CNBC SPECIAL: Anthony Scaramucci on The Collapse of FTX 10/13/23

0:01Hi, I'm Kate Rooney. A year ago, Sam Bankman-Fried, also known as SBFried, was revered in the crypto world, running an empire valued at$32 billion. Now, the disgraced founder and ex-CEO of the bankrupt crypto exchange FTX has found himself on trial for allegedly masterminding one of the biggest financial frauds in U.S. history. I sat down with Anthony Scaramucci, founder of Skybridge Capital, for my documentary The Collapse of FTX, Insiders Tell All, available now at CNBC.com slash FTX. Scaramucci was a business partner and a friend of SBF. In the early days, he trusted and liked Bankman-Fried, describing him as the Mark Zuckerberg of crypto.

0:40But a lot has changed since then, and now Scaramucci wonders if he was rubbing elbows with someone he now calls the Bernie Madoff of crypto. So what was your first impression of Sam? I liked him. I mean, he was nerdy. He had the, I mean, he had the headset on. He had the, you know, sort of his hair was disheveled. But I have a kid that Sam's age, so it didn't surprise me culturally. He was a little nerdy, very smart, pretty definitive directionally in terms of where he wanted to go. I liked him. How would you describe him to somebody who's never met him, never heard of him? Well, I mean, there's a post fact and there's a pre fact.

1:24So I would say pre fact, I would have described him. I mean, I thought he was the Mark Zuckerberg of crypto. Is he now the Bernie Madoff of crypto? We'll let the judge and jury decide that. But when I first met him, I would have said that he was a visionary. He had an idea of where to go for an exchange. In the United States, we have two very robust exchanges, but they're both from turns of the century of years ago. The Buttonwood Tree, the New York Stock Exchange, that's a 1700s exchange. The CME is an 1800s exchange, and SAM was building a 21st century exchange. It just happened to be starting with cryptocurrency, but it was going to migrate into other assets.

2:07And so when you sat and listened to the vision of that, it was a compelling thing. You could see somebody eventually doing it. It won't be SAM, but somebody will eventually do what that vision entails. STEPHANIE DESMOND - Were some of those quirks part of the charm for a lot of investors? I think so. I think so. You remember, you have some visionary people that have built gigantic businesses that are outside of the mainstream. That would be Sergey and Larry from Google, Mark Zuckerberg from Facebook. You could look to younger people that see something and that are adapting more quickly. I mean, somebody that's considered way more conservative today, but wasn't early up, was Michael Dell.

2:52Michael Dell dropped out of college. He's a contemporary of mine. He went on to be one of the most successful entrepreneurs in the world. But he did things very differently at that time. He was assembling computer parts and making computers. And he told people he was going to compete against IBM. People thought that there was alacrity to that, but he was able to do it. So, you know, you do get generationally people that are transformative. I thought Sam was one of those people. Yeah, and he sort of fit into that prototype of what we think of as one of these young geniuses at the time. Yeah, listen, I'll say something that doesn't reflect well on me because we're now in a post-fact situation.

3:32The more time I spent with Sam, the smarter I felt that he was. You know, he was a polymath. He knew a lot about a lot of different subject material for a person his age. And so fair to say you liked the guy at the time? Kate, I liked the guy. I would have never sold 30 % of my business to somebody that I didn't like. You know, I also met his parents, who I had a lot of respect for. Joe Bankman, a law professor from Stanford, somebody I was building a relationship with. Kevin O 'Leary and I had worked on several charities that Sam and his family were involved in. I got to meet the family, his aunts and uncles and his parents.

4:11And yeah, I liked him. I'm not a guy to revise history. I can tell you how disappointed I am as a person. And I can tell you that I'm shocked at some of the things that have happened. I guess in life you can't be overly shocked. If you've been on Wall Street long enough, you're like, anything that you think can happen will happen on Wall Street. And so I can't be overly shocked. But disappointed would be the right word. Murphy's Law, right? Yeah, I just think that for him to have the following that he had and a very profitable business, I sat on that trading floor in January of 2022 and saw the activity and saw the volume, FTX, before it's collapsed at 12.5 % of the cryptocurrency marks.

