The Case Against SBF, Temu vs. Amazon, AI Therapy

0:00SBF is in New York and on trial. New data shows Timu is gaining steam on Amazon quickly. And would you use AI technology as your therapist? Coming up right after this. Welcome to Big Technology Podcast Friday edition, where we break down the news in our traditional cool-headed and nuanced format. We have so much to talk about with you today, including the early rumblings of the SBF trial. He's here in New York and the arguments are getting going. And it actually seems like quite a lively courtroom. And then we'll get to other stuff regarding Timu, AI therapy, some stuff with Anthropic, and even maybe some Twitter news.

0:35It's going to be quick. Right after this, Ranjan and I are going to hop over to another link, and we're going to talk to Chris Leonard, who wrote The Lords of Easy Money. Fascinating book. That interview is going to air on Wednesday, but for now, we're here to break down the week's news. Ranjan, welcome to the show. I believe I am currently in downtown Manhattan in New York, and I think SPF is maybe a quarter mile from me, so I'm pretty excited right now. So this gets at a question I wanted to ask you to start, right? We are so close to this court case. Are you not tempted at all to go? I mean, it's open to the public.

1:09It is. And I will not deny I was tempted to go over there. But then I was seeing on Twitter a bunch of people who actually follow this very closely were apparently stuck in an overflow room and not able to get in. So I'll just follow it along with what Michael Lewis is saying wherever he is. So I'll tell you this. There's a more than 50 % chance that I'm going to go next week. Caroline Ellison is supposed to be testifying. This is, of course, the head of Alameda Research and the former girlfriend of SBF. And I will be going. I'm pretty sure I'm going to go. The overflow is starting to become diminished because they're allowing people inside now that some of the government officials are out.

1:53And apparently the press is supposed to be able to make it in. So hopefully next week I'll have a report back on what it's actually like in the courtroom. All right. Maybe I'll see you over there then. This could be fun. That's right. All right, let's do. Live from SBF trial. Also, before we get it, so we're going to talk first about this SBF trial and the fact that he's being prosecuted here in New York. I want to quickly welcome anybody who is over here from the Compound and Friends. I was on the Compound and Friends on Friday with Josh Brown and Michael Batnick. It's one of my favorite podcasts, definitely my favorite financial podcast.

2:26And I had a great time talking with the guys over there. If you're a big technology listener, I would say go ahead and check it out. And if you're here trying out the podcast, Ranjan and I break down the news every week on Friday. And then Wednesday, we do flagship interviews. You're actually going to hear us both Friday and Wednesday because we're going to do this interview with Chris Leonard. But anyway, very grateful to have you here. And thanks for giving Big Technology Podcast a try. So let's talk about the case against SBF. So this is from the Wall Street Journal. the long-awaited criminal trial of FTX founder Sam Baikman-Fried kicked off Wednesday, with the defense and prosecution clashing over whether the fallen crypto leader was a deeply flawed company manager or the architect of one of the biggest financial frauds in U.S.

3:09history. So the prosecution is basically arguing that he stole$10 billion from thousands of FTX customers while defrauding lenders and investors from the company's sister hedge fund, which is Alameda Research. And then he stole the money to buy lavish beachfront property in the Bahamas, make political donations to carry influence in Washington, and cover risky bets by Alameda. The second half of this, right, the defense is saying that he is being painted, that SBF, Sam Bakeman-Fried, is being painted as a cartoonish villain. And in reality, he's a math nerd who doesn't drink or party and acted in good faith building this crypto exchange.

3:47And, you know, He's a little bit of all over the place. And the lawyer says that as a result, some things got overlooked. I mean, some things is doing a lot of work there. Ranjan, how do you read this case? What do you think is going to happen here? OK, so first of all, the way the defense has already started this idea, math nerd who didn't drink or party. I've written about this previously. I cannot stand this defense or this idea that if he drank or partied somehow, this would make it any different. This is a very clear cut case. Alameda and FTX were completely intertwined when they were supposed to be separated.

