
he donated to Republicans the same
amount but he donated dark because he
knew that most journalists are liberal
and they would kind of hold that against
him so he wanted all the all the sides
to be on in his favor in his pocket
while
simultaneously understanding the entire
media landscape and playing them like a
fiddle by cultivating this image of I'm
this Progressive woke billionaire who
wants to give it all away do everything
for charity I drive a Corolla while
living in a million dollar prin housee
multi-million um but but that was sort
of the angle he he understood so well
how to play the media and um I do I
think he underestimated when he did this
how much people would put him under a
deeper microscope and I don't think he
has achieved the same level of success
in cultivating this new image because I
think people are so skep now no one's
buying it but I think he he's trying it
he's doing it to the best but it has
worked leading up to this particular
wobbly situation so before that wasn't
there a public perception of him being a
a Force for good a financial Force for
good 100% yeah somebody from seoa
Capital you know wrote this glow glowing
review that he's going to be the world's
first trillionaire there's so many
pieces done on he's the most generous
billionaire in the world that um he was
sort of like the Steelman of you know
it's possible to make tons of money this
is like the effective altruism movement
make as much money as you can as fast as
you can and give it all away and he was
sort of like the the poster child for
that and he did give some of it away and
got a lot of press for it and I think
that was kind of by Design I want to
address a real quick Point yes a lot of
people have said that like binance
played a role and while they catalyze
this
insolvency is a problem that will
eventually manifest either way so I
don't put any blame on CZ for basically
causing this meltdown the the underlying
Foundation was unstable and it was going
to fall apart at the next push I mean he
just happened to be the final kind of
like uh I don't know the straw that
broke the camel's back yeah the Catalyst
that revealed the yeah but it's like I
don't I don't think he's culpable for
ftxs like malfant and how they handled
accounts if that Mak sense so what what
what role did they play could they have
helped alleviate some of the pain of uh
uh investors of people that held funds
there yeah I I
mean
probably uh I don't know I I would see
some kind of weird obligation like with
the two billion they made on FTX
remember they got two billion some of it
in cash some of some of it in FDT tokens
so I don't know how much actual cash
they had have from that deal but they
have billions from the success of what
seems to be a fraud seems to have been a
fraud from early on they had the back
door as early as 20 early 2020 from what
I can tell so the the back door between
FTX and el el research uh do you think
CZ saw through who SPF
is what is he's doing no I think I think
CZ is like he's a shark I think he's
he's good at building a big business um
like a good shark or a bad shark I don't
know I don't know I think sharks just
eat I mean I I don't I don't know I
think uh my relationship with shark has
like a Finding Nemo there's a shark in
that I don't know I think like Jeff
Bezos is a shark okay so whether you
people have loaded connotations of like
how they feel about Jeff Bezos I mean I
I would say like I think CZ is a
ruthless businessman I think he's cold
he's calculated he's very um deliberate
and I think uh what he should do in this
position is forfeit the funds that he
profited from that investment because
largely I think it was um it's owed to
the customers there's so much hurting
out there so I think I think they could
do a lot of good around that um I don't
know if they will because I don't know
if he sees it in his best interest I
think that's probably how he's thinking
but yeah I I think uh they could have
helped or they could still help there
who do you think suffered the most from
this so
far the little account holders this is
always true so one of the big
Temptations with fraud I've covered a
lot of scams frauds is everyone looks at
the big number everyone that's the
headline billions of dollars the top 50
creditors or what everyone thinks at
first uh but quickly when you dig down
you realize that most people who lost
$10 million I mean I'm sure that's
terrible for them I wish them to get
their money back but uh it's usually the
people with like 50,000 or less that are
most impacted usually they do not have
the money to spare usually they're not
Diversified in a phisticated way um so I
think it's those people I think it's the
small account holders that I feel the
worst for and unfortunately they often
get the least press time or airtime
that's the really difficult truth of
this is that especially in the culture
of cryptocurrency there's a lot of young
people who are not Diversified they're
basically Allin on a particular crypto
and it just breaks my heart to think
that there's somebody 50,000 or 30,000
or 20,000 but the point is that money is
everything they own right and
now now what their life is basically
destroyed like you know imagine you're
18 19 20 21 years old you saved up
you've been working you saved up and
this is this is it this is basically
destroying a life what's so brutal about
this is that this all comes on the back
the entire crypto Market comes on the
back
of comes from the deep distrust of
traditional Finance right you
2008 everybody lost trust in the banking
systems and they lost trust that if
those banking systems acted in a corrupt
way that they would receive the Justice
