Inside crypto’s wild rise and fall with “Number Go Up” author Zeke Faux | E1807

0:00I had spent a couple of days hanging out at FTX's offices. i'd sat with sam he's answering emails from other ceos he's on slack he's like doing interviews and in that time i didn't pick up any clues what i was suspicious of was crypto in general and i would talk with sam about this which is that he claimed to be an effective altruist he claimed that everything he did was so that he could do the most good for the greatest number of people but meanwhile he was running what i thought was at best like a offshore casino where people could go gamble on like random tokens and would probably lose their money which seemed like kind of bad for the world um but what i did not suspect was that he was taking all the money out of the back of the casino bringing it to other casinos and gambling it himself and losing it And that when the customers went to cash in their chips, there'd be nothing left for them.

1:05You know, I didn't suspect that. And pretty much nobody else did. I don't think anyone can say that they called it. This Week in Startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. Twist listeners can get$1 ,000 off for a limited time at vanta.com slash twist. Lemon.io. Need to speed up your product development without draining your budget? Hire vetted engineers from Europe at lemon.io. Go to lemon.io slash twist to get 15 % off for the first four weeks. And CLA.

1:46Innovation takes balance. clients clacpas consultants and wealth advisors can help you get from startup to where you want to end up get started now at claconnect.com slash tech all right you may remember back in 2021 at the height of the crypto chaos did a little investigation on tether on this podcast so we had a couple of colorful characters on the show including bitfinex the anonymous tether critic and one of our best guests during that time period while we were all trying to make sense of what was very clear to a number of us a grift crime and insanity that made no logical sense some people had suspended disbelief some people were in on the grift but one of the best guests was bloomberg investigative journalist zeke fox and zeke had just published an article titled anyone seen tethers billions that was back on episode 1300 500 episodes ago uh zeke is back on the program because he has a book coming out today t-o-d-a-y today and i want you to go buy it uh because it's awesome i'm listening to the audiobook and uh this is going to be a classic the book is titled number go up inside crypto's wild rise and staggering fall uh for the book zeke spent a lot of time with spf before the ftx collapse and with uh michael lewis there uh doing a story on it and uh he also purchased a twenty thousand dollar board ape get access to ape fest he traveled to el salvador to learn what happened uh or what happens when you bet your country's treasury on bitcoin and then quite uh excitingly he went to the philippines uh to meet a few of the only active axi infinity players and so much more zeke welcome back to the show thank you so much for having me back on i'm really excited so uh you spent the last two or three years writing this book and there's so much you uncovered uh in terms of griff crime and insanity and i guess everybody really wants to start with sbf sam bankman freed is now in jail he's in custody he's not just charged they revoked his bail uh apparently um and you got to spend time with him and you saw him at his peak when he had uh been paying people like bill clinton quarter million dollars to come speak that's the going rate for presidents these days um giselle and um who's a football player tom brady her ex-husband yeah they got 50 million combined yeah 50 million and then uh king of the grift who's the guy from shark tank who got like 15 million oh mr wonderful yeah 15 million and i saw him down in the bahamas at at the celebration of ftx polishing his dome with a razor right before he went on tv i learned some incredible some tricks yeah so let's start with that a moment which is very vivid in the book by the way you're a great writer by the way one writer to another um really take you to that scene but take