4:24You have an exchange that's supposed to be a neutral place where anyone has equal access to transact cryptocurrency. And then you have a crypto hedge fund. The idea that they were ever separated or distinct was always kind of ridiculous anyways. But to me, the most interesting part of this, and I will go straight to Michael Lewis on this because I have to. And we had talked about this a few weeks ago. We called that, by the way. We spent weeks before this whole thing happened. We were here talking about Michael Lewis and Walter Isaacson. We're going to get a lot of egg on their face. Lo and behold, that egg is there.

4:57Walter Isaacson, you knew the egg was coming. I was, we both were hoping what Michael Lewis did not go down this path. And he completely went down this path. And what I don't understand is, so, and this is, I think, central to the entire case. Michael Lewis is like, well, there was this great business FTX that is generating profits. It's not a Ponzi scheme. And then unfortunately, Alameda Research, this hedge fund, which was connected to it, maybe in a little way, got run over. It got, you know, Binance, CZ came after them. And then there was a run on the bank. And then it was just, you know, out of their control.

5:33And it was just the wildness of cryptocurrency. That is absolutely not the case. And I'd actually written about this a while back. What happens here is you have FTX as a marketplace, as an exchange that makes markets in any kind of wild cryptocurrency you want. And then what Alameda Research would do is actually act as the market maker. When I come in and I say, I want to buy or sell some random coin, Alameda Research would take the other side and do it at a good price, a better price than Binance or any other exchange. And be willing to take the loss and show tight spreads, which is the hallmark of a good market maker and is what makes attract people to an exchange.

6:14The two were so intertwined about what made either one work that you can't differentiate them at all. And the idea that Michael Lewis is like, FTX is never an exchange if Alameda does not exist. And I can't believe that he does not recognize that given he wrote a book on exchanges with Flash Boys. Right. And it's, I mean, we can talk a little bit about Michael Lewis, but just going into like the details of the case. Like the defense of Sam Backman Freed looks even more ridiculous with the details that are starting to come out now. And this is from the Wall Street Journal. We talked a little bit about this on the compound, but it's worth bringing up here.

6:48FTX employees found Alameda's secret backdoor months before the collapse. And this is a story where you basically had employees seeing that the crime was able to go on and baked into the code. And they've brought it up to some of the highest levels of FTX. And not only did nothing happen, but the people who blew the whistle got fired. And this is how crazy this stuff is. So this is from, again, from the journal. Court filings have revealed a line buried deep in FDX code allowed Alameda to have a negative balance of as much as$65 billion on the exchange. I mean,$65 billion, like, that stuff doesn't happen by accident.

7:29And, you know, this defense that, you know, as a result, some things got overlooked. I mean, come on. I'm totally with you. The defense is going to have an impossible time trying to exonerate SBF because all the factors are there. I mean, it's in the code of the exchange that this crime was able to be committed. And lo and behold, they used it. And not only that, again, the idea that FTX is down the hall or in the same room on a different desk where Sam Bankman-Fried is, but he has nothing to do with Alameda Research, which is sitting on the other desk and it's Caroline Ellison, to me was always just incredibly ridiculous.

8:09And to me still, the thing that always blew my mind is how did they lose money? When you own both sides of the trade, when you own the exchange and the hedge fund side of it, Alameda could see what every other trader was doing at any time. They had so much information about the entire market and of a lot of illiquid markets. I think to me, not only did he commit all types of fraud, wire fraud, securities fraud, commodities fraud, they were also pretty bad traders as well on this. Well, the interesting thing about this case is we're going to start to learn how a lot of this stuff went done because I have a whole category of people I'm keeping an eye on who I call the flippers.

8:50There are people who are deep within FTX, and they're going to be witnesses for the prosecutions. They've pled guilty to one or many counts and are basically there to talk about exactly how this went down. I mean, here, this is one from FTX co-founder Gary Wang. This went down today, which is Friday. OK, so the prosecution says, did you commit financial crimes while working at FTX? He says, yes. What type of crimes did you commit? Wire fraud, securities fraud and commodities fraud. Did you commit those crimes by yourself or with other people? With other people. Who were the main people you committed these crimes with?