it turned out that the banks received
favorable treatment people didn't so
people lost faith in the the structure
of our financial system in a way that is
we're still feeling the reverberations
of it and so when crypto came along it
was like kind of this way to reinvent
the wheel reinvent the world for the
the like sort of lowly and the like less
powerful and kind of level the playing
field so it's so sad about events like
this is you see that fundamentally a lot
of the the power structures are the same
where the people at the top uh face
little repercussions for what they do
the people at the bottom are still
getting screwed the people at the bottom
are still getting lied to and law
enforcement is way behind the ball do
you think this really uh damaged people
Trust in cryptocurrency for sure way
bigger than uh Luna way bigger than
three capital it's because of who SBF
was it's not just the dollar figure
behind it it's because he woed so many
of our media Elites who should have been
calling him out or at least
investigating him and not rubber
stamping him it's an indictment of our
financial system even our most
sophisticated people in Black Rock in
seoa who didn't see this coming who also
rubber stamped him um and you just
wonder like if you can't trust the top
people in crypto who are supposedly the
good guys the guys saving crypto I month
just a month ago or two months ago he
was the guy on Capital Hill that was
talking to Gary ginzler to all the top
people in Washington he was
orchestrating the regulation of crypto
if that guy is a complete fraudster liar
psychopath and nobody knew it until it
was too late what does that mean about
the system itself that we're building so
you are one of if not the best like
frauder investigators in the world did
you sense did you uh was this on your
radar at all SPF in the over the past
couple years were any red flags going
off for you yes so funny enough like one
of my videos from six months ago or so
blew up because um I got to give a lot
of credit to Matt Lavina BW blomberg
great journalist great Finance
journalist and I want to say when I like
talk about media Elite there are people
doing great work in these mainstream
institutions it's not a monolith just
like Independent Media isn't all doing
great work and all the corporate media
is bad or whatever there's like these
overarching narratives that I don't
subscribe to so Matt lavine's great
journalist he he did an interview with s
SPF where he got Sam to basically
describe a lot of what was going on in
defi but at kind of a larger philosophy
around crypto and he described a Ponzi
scheme where he just described this
black box it does nothing but if we
ascribe it value then we can create more
value and more value and more value and
it kind of was this ridiculous
description of a Ponzi scheme but there
was no moral judgment on it it was like
oh yeah this is great we can make a lot
of money from this and Matt is like well
it sounds like you're in the Ponzi
business and and business is good I made
a video about that I said this is
ridiculous this is absurd whatever it's
obscene but um I didn't explicit call
SBF a fraud there and I think if if I'm
being I think I saw some of it but like
many people I think a a lot of us were
kind of
like I think a lot of us missed how
wrong everyone could be at the same time
I did notice leading up to the crash
what was happening and I and I called it
out a day a day or a day and a half
before it happened
cuz I saw my friends post Dirty Bubble
media and this was the first real look
into the heart of their finances cuz
there were this black box you just kind
of had to evaluate
them without knowing
much and once we got a peak under the
hood of what their finances were I
realized oh my gosh these guys might be
completely insolvent so I made a tweet
about it I hope some people saw it and
got their money out um but pretty
quickly after that I caught The
Narrative of what was really going on at
Alam that it was basically this pondi
scheme that that they had built do you
ever sit like Batman in The Dark since
he fight crime and wonder like sad just
staring into the darkness and thinking I
should have caught this
earlier yeah I think in your in your uh
10 billion dollar 10 million million
we're working our way there um with with
a bunch of the table it's never enough
it's Never Enough like you always could
be catching stuff sooner you always
could be doing more I mean the
fascinating thing you said is that one
of the lessons here is that a large
number of people influential smart
people could all be wrong at the same
time in terms of their evaluation of SP
SPF this is this is one thing that I
don't understand too is like I think
it's one thing to not see something I
think it's another thing to like rubber
stamp or explicit L endorse I feel like
a lot of people didn't look too close
ATF because I think a lot of the warning
signs were there but my feeling is if
you're a sequoia if you're a black rock
wouldn't you do that due diligence I
mean like yeah like before just
endorsing something especially in the
crypto space this is just why I don't do
any deals in the crypto space ever
because it's impossible to know which
ones are the going to be the like big
hits or the big frauds or you know
whatever um but if you're going to make
that bet if you're going to make that
play you would think that you would do
all the research in the world and you
would get sophisticated looks at their
liabilities at how they were structured
all that stuff and that is the most
shocking part is not that you know
people missed it because you can miss
fraud but that there was so much so many
glowing endorsements like this guy is