us to that scene where you're staying on one side of the island sam bankman freed's holed up in his penthouse he's having this crazy conference and all these people are running around celebrating this hopped up on speed degenerate criminal and the question i have for you is while you're watching this as an investigative journalist doing actual journalism not content creating but like actually reporting from the field was it clear to you this person was an absolute degenerate scumbag so i have to say i have to admit no like i wish i was here to tell you i'm the guy who took down spf you know i could be on like my speaking tour right now as like the hero reporter who exposed the fraud but i had spent a couple days hanging out at ftx's offices i'd sat with sam he's answering emails from other ceos he's on slack he's like doing interviews and in that time i didn't pick up any clues what i was suspicious of was crypto in general and i would talk with sam about this which is that he claimed to be an effective altruist he claimed that everything he did was so that he could do the most good for the greatest number of people but meanwhile he was running what i thought was at best like a offshore casino where people could go gamble on like random tokens and would probably lose their money which seemed like kind of bad for the world um but what i did not suspect was that he was taking all the money out of the back of the casino bringing it to other casinos and gambling it himself and losing it and that when the customers went to cash in their chips there'd be nothing left for them um you know i didn't suspect that and pretty much nobody else did i don't think anyone can say that they called it yeah well i mean and we've seen this before bernie madoff went for decades um and then even when people started to suspect bernie madoff it took a little while for people to believe some of the whistleblowers enron took a little while and theranos took a little while we have a trend here um sociopathic criminals uh you know deranged people there's all different kind of archetypes here um but do you think he was a he outset did you think at the outset he was trying to be a criminal or do you think he was just a degenerate gambler on speed who did what people on speed do which is you know get manic what's your take now after all this information has come out so what i think is that he and his buddies were so taken with this mission that they were going to be super rich make a trillion dollars and use it to save the world that this made them even more dangerous and they thought that any risk any illicit activity that it took to get there could be justified and like i've talked with people who hung out with them that summer but before the collapse who said that all they were talking about was like the upcoming ai apocalypse and how they were going to stop it um and i've talked with people who knew him when he was a teenager who knew him when he was in his early 20s i think his interest in effective altruism utilitarianism was sincere and like i said like that's what made him so dangerous and that i it's i don't know that when this decision was made but at some point they sam and his colleagues at ftx decided that it was worth it to dip into these customer funds to keep things going because in their minds the payoff was so huge like there was really a chance they could save the world they were talking about buying an island nation that could be like a headquarters for humanity an event of like a giant disaster they were really uh they yes they were really going crazy with the power that is the word that comes to mind to me yes so these young individuals um who um came from a lot of privilege and from ivy league backgrounds uh they're elitists right these are elites in our society um you would describe them all as like children of elites definitely i mean they all came from uh they all went to great colleges and it's the some of these people that was their first job and one thing i thought was really telling was that when ftx collapsed um before any criminal charges came down or anything these the kids that were running it were all gathered in the bahamas they were at sam's apartment.