9:28Sam Bankman-Fried, Nishad Singh, and Caroline Ellison. I mean, there's going to be just a congo line of people admitting to these crimes and then helping the prosecution unpack how they happened. There's another person, Adam Yedidyo, who is apparently a longtime friend of Bankman-Fried. And he says, I was concerned that as a developer of FTX, I may have unwittingly written code that contributed to the commission of a crime. And apparently he quit as well. So this is really must watch court testimony as we start to see how this thing was built up and then eventually unraveled. How do you think he might get out of this?

10:05What do you think? I don't know. I don't know. Do you think it's possible? I mean, this is the thing, though, that it seems so glaring. Everyone he worked with has flipped on him. So to try to bring a little nuance and balance to it, what could play the role of SBF's defense? All right. So first of all, Ranjan, thank you for helping restore the central purpose of the podcast. Bring some nuance to the conversation. So I think it might be the jury, right? The folks who are in the jury, they're not people who are obsessed with crypto. They're people who are trying to figure out what crypto is. And they're people who like they hear the complexity.

10:45This is a point that Teddy Schleifer from Puck made on Squawk Box today. They see the complexity of the case and they stop. They stop being able to really understand the arguments of the prosecution. So this is again from The Wall Street Journal. I mean, dude, this courtroom sounds like an amazing place to be in. The Wall Street Journal says the first witness was a cocoa trader who testified that he had lost money in FTX. Several jurors yawned and a few looked blankly around the room. That's how he gets off. Okay, hold on. I like this because, okay, so yeah, two things. Even as I started this conversation talking about the complexity of a market-making hedge fund interacting with an exchange, already one could get lost as I'm trying to talk about this.

11:30I worked in this for eight years. So obviously for me, it's almost emotional and personal how ridiculous that arrangement was. But also, when the victims are a cocoa trader or crypto traders or crypto bros, and when the victims are not potentially the most sympathetic people in the world, maybe the jurors don't feel as emotionally struck as if it was a very compelling victim. So maybe that could be the way that they can wiggle out of this one. and it does seem like they've picked the perfect judge for this this judge caplan uh the wall street journal says judge caplan is known for telling it like it is he's an experienced jurist who has presided over prominent cases okay then his computer beeps in the courtroom and he says i don't speak computer he had one of the prospective jurists tell him i still don't understand how it works of crypto and the judge goes you probably have a lot of company in this court i mean it's unbelievable it must it's an unbelievable scene and that's a good that's what it will hinge on yeah that's a good point though that it could it's not any more complicated just because it is crypto versus any other kind of bank fraud wire fraud securities fraud as gary wang admitted to but once you throw in names like dogecoin or things that other people have never heard of and i mean ftx traded everything that's what they were known for right that's how they attracted people by it's we will make you a competitive price in whatever random shit coin you have that uh i mean even imagine in in the courtroom the word shit coin coming up and judge kaplan trying to take it seriously so all right i can see maybe that's how this moves in a different direction yes that's the only way but the prosecution is doing a good job i mean did you commit financial crimes while we're working at ftx yes i mean that's basically what you need to tell the jury.

13:27Okay, one minute on Michael Lewis. So we were also talking on the compound. This guy has gone from a journalist that was a little bit too taken by his subject to like someone who's now become more hated by then SBF himself. And there are rumors that he's been paid off. I started reading the book, by the way. I'm actually kind of enjoying it. It's just clear that he was way too taken by the subject. What's your, I mean, obviously, since last week, we've seen the 60 Minutes interview. There've been more excerpts, more interviews. So for me, I am so saddened by this just because having worked on a trading floor, I remember when I started in 2002, Liars Poker was like the first thing circulated around the floor when you join.

14:11It was actually, I worked at Bank of America and there were certain desks that we called equities in Dallas, which if anyone has read the book, that's kind of like the desk you don't want to end up on from LiarsPoker. That's what they referred to it as. That term was still used in a trading floor. And it was so well written and it's captured so perfectly all the absurdity of what happened and the ridiculous things that would happen. And so obviously this is so similar in that way that I can only imagine how entertaining and absurd and ridiculous this crypto world is. But I think what happened, I read one piece on this, is that Michael Lewis has really dug into the idea, and I'm sympathetic to this, loves the little guy against the big financial establishment story.