not going to be that thing we explicitly
endorse him I saw a Fortune Magazine he
was called the next Warren bu
it's just crazy do you think it's
possible to have enough like Tom
Brady uh endorsements that you don't
really investigate so like yes that
there's the kind of momentum like
societal social momentum yes I think
that's the problem I actually think
that's hugely a blind like a a blind
spot of our society is we have all these
heuristics that can be points of failure
where like a rule of thumb is if you go
to an Ivy League where you must be smart
mhm right a rule of thumb is if your
both your parents are Harvard lawyers
you must not you must know the law you
must like kind of be sophisticated the
rule of thumb is if you're running a a
billion dollar exchange you must be
somehow somewhat ethical right and all
of these heris can lead to Giant blind
spots where you kind of just go oh we'll
check like I don't really it's a lot of
energy to look into people and if enough
of those rules of thumb are met we just
kind of check them off and put them
through the system so uh yeah it's been
hugely exposing for sort of like our are
blind and you don't know maybe how to
look in for example there's a few
assumptions now there's a lot of people
are very skeptical of institutions of
government and so on but for um perhaps
too much so AG but for some part of
history there was uh too much faith in
government and so um right now I think
there's faith in certain large companies
there's distrust in certain ones and
Trust in others like uh people seem to
distrust Facebook extremely skeptical of
Facebook mhm but trust I think Google
with their data I think they trust apple
with their data much much more so like
search people don't seem to be your
Google search like I'm just going to I'm
going to in there have you ever looked
at your Google search history your
Google search history has got to be the
some of the darkest things oh I don't
think I've ever looked at my Google
search history I'm pretty careful with
uh like browser hygiene and uh stuff
like that because I think it's well
Google search has unless you explicit
delete is there I recommend you look at
it it's fascinating look because it goes
back to the first days of you using
Google search history fun fact actually
about that no no no I I I I am I am
aware of that um I just mean for like
certain sensitive topics where like I'm
investigating some fraud and I go sign
into their website right log in I won't
use like a traditional browser I'll use
a VPN and I'll like put it on like Brave
or something like that you log in you
create an account as Lex fredman yeah
exactly you start exactly exactly
uh you mentioned effective altruism yes
you know SPF has been associated with
this effective altruism which made me
look twice at EA sure and see like wait
um are the what's what's going on
here uh is this was this used by SPF to
give himself a good Public Image or is
there something about effective alism
that makes it easy to misuse by bad
people what do you think yeah it's
interesting he could have endorsed a
wide range of philosophies and I guess
you just have to wonder are all those
would those philosophies also be tainted
if um he had gone bad I guess effective
altruism is sort of unique because he
used it as part of his brand it wasn't
like he was he described himself as a
consequentialist and like that ended up
mattering it was like he described
himself as an effective altruist and he
used that part of the brand to lift
himself up I guess that's why it's
getting so much scrutiny
um I think the merits of it should speak
for themselves I mean I don't personally
I'm not personally an effective altruist
um I personally am motivated by giving
in part emotionally and for some reason
that I can't exactly describe I think
that's somewhat important I don't think
you should detach giving from some
personal connection I I I I find trouble
with that and and like I said it's for
reasons I Can't Describe because
effective altruism is sort of the most
logical Ivory Tower position you could
possibly take it's like strip all
Humanity away from giving let's treat it
like a business and how many people can
we serve through the McDonald's line of
charity for like the dollar right um I
just personally don't resonate with that
but I don't think the entire movement is
like indicted because of it typically
most people who care about giving and
charity on the whole are nice people and
are so I can't speak for the whole
movement I certainly don't think SPF
indicts the whole movement even though I
personally don't subscribe to it yeah
that it made me pause reflect and step
back like um about the movement and
about anything that has a strong
ideology so if there's anything in your
life that has a strong set of ideas
behind it be careful yeah I mean look I
kind of feel like what it teaches me and
what I kind of think about when I think
about systems is that no system saves
you from the individual no system saves
you from the individual their intentions
their their lust for power or greed I
mean I think one of the great ideas is
the
decentralization of power and like this
is why I think democracies are so great
is because they decentralize power
across a wide range of like interests
and groups and that being an effective
way to kind of try as best as you can to
spread out the impact of one individual
because one bad individual can do a lot
of harm as I mean clearly as seen here
but um now I don't think it has anything
to do with ideology because it's not
like being an effective altruist made
Sam bankman freed to fraud he was a
fraud who happen to Be an Effective
alterist makes sense so there is
