Sam Bankman-Fried & the Unravelling of FTX with Brady Dale

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1:48Hello, I'm Anthony Scaramucci, and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcasts and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know, I can roll with the punches, so let me know.

2:23Anyways, let's get to it.

2:32Sam Bankman-Fried, someone people have asked me a lot of questions about in recent months. I, for one, was fooled by Sam, along with many others. My guest today, Brady Dale, has written the first book on Sam and FTX. The subject is still painful for me, but it's important we talk about what happened, the personalities involved, and why blockchain and cryptocurrencies are still going strong.

3:03So joining us now, a veteran crypto reporter, Brady Dale, who's out with a new book, SPF, How the FTX Bankruptcy Unwound Crypto's Very Bad Good Guy. Brady, I have to tell you, I'm still suffering from post-traumatic stress syndrome from the whole situation. And so I pride myself in reading everybody's books here on Open Book before I start these interviews. But in a moment of honesty, I had a tough time reading your book because it was so raw and visceral for me and so painful. But listen, you wrote a great book. And the book wasn't painful, right? It was the experience that you're remembering, right?

3:41Yeah, exactly. I was reliving how, and I was also while I was reading your book, and I read most of it to be totally ganda, but what I was reading was making me relive. And it was also making me question my judgment. And we're going to get into that as well, because I saw something in Sam that I frankly liked. I saw something in Sam that I thought was different. I thought he was the, I've said it before, I'll say it here on this podcast. I thought he was the Mark Zuckerberg or the potentially Elon Musk of crypto. I did not see him as the Bernie Madoff of crypto or the Charles Ponzi of crypto. And so I got that wrong.

4:14And so one of the calculations going on in my head is how did I get that so wrong? And obviously many people got that wrong alongside of me. But let's go to your book. It's an amazing year. I'm going to set the scene for you. It's in your book. The view of Sam Bankman Freed, May of 2022. What was that view of Sam Bankman Freed, May 2022, one short year ago? Well, so that would have been, you know, if we go to mid-May, that's right after the Terra collapse. So just in case folks don't know, there was this stable coin called Terra. FDUM thought it was this really daring approach to creating a unit of value on the internet.

4:55Others thought it was a crazy kind of Ponzi scheme. And it had unwound in a way that everybody had always said it would unwound just a couple of weeks prior. And it turns out that a lot of big players were exposed to Terra. And so a lot of the cryptocurrency market was unwinding. And then as that happened, it seemed like FTX was very nearly the last big man standing. And at least, I mean, you know, Coinbase was still standing. Gemini was still standing at that point. You know, they were OK. There were other big people standing. But it was the only one that started to step up and sort of save the entities that it thought in its wisdom at the time was worth saving.

5:36And so the crazy thing about Sam at that point is it looked like somehow, because by that point, you're six months into the peak of the crypto market coming off. You know, Bitcoin had peaked November, six months before that. And everyone who knows crypto knows that after Bitcoin peaks, it's probably just going to go down for a while. It can all come back, but probably go down for a while. And so it had been six months of the market going down. And somehow it seemed like Sam was the guy who still had a giant pool of money, which suggested that he was the smartest guy in the room, that he had planned everything out, made a ton of money, got out at the right time, and, you know, had money to spare.

6:11So again, I'm not going to put words in your mouth, but a media darling at the time, a good Samaritan, you know, a quote unquote JP Morgan stepping in to save the cryptocurrency markets, a man wanted in Washington to regale them with his rationality and his common senseness and his sort of unaffected folksiness. Did I get all that right? Yeah, I think so. So what do you think started the sea change in opinion? Was it just the explosion that took place in November? Was there anything lurking under the surface or was this just, okay, this is, you know, again, Bernard Madoff, there were some people that were accusing of charlatanism, but most people were not.

6:57The mainstream people thought he was a decent guy until December of 2008 when he was exposed and arrested. Was that the same with Sam? How would you how would you view that? Well, you have to look at Sam two different ways. So you and I come at this thing kind of in opposite perspectives, I think, on some level, because, you know, I've been a crypto reporter. I report from within the industry and I've always kind of reported from the perspective of the industry. Right. A little bit different than other crypto reporters. I sort of like take its viewpoint as granted as I report on it. Whereas, you know, I think you come as like a more traditional guy who sort of like vied with Sam because it looked like he sort of spoke your language a little bit.