14:58And so still crypto against big banking, Wall Street, whatever, is where he's going to lean towards the kind of nerdy crypto guy that knows like a perfect mark for SBF. Yeah, exactly. So I can see how he ended up taking, but still he wrote a book on exchanges, knowing the actual business of how an exchange works out of everything else. And he wrote a book about bank trading floors. So the two of those things interacting, anyone who should know how this kind of crime would work, it should be him. But it's disappointing. And especially in the context, another thing I was reading was the blind side controversy, which we covered a few years ago.

15:42Which we talked about, correct. He said on one side, you know, someone is silent and doesn't communicate well. And that means that they're not smart and need help and need to be saved versus someone is silent and doesn't communicate well. And that means they're a genius and misunderstood by society. Oh, that's very interesting. I know. No, I mean, I couldn't after I read that, I couldn't stop thinking about just how different the portrayals were. right the um the set well the set even sadder is that he goes out and he's continuing to do like pre-pr for sam so this is from molly ball michael lewis at his book launch event says sam bankman freed watched his 60 minutes interview with his cellmates the former president of ecuador okay this is funny and the former ag of mexico and this is what lewis said they all love it and afterwards the prison guards were asking them for crypto investment advice no no don't celebrate the fact that people are asking sam makeman freed for investment advice in crypto why do you think he's doing this even i have a question do you think like you having written a book that i can see behind you always day one um like does a publisher ask the author to continue going around i mean it's probably potentially selling more books because it keeps it in the conversation is he Why would he go around and continue doing this?

17:10Is he this oblivious to the reaction, do you think? I mean, I think he's just taken by Sam. Still? Still. Yeah. I mean, he got Tom Brady, the greatest of all time. So Michael Lewis after that, easy. Goat and then, yeah, goat of all business books, I guess. Two goats. Two goats. In Sam's pen. So Ranjan, did you see that I sent you over this chart about Amazon versus Timu. So it's amazing data from Aptopia. I don't think it's been revealed publicly before, but it shows the percentage of Amazon users that are using Timu, which is the Chinese shopping app that we've talked about a few times on this page.

17:52And for those who don't know it, I mean, it really is having a surge and there's tons of issues with it. Obviously, the labor issues are at the forefront. It obviously also ignores every anti-spam marketing law on the books, but its growth has been absolutely phenomenal. So it's gone from, it looks like maybe 4 % of Amazon users used Timu in October 2022, and now it's 40%. And it has accelerated rapidly to the point where, building off our discussion last week with Bill Kovacic, Like, you know, even if you were trying to define Amazon as a monopoly, you see the surge that Timu has achieved and you're like, wow, okay, maybe it's not a monopoly.

18:34But just like talk a little bit about the growth that you see with Timu and, you know, having looked at that chart, what are the implications there and what do you think it says about Timu? Yeah, so, okay, let's separate this out into two things. First, Timu and then second to Amazon and Antitrust. So Timu specifically, the growth in this chart that you had in your newsletter is spectacular. But let's not forget, Timu is owned by Pinduoduo, one of the largest Chinese e-commerce sites. I think it's like a couple hundred billion dollar market cap. They are ready to invest and lose plenty of money in the rollout on this.

19:14They've invested massively in Facebook advertising and platform advertising. they're willing to take huge losses on every first purchase, which you buying your phone case last week, me buying an$8 drone like a year ago, they're willing to take huge losses on people buying. So when you think of it that way, it's artificial and there's no way it's sustainable. Obviously the bull case, and this is like, you lose money up front and then you get the customer into your ecosystem and then you start having them spend. But clearly Uber and others and many, many companies have made that attempt and haven't really succeeded with it.

19:58So I think on the actual success side, I'm very curious to see how long Tmoo lasts, especially in the US, because as you have seen, their emails are terrible. Awful. Like there's only so far you can go with, again, you give me something for like 90%, what I would pay on Amazon, I'll take it the first time. But once you go to even, you're only 10 % cheaper, I'm probably not shopping as much. But then the other thing, the antitrust, this is one thing I think got lost, has been lost in a lot of the conversation, is we only look at the customer, but the sellers of Amazon are customers. And the central argument, and I actually think this is really smart that Lena Khan and the FTC have taken in their lawsuit, is focusing on what happens to the sellers that it went from, I believe it was like 20 cents out of every$2 to$1 out of every$2 now goes to Amazon when you sell on their platform.