10:11They're crying. They're hugging each other. And a lot of them fled the island and went back home to their parents' house. Like they never really lived on their own. If you're a SaaS or services company that stores customer data in the cloud, then you need to be SOC 2 compliant. You knew that from a third party and you need that third party to close big deals. And if you want to get compliant easier and faster, you need to use Vanta, V-A-N-T-A. Vanta makes it so easy for you to get and renew your SOC 2. On average, Vanta customers are SOC 2 compliant in just two to four weeks. Compare that to three to five months without Vanta.

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That's vanta.com slash twist for$1 ,000 off your SOC 2. okay so just so we we're teeing this up correctly you've got a bunch of kids with elite parents from ivy league backgrounds who have never worked a day in their life who are also uh who are enamored and having delusions of grandeur that they're going to be the ones who save the world they get involved in gambling and criminal enterprise knowingly uh start stealing the money and start making these crazy bets um but i've i've sort of brought it up twice here i'm gonna bring up a third time uh because you haven't sort of locked into this and i think it's a key factor because i interviewed spf and he was shaking his leg and this is a month before he got pinched i think or before all this started to come apart and he was shaking his leg and moving his arm around and his head and the twitching made me as an interviewer doing random acts of journalism as a former journalist uh and this was in a corporate private setting i did this interview i started to feel bad for him that he was having a panic attack perhaps because the shaking was out of control and then i thought to myself you know what i know people who've been addicted to speed and amphetamines and adderall and stuff this kid's got to be banging 50 or 60 milligrams of adderall or something what is going on your body does not shake like that did you see that same behavior because he seemed to be like these a lot of these privileged kids who are around with all these uh mind enhancing performance enhancing drugs you know they they've been on them in some cases since school because they're so competitive in going to ivy league schools and getting into them that there's a lot of abuse in the system what role did that play and did you see that so obviously like when the reporters around you know they put away the uh amphetamines but there's been pretty widely reported that a lot of them had uh adderall prescriptions and i think sam he's has complained that in prison he hasn't been able to get his adhd meds um and has impacted his ability to prepare for the defense i saw the twitching that you were talking about it was actually most crazy on stage in the bahamas when uh when he was with michael lewis or then later bill clinton in front of this big audience his legs were tapping so hard that he would like get his hands and try and like hold his leg down yes but then like the other leg would start tapping yes he was trying to control the shakes yeah it was uh his mannerisms were really weird and i don't know i don't think i can read into like what that comes from if he is like that when he's not on meds um but when i saw him towards the end um just before he got arrested when i was at his apartment he was wearing a t-shirt with like shorter sleeves and i could see he had this uh ms on his arm the ms patch e-m-s-a-m then this is another weird habit of his which is that like one of the skills of being an executive is like knowing when to duck a question so i asked him at that time like hey what's that patch is that msam because i think some people on twitter had been speculating about it by then in fact i just pulled up the tweet for those watching here of him at his like crazy desk with like six monitors as a trader and instead of it being the 80s and he's doing cocaine at the desk he's got these msam patches all over the desk um these are for epilepsy or something it's insane it's uh it's he said he's he's depressed he's prescribed them for depression but i said hey is that just for depression or is that kind of a performance enhancing drug and like easy answer would be like i'm depressed my doctor gave it to me sure that would have been true but he's like well i don't know it's tough to say i mean does it enhance my performance and i'm like oh my god um but yeah these guys thought they could work you know 22 hours a day they could trade uh around the clock trade markets in asia and the u.s and in europe um and caroline ellison his ex-girlfriend and deputy uh has there's quotes from her on her old twitter where she said like she really believed that you know adderall was a big performance enhancing drug i don't know if that's what led them astray to me i actually think it was their belief in their own righteousness and their lack of experience that led them to take these crazy risks and like illegal and to gamble away the customer's money which is totally illegal yeah and these just so people know like um one of the things that these this this category of drugs can do uh according to my research um and i'm not a doctor so don't take advice from a podcast or investigative journalist but these things can really mess with your judgment they can give you delusions of grandeur and they they can make you feel invincible and so i i think that what was this is a major part of the psychosis of this a group psychosis that was going on here because maybe you talk about the group dynamics here putting aside like that they had some polyamory thing who cares i don't think it's relevant but there was a manicness to this group and there was this we're going to save the world kind of uh ethos that you're talking about um and they seem to know how to hack the system they seem to understand that if you gave important people money that they would say whatever you wanted them to say they would give you their halo to grow your brand and the cynicism here of like these elites i think both his parents went to stanford right there professors from stanford on yes like ethics i mean you can't make this stuff up but maybe you could talk a little bit about how they knew how to play the game and this group sort of psychosis it's a two-part question there well i mean it was really clear to me that they played the game well when i went to this conference like uh you brought up before i just i'm coming there I'm thinking like, all right, it's kind of, I look down a little bit on this, uh, offshore casino and I'm here, I'm at the conference.

18:09I'm hearing about the stupidest ideas, like, uh, you know, crypto spaceships that are going to like make us all rich or like pictures of shoes that are worth hundreds of thousands of dollars. Like anyone who was at this conference would have known that the, this was like a world of make-believe, right? Like the assets that are being traded on FTX were mostly like these dumb crypto coins that like, had you evaluated any of them as investments, I would think you would have passed, you know? Oh, I did. But in this world, yeah. Literally, you're asking a venture capitalist. I literally did. Somebody said, how did you know that this was all a scam?