7:32So I think on the outside, people like Sam because he sort of spoke the traditional finance language. He was skeptical of crypto within the crypto world. You know, it's not a monolith, but folks had always been somewhat skeptical of Sam. And as you're getting later in 2020, 2022, that was all growing. I mean, people's two big problems with Sam, of those who had them, there was people who still thought he was a hero all along, even within the history. But of those who had him, there's two big problems is one, he's running a centralized exchange, which everyone uses them. But the idea is they're kind of a necessary evil.

8:07They're a stepping stone to the bright crypto decentralized future. It's not an end point. And two, he had kind of acted in a fairly predatory fashion within the DeFi world, sort of like plowing millions or billions through there to sort of hover up as much value as he could. And so those things were causing people to not really love him because he wasn't really seen as like a good neighbor within crypto. And then just before FTX blew up, people got pretty mad at him because he seemed to be hogging all of the space in terms of deciding what the future of crypto would be in a legislative fashion.

8:41And a lot of folks didn't really like the vision he was articulating. Folks got pretty mad at him in October when he put out this big vision statement of what the law should be. And everyone assumed he had like the ear of all these members of Congress and he was going to define like what the next law was going to be. I think that was a little bit overblown. But there were a group of people who weren't crazy about him even before it all blew up. And then, of course, everything blew up and no one was crazy about him. So I find the whole thing fascinating. Of course, he had that debate with the Bitcoin maximalist.

9:11You'll know the guy's name. I can't. Eric Voorhees. And that that didn't seem to go well. That was right after I had gotten back from the Middle East trip with him. Let's go to you for a second, Brady, if you don't mind. How did you come to cover crypto? Sure. So I was a general technology reporter. And the way I always describe this to people is, you know, I was writing about technology for a former New York observer. And I just always liked to write about anything that was weird. So robots, exoskeletons, you know, machines that talk and cryptocurrency. And my origin story for getting interested in crypto is a little is pretty is kind of funny.

9:44I got interested in crypto. I was interested in its potential as a way to manage intellectual property rights because I liked to write about ebooks. That was one of my favorite things to write about, like Kindles and things like that. And I realized that a Kindle could easily be a hardware wallet. And that was, you know, it could be like a wallet for verifying ownership of a digital book or whatever. That was an interesting use case to me. So I dug into it. And then that kind of opened the door to me writing about all kinds of stuff. And then, you know, CoinDesk recruited me because they liked some of the stuff that I was doing.

10:11And then once that happened in late 2017, you know, I've been full time crypto ever since then. So I got to ask this if you don't mind, because you are a journalist, you don't have to answer. You have license here, Brady, you don't have to answer. But are you a disciple? Are you a crypto skeptic? Are you a crypto agnostic? Or are you a crypto believer? How would you describe yourself? I guess I would put myself somewhere on the agnostic to believer end. I mean, I've always been pretty open about this. I'm in my 40s. I've always been interested in technology. I graduated high school without an email address.

10:45I remember people making fun of email. I remember people making fun of the internet. I remember people making fun of social media. And again and again and again, these new things came along and they all end up being hugely important. So like long before I ever got interested in crypto, I just sort of made the decision that when lots of smart techie types get excited about something, it may take a while, but it's probably going to work out. So that's just kind of been my viewpoint for a long time. And that's sort of how I look at cryptocurrency. That said, I'm happy to people get mad at me like they do any journalist.

11:17We're sort of reporting on the warts of the industry because I'm happy to do that. Like, I'm not trying to like, you know, they call it FUD in crypto. If you do anything negative, I'm happy to sling FUD. I think it's important for industries to be held accountable. But I don't look at it from the perspective of this stuff is all nonsense. It's going to go to zero eventually. That's not my that's not my approach. I don't know what's going to be important or how. but I do sort of think it's with us for the foreseeable. I think it's well described what you're saying. I was a crypto skeptic. I was a traditional finance person.

11:47I became a little bit less skeptical after my very short stay in the White House when I learned that the Fed was talking about digitizing the dollar. I didn't make my first Bitcoin investment until October, November 2020. I think I bought one in October and several more in November and then started scaling. but I had no idea who Sam Bankman Freed was. I didn't meet Sam Bankman Freed until June of 2021. When did Sam Bankman Freed come across Brady Dale's radar screen? When did you first realize who he was and what he was doing and what his master plan was, which you very well articulate in your book?