20:57And that they leverage massive power over sellers in order to sell on the platform and continue raising prices. So they are increasing prices, but the customer is not just you or I, the end customer. It's also the sellers on Amazon. And again, the argument is that overall, that inflates prices across the economy. Now, obviously, you have a player like Timu that comes in and deflates very temporarily, massively. But again, that deflation is not going to last too long. So I don't think this significantly affects the antitrust story, especially the way the FTC has presented it. Yeah, that's some terrific context and definitely helps me see the Tmoo data in a new light, which I wasn't thinking about.

21:43This could all be coming artificial promoted growth. Okay, moving very quickly, I wanted to briefly touch on the Blue Apron story. Ronjan, you're like very knowledgeable about D2C in this whole era. blue apron was worth about two billion dollars uh went in 2015 and it got 135 million in funding from you know big names is from cnbc backer big name backers including fidelity investments and uh it turned a profit in the first two quarters of 2016 setting up a nice ipo and it just sold to wonder group for 103 million so i mean it's a one one uh 20th of of what it was supposed to i mean what it was at six weeks i mean six uh six years ago what happened in blue apron is this a blue apron specific story or is this a broader d2c story this is i mean following on the team of conversation it's a perfect example of a company that scaled massively by discounting i'm sure if you're listening to this you listen to podcasts and if you listen to podcasts in the mid 2010s, you are going to offer 15 free meals, you are undoubtedly bombarded with blue apron ads, wherever you were, whatever podcast you're listening to, and promise six free meals, eight free meals, 10 free meals.

23:01So remember, in those early growth stages, they were just giving away product in order to scale, some number of customers would stick around, but most people would then churn away, but still they were able to show growth initially. And with that growth, raise more money, invest more money in that cycle. It was incredible. And they managed to IPO around, I think the last valuation was 2 billion. They IPO around 1.6. And then right away, once the public markets opened up their books and took a look, it was just straight downhill after that. And it was kind of a weird company over the last, have you used it any time?

23:40uh once on a date back in the day yeah back in the day it's it's a great time capsule of like mid-2010s tech um i don't know anyone who's even talked about it i'm sure there's customers somewhere again they sold for 103 million but but i think it's just it's an it's a bookend and especially as we will be getting into the zirp conversation with chris for leonard just a bit um and that'll be airing next on wednesday like i think it's like a perfect bookend to that entire era that, you know, 2 billion to a hundred million for a business that maybe it's worth a hundred million. Maybe the, the addressable market of people who want to make these ready-made meal things are, there's some people out there, but it wasn't what they promised it to be.

24:25Are we in another moment like that right now, except with AI, another story that happened since we spoke last is Anthropic, which I thought was all in on Amazon, right? Had this deal of 1.25 billion uh that amazon was investing up to 4 billion it's now there's now some rumors that it's pursuing 2 billion dollars in funding from google is this are we going to look back at this and say this is ridiculous or do we think that this is actually going to materialize okay so the ai why is anthropic isn't it strange by the way to have anthropic do up to 4 million dollar raising like three days later like 2 billion like did sundar see the headline and be like what the hell are we doing let's go put the money in yes yes that is exactly what belief is no no no it totally makes sense that is what happened he saw the headline he said i thought they were ours i mean come on like that you that had to be the way this works but which is crazy how do you operate a company i know i mean hey but it's it's such a wild time right now but to me the difference between meal kits and generative ai leaders is right it's a different time.

25:32And to me, that's actually the difference between the Zerpy era versus right now. Like, do we have a technology that I believe will be transformative across all business? Yes. Is our things a little bit frothy right now and a little, a little bit within this very narrow segment, probably a little stupid. Yes. Will there be certain winners within this that actually do, you know, turn into the greatest investments of the next decade? Yes. Like, so, so I think, The AI, I mean, it's funny because we just talked about Blue Apron against this context. Again, meal kits being bubbly is a Zerp era thing.