18:49I said, well, 99 out of 100 of the projects I knew were run by people who were not qualified or they were farcical and insane and they had spelling errors in there. like white papers and white papers is not how we invest in companies we look at prototypes and actual products and um the person's like yeah but you knew and i'm like when i say 99 out of 100 i'm actually giving you a number i met with over 100 of these there was i'm not that isn't like a made up number uh so continue when did you realize i'm really interested in you as your journey here because you went on a journey you you start to piece together nfts are nonsense these people are morons they've got delusions of grandeur they're on speed they're paying people to come here when do you start to realize wait a second emperor has no clothes so i'm sitting there i'm basically in the bahamas i'm basically thinking that but i'm feeling kind of depressed because i'm like seemingly so many smart people who i respect have been co-opted to promote crypto gambling and i saw like michael lewis he's on stage at this ftx conference put on by ftx to celebrate sam and like what a genius he is i'm kind of excited to see like all right michael lewis he showed me like how the subprime crisis worked surely he's gonna have some smart points about crypto but he's on stage interviewing sam and he's like i felt like it almost felt like he was uh write this like he was like a school headmaster and sam was like his star student and he was there to give him a prize he's like wow you're breaking land speed records you're you know you've got billions and billions of dollars like you're gonna revolutionize wall street and then i saw you know bill clinton up there um being interviewed by sam and sam was asking him like he was this was like a hall of fame and his leg tapping he really he had prepared like no good questions it was really embarrassing uh performance on stage and he dressed like a slob i mean he was right physically untapped and you're like so you're saying in your mind am i the dumb one in the room because these are successful smart people i respect michael lewis how do you not respect him this guy wrote money ball this this is like one of the smartest greatest writers of our time and i mean bill clinton hero yeah you know and i i don't want to let the uh venture capital world off the hook like no venture venture capital was funding a lot of these transparently dumb ideas like very high valuations yeah and i you know solana was one of sam's like the sam's favorite coins i met the multi-coin guy at uh at sam's conference um and the thing that i realized was like the goal time and again like i would ask these crypto guys how what is your thing good for like can i use it can i try it out because i think that like eventually the product has to be good for the for it to take off you know it's like a basic tenant of business yeah yeah i mean at this point crypto is as old as like whatsapp and uber yeah and like we use those every day and like nobody uses crypto and these guys never a lot oftentimes they had nothing to show like uh the virtual spaceship guy he was like oh yeah i've sold like 300 million of virtual spaceships and i was like i love video games let's play and he's like oh no that's like years away you know but meanwhile you say he's like five years from now but he sold the spaceship so he just sold people pictures i mean that part i did i just uh i couldn't believe it but i sort of thought that sam had talked his way to the top and that like i believed he was running this offshore casino but an honest one and that maybe like that's what the title of the book comes from a little bit it's number go up and it's like the number was just going higher and higher and it was sort of like could this number just go so high that these crazy things could turn into reality like i didn't really believe it but it was like i didn't think oh the crash is coming next week like i uh it was it was uh it was truly weird i felt like i was living in like a alternate reality for you know a couple years there but at some point uh being a business journalist a finance journalists you are aware of what a ponzi scheme is and ponzi scheme is the oldest form of grift i think in the fight in the finance world i'm trying to think of one that's more prevalent or more well documented over time and it's clear this is a ponzi the new money coming in is paying off the old folks uh and there's no there there whether it's made off or it's you know whatever one of these we'll gasey crypto um uh video games or nfts it's obvious and there's no regulation in it which was disturbing so ponzi's must crash um the question is when when does the the ponzi crash um and the ponzi did crash but you also found out that there was this uh rails of the internet of the crypto space and the rails of the crypto space were something called tether and last time we were on the pod, we talked about Tether.

24:24And this was obvious to all of us. Listen, if you've got tens of billions of dollars that you've collected, and you really have it, you would do what's called an audit. And then they were telling all of us that we were crazy. They didn't attestation. And we all go look up what an attestation is. And it's like, oh, that's a screenshot of like a bank account with a certain amount of money. And there's no way comparable to an audit. Imagine this. You got an idea for a tech startup. You're going to change the world. I know it. But you got a problem. You don't have any engineers. Engineers, hard to come by.