4:59It's what you think of the magnitude of that globally. And so he had a profitable business, and he was designing a mousetrap, frankly, that could have been better or at least next generational than other mousetraps. But maybe it was his ego or pride or a lack of understanding or mendacity or malevolence. It was a combination of those things that led him to be where he is today. And you're certainly not alone. There are a lot of high-profile investors in FTX, a lot of people that didn't really like Sam. What about him was so likable? Well, you know, listen, if you're, again, if you're going to do something malevolent, you probably are set up differently than Sam.

5:44You know, he's driving around in a Corolla. He was less affected by material wealth. Sure, he was living in Albany, which is a well-priced condominium and resort complex. But I think some of that was security related. He didn't strike me as somebody that was on a mission of acquisition and ego. He struck me as somebody that was really trying to do something transformative. And I think we like, I think our nature as entrepreneurs and as risk takers is we like people that are probably more purposeful and perhaps less transparent about the acquisition of money. So he definitely had all of those affectations, whether or not that that's true or not.

6:24That was the aura that he was giving off to myself and other venture capitalists. Was that aura and that sense of humility, that philanthropy, do you think in hindsight that was a shtick? Well I can only go by what he writes. You know, he's a direct messaging journalist saying that he was playing a game of virtue signaling. And so I don't know if that was a moment of fatigue or that was a moment of sarcasm. But listen, you have to do things right in our industry. Ultimately, at the end of the day, this is one of the most regulated industries in the world. Cryptocurrencies are less regulated, but you are endowed with the trust of a customer.

7:06So you can call me stupid if I make a misjudgment and I buy you something that goes down in value, but we have to be honest. We have to run our businesses with very high integrity. And so I'm wondering where the slippage was there. You know, does he have a God complex? Did he think he was better than it? Did he think, okay, I can move this over here temporarily and then move it back? I don't know. You'll have to ask him those questions. But for me, I would say that I liked him. I trusted him. I would have never sold a piece of my business to him, but I didn't trust him. I brought him to the Middle East with me.

7:41I introduced him to senior people in a couple of different countries, people that I had multiple decade relationships with. so I'm not going to revise history. I liked him and trusted him. When I found out what he was really doing, it was very disappointing. Surprising, even though it probably shouldn't be surprising given the nature of human beings and what happens in the world, but I was disappointed. And some of his compliance people that asked me for advice, I said, you've got to tell the truth. Go out and tell the truth. Explain what happened. because if you weren't part of it, you don't want to be implicated in it now.

8:18And so, you know, that's where things are. In hindsight, do you think he was playing up any of those eccentricities? You know, perhaps. I mean, we'll have to see how this unfolds. I think we're still waiting for a tremendous amount of facts. We have a lot of speculation. You know, I think I've mentioned this to you before, and I'll share it with you here. I went to the Bahamas on November the 8th. I flew down there. I told my wife, I said, Deirdre, something's wrong here. This appeared to be rescue financing. I'm on Wall Street a long time. You could have an asset liability mismatch, meaning you have short-term liabilities, but long-term assets.

8:59Maybe you need a bridge loan, something like that. Things like that can happen on Wall Street. But this was way more than that. Okay, this was a significant breach of trust and a significant violation of terms of service. And so when I went to the Bahamas, I was there under the auspices of that it was rescue financing. I left the Bahamas saying, okay, there's a huge problem here. You know, and I had thought that the deal was going to get done. I think I even talked to you that evening and said, I think the deal will get done. I did not realize the magnitude of the hole. I realized that he did violate the terms of service, but if he could make people whole, you know, maybe he could make this problem go away for himself and perhaps the industry.

9:44But I think the magnitude of it was too big. What was his state of mind when you were down there? Did you get the sense that something much bigger was happening? You know, listen, it was a little confusing. You know, his dad was more talkative than him. Some of his staff was more talkative. Sam seemed sort of disassociated, like the scene in Private Ryan where, you know, the battle's happening and somebody loses his arm and they're actually holding their own arm in their hands. Sam looked a little disassociated to me, like he was having a hard time processing that all this was happening to him as quickly as it was happening.