12:25Thank you. So Sam, I didn't really, he didn't come onto my radar until 2020 during DeFi summer. However, FTX had been on my radar before that. It was, you know, as a journalist, you see things all the time that you're like, I should write about that at some point. The thing that I liked that FTX had is I worked with another reporter at CoinDesk at the time who would talk about FTX sometime and I would go look at the website and they had, I hope this isn't an inappropriate view to say on your show, but they had a shit coin index. You know, they had, you could invest in a bunch of, you know, crappy cryptocurrencies.

12:58And I thought that was a funny concept. And so it was one of those things that I kept meaning to write about, but never really got around to writing about it. And then in DeFi summer, which was this moment in which, you know, sort of decentralized finance was getting very big on Ethereum. And I talk about this in the book, the first one of those products to really pop was Compound, which is basically a money market, a lender's market on Ethereum. And they did this comp token. And Robert Leshner, the founder of compound introduced me to Sam because FTX was the first to list a futures market for the comp token, like, you know, right after it came out.

13:31And I was doing any story that I could about comp, because it was such a crazy time when it first came out in June of 2020. Did you get any vibe, let's say pre-November, any vibe of the Sam nefariousness? Well, is it nefariousness? So, okay, you know, as you know, from having at least read part of the But you know that I sort of characterize myself much like you characterize yourself as sort of generally being pro Sam or sort of Sam believer. And I think that is the most fair way to describe myself, but where everything blew up, which is not to say I didn't have any notes of skepticism about him.

14:06I think there were two things, but neither of these get you to the massive debacle that ultimately happened. But the two things that bothered me about Sam is, one, I didn't love the way he was sort of plowing through. a little background for folks, which could be a little bit hard to follow. But during DeFi summer, this thing happened where people would spin up these new tokens and they would give them to people who try out their different stuff was the easiest way to describe it. It was called liquidity mining or yield farming, whatever you want to call it. But basically the idea is they'd make these new tokens, which would theoretically have some value.

14:36And if you use their stuff and you had to put some money at risk to use it, you could get some of them. And it was a growth hack, you know, it was a classic growth hack, right? But the idea was they were trying to do it. These tokens had limited supply. They wanted people to be longtime shareholders is what they were going for. But deep pocketed investors like Alameda Research would just plow a ton of money and hoover up as much of those coins as they could and then just dump them, which completely wrecked the whole process of trying to build a basis of users. Right. And Alameda would do this just really aggressively.

15:07Right. And I understood why, because it was very clear to me at that point that Alameda didn't really care about the industry that they were in. They wanted to make as much money as they could so they could do their EA thing and save the world. You know, that's why they were doing it. It kind of bugged me because it didn't seem to be like in the best interest of the industry that they were in. But I also was just like, well, I don't know, you know, it's capitalism. People can do things wherever that for whatever reason they want. But that sort of put me off. And then the other thing that also made me nervous about Sam, and this might be a point where you and I don't see things quite the same way, but he just clearly did not understand or buy into what I understand to be the value proposition of crypto.

15:43So like he would talk a lot about how it was problematic that blockchains were too slow and you couldn't rapidly get to millions and millions of users. Right. And I got where he was coming from. But like, I was just like the trade offs that you want to make, if you make them, you might as well just not do blockchain. And so it just seemed to me like he was sort of fundamentally out of sync with the whole space. And I sort of wondered about his long term viability based on that. But I still, you know, on the day that FTX blew up, I was in somewhat of denial that day, not because I was so invested in Sam, but just because he just seems smarter than that.

16:17You know, it was just like, I just didn't think I didn't think he'd do something that dumb, you know? Well, that's interesting. I mean, he did he did say, I mean, I have a hindsight test, obviously, where I see the world 2020 or sometimes I tell people hindsight is not 2020, Brady, it's it's 2010. We see better reflecting backwards than we do forwards, you know, and I he said something to me, you know, now upon reflection, he said something to me that should have been more troublesome. And this is, I guess, one of my shortcomings, he said, well, I don't really care about crypto. This is a money-making arbitrage opportunity.

16:49So there was no, and I'm not saying he needed to be a Michael Saylor-like evangelist, but it just felt like it was probably higher level opportunism than really what I'm hoping long-term will be the use cases for crypto, which is a delayering of transactions and making transactions more efficient, more time efficient, but also more accurate, more secure. Those are the real hopes of the blockchain. Well, and right. And to your point, how are you going to be the Mark Zuckerberg or whatever of crypto if you don't buy in, you know, like Mark Zuckerberg was never going to be Mark Zuckerberg if he didn't think social media was a good idea, you know?