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26:07Easy peasy. Lemon squeezy at Lemon.io slash twist. so maybe a good point for us to pivot to now is these insane people running tether and meeting them yeah and so tether when i started looking into it i write i the company seemed to be quilted out of red flags like i'd never seen a weirder company the top executives never gave interviews rarely even seen at these types of conferences or and it wasn't clear what country the coin was based in they wouldn't say where their money was the one bank one of the founders was a child actor who had been in the mighty ducks the one bank i found that would own up to owning holding some of tether's assets was owned by the guy who created inspector gadget it and like when i was on uh with you last time i had found that tether while it said it was reserves were in super safe assets had invested a lot of the money billions of dollars into loans to other crypto companies and chinese commercial paper so like at that point in time it seemed to me like there could be a run on tether any day because yeah like if you're an investor and you've got your money in tether i mean you don't want to be the one who's holding these tether coins when something bad comes out but it just it didn't happen you know and i started to wonder yeah like tether even in 2022 in the summer when these companies started falling one after another celsius voyager gemini ftx like tether held up and people redeemed billions of dollars of tether and if they didn't get their money back like they would have complained right it was basically stress tested at a certain point where i think five or ten billion came out of the 70 or 80 billion that they had so we have red flag red flag red flag red flag we have so many red flags and they've also been banned uh in canada i believe they got banned they got banned in new york state so you you do have some legal action and people in regular saying you know we don't want this around because we see red flags and they but they kept telling us we're all crazy some redemptions happen so then you gotta think like huh what's happening here what are the possibilities of what could happen the only one i came to was well maybe they did a bunch of fugazi stuff but unlike what ftx did ftx took the money and lost the bets that he was making on the side maybe tether was doing things that would be wouldn't pass regulatory scrutiny but the bets worked out for them i.e maybe they just put everything in bitcoin and it had a run up and they just had all the cash so what did you discover there and you got to meet some of crazy lunatics yeah yes so i went to the uh lugano switzerland twice to try to track down john carlo di bassini the boss of tether he is a former italian plastic surgeon who then got into like the low-end computer import export business and what i went to this uh his girlfriend it turns out he he what your theory is not a bad one because he's like a real bitcoiner like he's one of these bitcoin kind of cultists i think who really is i think they call them yeah yeah like like he's not a big social media guy but he'd have the laser eyes on there i think he goes to el salvador hangs out with the president bukele who's made bitcoin legal tender uh and his partner is a Bitcoin artist who makes this really like kitschy art that's like pictures of Satoshi or like a dollar bill but George Washington is screaming because you know central banks will be replaced by Bitcoin so she was having a I heard she was having an art show in Lugano and I thought this would be like the time to track down the reclusive boss of Tether so I flew out there and let me ask you a question Do you fly out there on your own dime or does Bloomberg believe in investigative journalism so much that you come to me like, you know, I need some tickets.

30:31I need to go somewhere. I don't know when the story is going to come out. And how much do they spend on these articles you write and how often do you file? And tell me about that process. Or do you do it out of your book advance? I'm curious. So Bloomberg is game for whatever. They are great about this sort of thing. they i'm glad though that i did not have to ask them for some of this book stuff because like i don't think they would have covered my twenty thousand dollar mutant ape out of the expense budget or like the second time i went to back to lugano they're like because i didn't find john carlo the first time oh the second time i i went back i did track him down um but like i i i wonder what the editor would have said um and then this gets into another theory about tether which is that maybe some of the users are up to no good they don't really care because they're like crooks themselves and to investigate that i ended up going to cambodia to a town run by chinese gangsters where this part of the story is like your indiana jones uh going here it is these are towns that are controlled by the chinese mafia where you can get in but you can't get out and explain these call centers and the vibe there yeah yeah i mean this it sounds like some sort of like q anon thing but basically if you get one of those spam text messages that's like addressed to the wrong person there's a decent chance it's sent by someone who has been trafficked to cambodia or myanmar the un estimates more than a hundred thousand people have been victimized this way they're held in these towers they can't leave they're beaten they're forced to send these spam messages all the time and if they hook someone and become friends with them they run a crypto scam on them they convince them to send in their savings because they're going to make lots of money on this great trade and they always use tether now i don't think like the tether guys have anything to do with this but they've tether with the stable coin has created this amazing way that like some lonely retired guy in Indiana can zap like 100 grand to a Chinese gangster in Cambodia, and like the money will never come back.

32:43And tether's gotten so popular and accepted that one thing I found really telling, I never see any like tether stuff in the United States or anywhere else that I traveled for that matter. But when I got to Cambodia, I was at the entrance to one of these most notorious sites of crypto human trafficking called Chinatown in Sihanoukville. And right at the entrance, there was a shuttered money exchange store. And I could see on their sign that they're advertising that they traded USDT for cash. And I found lots of other stores like that in Phnom Penh, and was able to trade USDT on my phone for US dollars, no questions asked.