something about yes no system protects
you from an individual but some system
enable or serve as a better Catalyst
than others for uh for the worst aspects
of human nature so for example communist
ideology I don't know if it's the
ideology or its implementation in this
in the in the 20th century it seemed
like such a sexy and powerful and viral
ideology that it somehow allows the evil
bad people to like sneak into the very
top and so like that's what I mean about
certain ideas sounds so nice that allow
you like the the lower classes the
workers the people that do all the work
they should have power they they have
been screwed over for far too long they
need to take power back that sounds like
a really powerful idea and then it just
seems like with those powerful ideas
evil people sneak in to the top and
start to abuse that power yeah I think I
mean I don't have a lot of probably big
brain political takes but what I can say
is that you can never get away from both
the system and the individual mattering
for sure some systems incentivize some
behaviors in certain ways but some
people will take that and go okay all we
need to do is design the perfect system
and then these individuals will act
completely rationally or responsibly in
accordance to what our incentives say
that's not true you could also say all
we have to do is focus on the individual
and all we have to do is just create a
society which raises very well adjusted
people and then we can throw them into
any system with any incentives and they
will act like responsibly ethically
morally and I also don't think that's
true so incentives are real but
also the individual ultimately plays a
large role too so yeah I don't know I
come down sort of in the middle there
and some of that is just accidents of
History to which individuals finds which
system you know uh become the face of
that yeah with FTX versus uh coinbase
versus
bance which
individual which kinds of ideas and uh
life story come to power that matters
it's kind of fascinating that history
turns on these small little events done
by small little individuals that um you
know Hitler is a failed artist or you
have FDR or you have uh all these
different characters that do good or do
evil onto the world and it's like single
individuals and they have a life story
and it could have turned out completely
different it's I mean it's the flap of
the butterfly wings so yeah you're right
it we should be skeptical is attributing
too much to the system or the individual
it's all like a Beautiful
Mess The Lex fman
podcast that's like a that was like a
Lex line I've heard I've heard quite a
few episodes and that's like such a Lex
line it's a beautiful M beautifully said
all right sorry I'm a fan of the show
okay all right I love you too uh all
right can you think of possible
trajectories how
this FTX SPF Saga ends
uh and which one do you hope for do you
hope that SPF Goes to Jail that's the
individual and in terms of the investors
and the customers what do you hope
happens and what do you think are the
possible things that can
happen so a yeah I definitely think SPF
should go to jail um for nothing else
for a semblance of Justice the fact
simil of Justice to occur for all the
investors um I also think there are
people probably several steps down the
chain that probably knew at least
Caroline Ellison you can have questions
about sort of their you know Dan
Friedberg who I'd love to talk about as
well um there were a lot of people in
that room who I think knew I think we do
so much of like the one guy is All To
Blame let's throw everything at him when
clearly this was a companywide issue so
everyone who knew I think should face
the same punishment which I think should
be jailed for all of those people um in
part to send a signal to anybody that
tries this kind of stuff in the future
yeah abolutely I mean one of the big
things that you saw like okay take a
microcosm of all of this action and just
look at like the influencer space right
there's a ton of deals that were done
that I've covered at nauseum about
influencer finds out they can make a lot
of money selling a cryptocoin the first
thing they wonder is am I going to get
caught
if I do this is there a consequence and
if the answer is no then it's a pretty
easy decision as long as you don't like
have any moral Scruples about it which
apparently none of them did or a lot of
them didn't I should say so as soon as
somebody steps in and regulates that
math changes and all of a sudden there's
a self-interest reason to not go do the
bad thing so for ex and I can give a
concrete example of
this there was a nft the first ever nft
sort of Like official indictment or the
doj released this press release that
they're charging these guys who ran a
nft project that they didn't follow
through on their promises they made all
these promises lied and then ran away
with the money first ever consequence
for anyone in the nft space that day
that that press release came out I saw
several nft um projects come back to
life from the dead why because all those
Founders are freaking out and they
realized we scammed people we have to go
at least make make it look like we're
doing the right thing right even just so
that's on the optic side but there's
also tons of people who now go oh the
basically law enforcement is on the
scene we can't do the same thing so
there is a very pragmatic reason to for
this punishment it's very much just
because people work it into their math
of should I commit fraud and the last
several years have been very um sort of
been like a little bit of a
nihilistic landscape where no one was
getting punished and so there's this
question of you're almost an idiot if