26:13Again, the idea that somehow you're going to scale massively meal kits, it was always ridiculous. Right, when you say it out loud. Yeah, the idea that one of these, anthropic open AI, maybe it's someone else, it could be the next Google or Amazon or Microsoft. that actually makes it seem like, you know, maybe you need to get in right now and someone will win. So here's the question. Would you use AI for therapy? So this is from Ilya Sutskever, right? This is, let's really see if this is more than a blue apron when you answer this question, okay? So Ilya Sutskever, who's the chief scientist for OpenAI, tweeted, in the future, once the robustness of our models will exceed some threshold, We will have wildly effective, with the asterisks around it, like to emphasize it, wildly effective and dirt cheap AI therapy will lead to a radical improvement in people's experience of life.

27:08One of the applications I'm most eagerly awaiting. Yeah, you are eagerly awaiting? No, that's what he says. Okay. He is. Personally, no. I think it's dangerous. So. I understand the appeal. It's definitely a need, but I think it's dangerous to let AI do therapy. I'm going to take the other side of this one because journaling, I use day one, that amazing app on the Apple ecosystem. Simply just writing what you do during a day is actually pretty awesome. Like it's pretty amazing and it's a great thing to do. So the idea that you could knowingly have what is a machine, as long as it's clear that it's a machine, interacting with you, talking back, understanding what you have been writing over the last 10 years, monitoring your mood over time, this stuff actually seems pretty reasonable to me.

28:00And honestly, like that over talking to a real person, it almost feels like it could be more private. So I actually think, and then if you get into bringing that type of good, societal good to such a mass audience, I don't know, I'm bullish on this one. I think obviously if it turns into something where it's like, you know, hiding the fact that it's a machine or trying to be purposefully manipulative, obviously these are bad things. But I don't know. I like this one. When you do therapy, and I've done it, you really open your heart up. And you end conversation. You know, I understand that it's really not accessible in this country.

28:45And that's a problem that needs to be solved. But the therapist can steer the person that's getting the therapy in very different ways. And when you're that vulnerable and that malleable, to turn that over to the machine, I mean, it's one thing if it's just listening and saying share and like talk about all this stuff. But the second it becomes sort of proactive as opposed to reactive, that's where you might get into trouble. It's my perspective. All right. Then maybe you think of this as an ongoing daily check-in type thing. Right. kind of things are perfect for it and it is interesting because the the very first like mass market or first big experiment with a chatbot was a therapy bot so we're just kind of coming around to it i think i remember this i'm gonna get the name of it yeah no no it was like a stanford researcher i remember and it was one of the first where they claimed to use a transformer model to actually generate language eliza eliza it was called eliza yep yep no and it always made sense because again speaking honestly to on your phone to something you know and getting an answer that's somewhat structured and repetitive and predictable i mean these things it's somewhat made for this right exactly and i think the fact that we're even here and having these conversations to me just kind of shows how far the technology has actually come it's pretty wild like the fact that this can even be in the realm of would you or wouldn't you as opposed to is it crazy nuts yeah yeah we didn't we didn't get have time to get to the twitter stuff it's actually quite interesting uh i'll just read it and then we can sign off but um so so linda yaccarino has been speaking to bankers this week and talking about how um they're going to introduce potentially three different tiers of twitter subscriptions including for those who don't want to be all in on the current product now.

30:39And she's also talking about how that advertisers have come back, 90 % of advertisers have come back to Twitter, but they're not spending the same amount of money that they were previously. And that sort of squares with the Reuters story that came out. I'm pretty sure this week that Twitter has had a 55 % year over year decline each month since Musk bought the platform. And in August, it was down 60%. So last week when I said that, Linda Iaccarino, her number one job was winning the money back. You know, it was one detail I left out is it's not just advertisers. It's also the amount that they're spending.

31:15Spending and debt servicing. Yep. All right, folks, more to come next week. Ranjan and I will be back on Wednesday with our interview with Chris Leonard. We'll also have our weekly breakdown of the news on Friday. Thank you so much for joining us. Please make sure to subscribe if it's your first time here with the show and hit five stars if you're a regular listener. Can't wait to bring you the Chris Leonard Show. So much is happening in the economy right now that's tied to the Fed. We are going to go into depth with him about that. Again, he's the author of The Lords of Easy Money. That's coming up Wednesday.