33:25and like it doesn't prove anything but i felt like i discovered oh this is what crypto is good for this is why and this is why the united states want you to know your customer and we're enforcing regulations here because if you don't enforce regulations with money like this bad guys in cambodia who are doing human trafficking and crimes can use it as like an anonymous way or a very fluid way and it's kind of quasi-anonymous but a very fluid way to move money around yeah yeah and some of these guys just bring it full circle some of these criminals would then send their tether uh i talked with like blockchain analysts who are tracing their accounts and they could see that the tethers would end up at uh regular crypto exchanges including ftx and on that like last visit to sam's apartment just before he got arrested i was like you know we we he would he loved reporters you talk to reporters all i had to leave because i was getting tired because i didn't have any drugs um but we were we're running out of stuff to talk about with his predicament and i was like sam have you ever looked into this like your exchange is being used by these criminals they're like scamming people they're trafficking uh workers from across southeast asia and he was just like huh that's like really bad i don't but i don't know like what we can do and shut their accounts off you could know your customer i mean there's like a thousand things you could do right but i felt like that was that was the attitude i saw in crypto in general like the people who created axi infinity this like disastrous play to earn game that was popular in the philippines you don't see them apologizing to all the filipinos who lost their money you don't see the a16z guys who funded it and who i think did pretty well um you know acknowledging what had happened and like the crypto people are happy to create some crazy scheme and to watch the token go up and if you get in early you're in it by early i mean if you're the guy who made it or like one of his buddies you can do great even if the scheme doesn't really work out that well in the end.

35:44All right, everybody. Stephen Estes is a principal at CLA. Clifton Larson Allen is a professional service provider that specializes in CPA, tax consulting, and wealth advisory. Welcome to the program, Stephen. Thank you for having me. So you specialize in VC-backed, high-growth startups. What's an overview of how you advise these companies in the early stage? And then what typically gets complicated as you go? First and foremost, I'd say CLA exists to create opportunities for our clients, our people, and our communities. And we do so by taking an industry-specialized approach, becoming experts in our respective industries.

36:21And that really enables us to identify those kind of opportunities and spot issues before they become problems. We work with a variety of companies in the tech space, right, from incubator all the way up to IPO and through the exit. So we generally will come alongside them and partner with many of the early stage companies right when they come out of an incubator and then kind of expand that relationship as those companies scale and grow. And we come alongside and assist for like fractional CFO work, audits, M &A assistants, international, and really just kind of help those companies throughout their entire life cycle.