17:25He thought social media was awful. Right. He wasn't going to be the guy who made it huge, you know? It's a really interesting point. It's the reason why I'm bringing it up. It doesn't reflect well on me because I'm now using a hindsight test to see that. But I think you bring it up in your book and I think it's really worthwhile. I think it's worth sharing with your readers and my listeners You say a couple of things about Sam, which made me laugh. I'm going to read them to you if you don't mind. One is your subtitle, Crypto's Very Bad Good Guy. You also call them a geek with swagger, which is a little like jumbo shrimp, right?

17:55There's a little bit of oxymoron going there. And then you said something about him, which turned out to be very true, actually, that there was some fame addiction there where he was addicted to the attention. So handle all three of those. Let's start with Crypto's Very Bad Good Guy. What do you mean there? Yeah, well, so it's kind of meant to be a double entendre. You know, Sam's whole thing was he was going to save the world. He was the smartest guy in the room. He was going to make a pile of money. He was going to deploy that money to do more good per dollar than anyone had ever done before.

18:26That was his big vision. So he was meant to be this good guy. It turns out, though, he ended up not. He did some good. I mean, definitely, you know, spread some money around. But he ended up losing people a lot more money than that in the end. And so he was very bad at being a good guy. Or the other way, the other side of the entendre is he was a very bad guy pretending to be a good guy. So he ultimately had very poor ethics, but was presenting himself as a good guy. So I sort of it's kind of like which way and it's open to the reader to interpret it. Like, which way do you think he was? Was he just bad at being good or was he actually bad and pretending to be good?

19:01You know, I don't really have a super clear answer on that myself. I sort of what I want people to think through as they read the book. I think the one big thing I will say about it is I have never been a huge fan of self-righteousness, even though where I was a journalist, I was a professional activist. But still, you know, super intense. Like, I know what's right. You're not derogatory to other people that have a different opinion than you. You're just evangelizing your opinion. No, I do. I do. I do know that we have a lot of self-righteous and we have a lot of scolds in our population now. Yeah.

19:31You're not admitting the same level of the carbon that they're admitting. You're a bad guy. they're a good guy. P.S. we're both admitting carbon so I don't understand all the hypocrisy but well so but my point there on Sam is um is I feel like the fact I feel like he was able to do more harm because he convinced himself it was okay because he was ultimately going to do so much good. That's the danger of the self-righteousness there that's and and that's what I think is it particularly alarming. You help me see a lot of things and so I just want to address them with you. People often ask me, did I think that this was a nefarious plan from the start?

20:07Meaning, did he have a piggy bank known as Alameda? He was perhaps processing trades and taking advantage of volatility and arbitrage in the situation. And then he said, hey, maybe I need more rocket fuel. Let me set up this FTX thing. I'll make it my own personal piggy bank. You got me across that finish line, by the way. I think it was malfeasance from the start. What say you? I'll tell you why you got me over the finish line in a second, but I want to hear your thoughts. Well, I mean, I think it was always meant to be a way to make as much money as possible. That said, I still think he wanted to make the money to like cure malaria or whatever.

20:43I mean, that's always, you know, I always think cure malaria. I don't know. That was his top goal. And I think he thought he could actually do it in a way where his customers would also make money. I don't think he ever thought a hole would be discovered. Yeah, I think it's pretty clear that he was willing to take that big risk, outsized risks to do this massive amount of good all along. Yeah, so that's my theory, right? He had a little bit of a God complex. He said, no problem. I'm going to borrow Brady and Anthony's money. I'm going to take it out of their accounts, put it in my accounts. Of course, it's temporary.

21:14I'm such a genius and I have a little bit of a God complex. I'm going to get everything right with my trading. I'm going to make myself tens of billions of dollars, which is going to be used as fuel to save the world. And then at the appropriate time, very ethically with no criminal intent, I'm going to take Brady's money and Anthony's money and put it back in their accounts. And it will have always been safekeeping. But since I can't do it technically because of the way the terms of service are, I'm going to break these rules. But it's OK. It's not a big deal because it's me. I'm a god. I'm a god complex person.

21:46I'll get my three or four cohorts to help me build a backdoor software program. I'm going to break these rules. Entrepreneurs have to break rules, but I'm a great guy. Money's going for a good cause. I drive in a Corolla. I don't really care about my hair or makeup or hair products. And I'm going to get Brady and Anthony's money back. Is that it? Yeah. My take, yeah, completely squares with yours, is I think it becomes easier for you to justify to yourself taking those kinds of risks if you're not buying yourself gold-plated airplanes, But, you know, you're creating opportunities for people in the developing world.