10:19Did you get the sense before you went down there and before all of this played out that FTX had any sort of financial issues? No, I had no sense of that. In fact, as I said, I did a lot of due diligence on the company. It was a profitable business, not just me, Bain Capital. I could list a legion of people that did due diligence on the company. So, no, we didn't think that there was anything untoward. You can piece back together now. You can do an autopsy and say when the Three Arrows crisis happened and Terra Luna went down and you had the Celsius situation, Sam was perhaps more affected by that than we all realized at the time.

10:58And so maybe that's when his problems really started to develop. What did due diligence look like on the investor side? And what sort of materials was he providing investors that would have kept them from some of this information? Well, he had a full data room. If you went through a standard checklist of due diligence, questionnaire, background checks, data room, accounting, financial analysis, audited accounting, samples of account statements, things like that. I mean, he had everything. I mean, you don't dupe 25 of the world's most sophisticated venture capitalists if you're not going through the list.

11:39So, I mean, he had everything. But listen, you know this, you're a great investigative journalist, you can perpetrate a fraud. That can happen just like any other crime. You can be in the most regulated industry in the world, perpetrator fraud. That's the FDA, Theranos. Probably the second most regulated industry in the United States is securities and banking. And so we had the Bernie Madoff crisis and the regulated side of the industry. So yes, you can perpetrate a fraud. You're a dishonest person. I guess what you need to do is have a very close-knit group of people to perpetrate a fraud. You know, good financial services organizations have lots of checks and balances around because there will always be a person of conscience that will protect the organization from a group of fraudsters.

12:28And so he had a very close-knit group of people that he was working with. So he had all the paperwork that any high-profile, experienced investor would really look to to make sure that they were doing their diligence. Sure. Yes, he did. So nothing at the time seemed, like you said, untoward? I would say the very opposite. Not only did it not seem untoward, there was no smoke in any quarter of the business. In fact, if anything, business looked remarkably profitable. 12.5 % of the global cryptocurrency markets, 2 to 3 basis points on the volume that was coming through the FTX exchange. It's a very profitable business.

13:09And it was scaling, it was growing. And remember, because of the collapse, the prices in the industry were down anywhere were from 40 % to 50%, but his market share was up 40 % to 50%. So he had a profitable business. I wonder if, I guess FOMO would be the word, but a fear of missing out on what seemed like a high growth company. Did that play into attracting some of these big name investors? Well, I think that always plays in. I think that's human nature. I mean, that was, you're making me reminiscing the dot-com bubble of 2000. I think a lot of people got into that late. There was a collapse.

13:50Web 1, if you will, down 60 % to 80%, depending on where prices eventually dropped. But the March of 2000 debacle is similar to what we're experiencing now in what we would call Web 3 or digital assets. So yes, you get a little bit of FOMO. You get some greed. Charlie Munger likes to say envy is really the thing that drives people. They look over the fence. They say, oh, somebody's making more money than me, but they're not as smart as me. Let me do what they're doing. Some of that could be happening, sure. I didn't see that with Sam, though. I mean, again, I want to be as open with you as possible.

14:23I saw somebody that had a vision for a next generation exchange. And I saw somebody that was operating in the cryptocurrency space because it was new. There were arbitrage opportunities to take advantage of. And he was eventually going to migrate into an all-purpose exchange, which fit me nicely because I see myself as a traditional financier that has exposure in decentralized finance. And so I see the future. I've got one leg in both sides of this thing. I think our name of our firm is appropriately named, even though we named it 15 or, excuse me, 18 years ago. You know, it's a bridge between these two groups, if you will, traditional finance and decentralized finance.

15:07And so I saw him as somebody that saw a vision for that, which is why I was willing to sell him a piece of my business. So you feel betrayed? Oh, a thousand percent. I'm betrayed and disappointed and you don't do that to people. For the full Sam Bankman-Fried and FTX saga, watch my documentary, The Collapse of FTX, Insiders Tell All. Head over to cnbc.com slash FTX and watch today. I'm Kate Rooney. Thanks for listening.