36:54It's our promise to know you and help you that really enables us to transition from being just an accountant to a trusted advisor. Get started right now at claconnect.com slash tech. Let them know your boy, Jake, how sent you. claconnect.com slash tech to get started right now. So you yourself put yourself in harm's way in Cambodia and these like crime-filled towns. Tell me a little bit about that. So, okay, I don't want to like overstate it because there's reporters who are like in Ukraine right now, like embedded with you know the with ukrainian arms to land on their head yeah i got it yeah this wasn't like basically i teamed up with two reporters in cambodia mech dora and danielle keaton olson who they were super brave without like the kind of institutional support that i have they had exposed this problem for this tiny publication and instead of getting journalism prize is the president shut down their newspaper and was like let's just ban reporting there's very little independent presser anymore so they took me to uh chinatown where it was really spooky because i'd met i'd met with victims who'd escaped from these places so i'd heard what what went on inside and i'm there and it's like these brutal like office towers these dingy gray towers i'd heard this this it's like a whole kind of office park that holds like maybe five or six thousand people total and you these towers each room has like a balcony and they looked like maybe they were built to be nice but there had been bars welded on the balconies to turn them like into cages because otherwise people would jump to try and get out oh wow and so the wildest thing was there's a hotel in the middle of this that looks pretty nice and i had heard from victims who escape that that hotel was where the bosses would go to like uh sleep with prostitutes and but at the time i got there uh it was listed on booking.com and like appeared to be open so i was like i gotta check this out so i walked in and you know the management's all chinese um not everyone speaks english they're definitely giving me weird looks like yeah what is this guy doing here i walk it's got the lobby it's a nice looking hotel the lobby has like this eight foot tall golden pineapple i go up the marble staircase to the buffet nobody's here it's like a ghost town um and when i get to the restaurant upstairs which looks great it's like a you could host like a 500 person wedding there there's nobody there and the host is sort of like confused that anyone has walked in to the point that like he doesn't even really have an established system for how to charge people who are customers like as far as i could tell this is like the buffet for the bosses who are running these like scams and so i'm sitting there yeah yeah no they're like they definitely there was a free there was a fridge in the back with free beer they had budweiser which i like um and so i'm chatting with one of the waitresses who does speak english and i'm just i play kind of dumb and i'm like what's with this place why is nobody here and she's just like this is chinatown and i'm like you know i know what that means but i'm like what's chinatown she's like listen like the people here like they can't come and go like they can't come to the restaurant and i'm like i make this like uh this face of horror and she's just like she she was like oh oh but don't worry the waitstaff we have our freedom and i was like jake it's shanatown yeah i was just like first of all i was like oh my god this is this is i can't believe this is real it's so horrible um and also i'm sort of left with like i don't know where do i go from here like the tether investigation you know started back when we first talked i'm like going to the bahamas talking to you know their banker it seemed kind of silly now i'm here i'm like oh this is like enabling whether the tether guys know it or not oh this is enabling yeah well they do now well and it's designed let's be honest it's it's designed for this use it's designed to not require you know anybody uh to know what's going on to know their customer there it's it's meant to be fluid it's meant to be frictionless it's meant to be permissionless and so mission accomplished and they know full well that if you make something that's permissionless and frictionless and you know to whatever extent less traceable or untraceable you know who's going to be attracted to that yeah definitely and there's it comes up in criminal cases from time to time i saw one where this like russian money launderer was talking there were intercepted communications that the FBI published and he's just like he's talking to a client he's like yo get USDT it's like you could you you don't need to say your name or anything it's so fast it's awesome everyone uses it and like um but where we leave things at the at the end of the book is that these guys are not in trouble as far as I know and they've got now it used to be you had to do some crazy gambles to make money if you were sitting on 50 or 80 billion dollars now you can invest it in treasuries and earn five percent that's what they say that that's what they say they're doing and if you believe their numbers that they're publishing now they are earning like a billion dollars or more per quarter tether's one of the most profitable companies in the world like more than nike all the it's a small crew that runs it they're all billionaires now like they come out ahead as like one of the uh of all this crypto carnage like they're the winners at the end and it was certainly not what like anybody would have predicted i don't think um and one point i'm looking at their quarterly reports because now they're releasing quarterly reports like they're a public company i guess to dunk on everybody who thought they were committing crimes and listen they they were committing some crimes they were you know um uh prosecuted in certain areas and banned from certain areas but if they have whatever it is 80 billion dollars in assets you put it in treasuries you make five percent on that that's five billion a year you know four billion a year it's a lot of cash right that's like a great business and i've reported that they were under investigation by the usdoj for bank fraud but as far as i know like no charges have been announced it's been years um they i find it unlikely that this they will just grow and grow and tether will one day like replace you know jp morgan and the government will just say you know i didn't really care so much about banking regulation and know your customer rules and whatever let's just let somebody else hold billions of dollars and move it around with these tokens um but uh yeah i don't know what's gonna happen um uh it's wild i mean And it's somehow, you know, as you go through this book here, there's like massive risk-taking fraud, crime, and then some people figure out a way to go legit maybe.

44:30And so you had this happen in organized crime in American history where you had people who, you know, were committing all kinds of crimes. And then at some point they flipped over and like, you know what, let's be legit. Let's stop running numbers, prostitutes, drugs, whatever. and let's get into construction concrete let's try to you know own buildings or whatever it happens to be and i think you know if i'm just taking a pure guess here i think tether yeah might be in the process of doing that um and that's why they've avoided the full audit right they don't have to do a full audit right well there's there's no real regulators so they can do what they want and they still say the audit's coming they've released this attestation which honestly i mean it's fairly detailed like if you believe it's released by an auditing firm i like at some point it becomes kind of uh uh the the real tether truthers are always saying like they haven't done they haven't delivered the proof but it's like i don't know they've made it this far now they have like we've said they have this way through buying treasuries where they could be making billions of dollars it could be that if there was a hole at one point they've earned it back by now correct um correct yeah that's the likely scenario i i think that's a distinct possibility is that you know and imagine if instead of um ftx and spf spending their money giving 15 million dollars to mr wonderful to go on cnbc and i i don't think they let them on cnbc anymore after all this like i don't know what the fallout is for people um like the dude giselle and uh tom brady have to give the money back does mr wonderful have to give the money back so i think most of these people got paid in equity so they may not um unless they were able to sell it they may not be they may not have anything to give back got it so yeah and um oh you know now we've got like maybe the top five people at uh ftx have been arrested or pleaded guilty um and a lot of the people who worked at ftx kept their money on the exchange and lost all their money um so and one thing i thought was pretty funny was that there was an another uh crypto ponzi that we haven't talked about yet called the terra luna yeah no i had a doh kwan on this podcast and he couldn't explain to i had him on i'll send you the episode after we get off or just do do kwan luna this week and i kept asking him can you explain it to me one more time there's a luna it's pegged to this but then there's like money coming out where does that money come from and you know i consider myself somewhat sophisticated in terms of investing in 400 companies and you know putting 100 million to work or whatever and getting returns for investors and i couldn't understand where is that where are the profits coming from and it's like well you know they're staking and i'm like well who's on the other side of the stake i don't understand so yeah maybe taco and he got he's pinched he got picked up and what did he get picked up montenegro or something like a von or something it was like monte carlo it was some place with casinos he got picked up i think it was montenegro yeah but he was still doing like twitter spaces you know like the occasional live stream while i was on the run who picked him up daniel craig um there was this one guy who had called tara luna and made a lot of money on that and then he lost his money when because he kept it at ftx um and this gets to like like the one question that comes up a lot with writing a book about cryptos people are like where's it going from here and to me i'm like did you watch the last two years like this is some of the craziest stuff that's ever happened in the history of finance are we just gonna like memory hold that and be like you know what now it's time to it's exactly like trump it's like this this got out of control it makes no sense and because the crimes were so rampant and so frequent people have given up there's like it's literally how the kgb does psyops is that if there's so many crimes it just becomes the default right i mean i think people just have become uh inoculated to how heinous and insane these crimes were but said it like if even if we're talking about the ones that were not crimes that were just like crazy bubbles do you think that um like in the vc world this could ever get going again like what's the how is the it depends on so bubbles will always happen and that's like actually a good part of the ecosystem we over invest and then some big winner comes out and you have a duopoly and you know uber beats lyft and lyft has some amount and doordash and you got three or four players in that space now so you do have these boom-bust cycles and that's fine but people flaunting the regulations and finance i haven't seen any vcs who have been taken to task over investments or clearing of positions and it might be because if they didn't clear their positions you know a lot of people have you know talked about indrescent horowitz which is you know they were kind of the lead investor in a lot of these companies i don't know that you know if i think they may have done x infinity but whoever did x infinity right put them they were into yeah they they were the lead investor in that i believe so if they put 100 million into it and lost it i don't know that they committed a crime it's not a crime to lose your money on an investment if they put 100 million into it and they sold all their equity and they distributed 400 million to their lps um at some point does somebody come knocking on the door and say was this a security and you know gensler's been kind of strong about what he believes is a security and so there needs to be some sort of regulation here you cannot trust a bunch of smart people with tons of money and you give them an unregulated casino bad things happen period full stop yeah and if people were being offered you know tokens at a discount with not much of a lockup like i can see why a venture capitalist might say sure i don't care about you know give me some give me the luna tokens as long as this keeps going for a few more months i'll be able to dump them on some sucker yeah and like like you said i haven't seen cases come out like that but i'm kind of find it hard to believe that no one did that and i also agree that yeah the secs basically come out and said that a lot of these pretty much most of these things probably were securities and that the laws would apply so i'm waiting to see like uh what cases do come out of it i think they're going to be digging through this for like a decade or well five years i think that's their statute of limitations uh and you know there are regulations around when you can liquidate tokens and who can invest in companies we have accredited investors we have qualified purchasers these are sophisticated folks it's about six percent of the country they're allowed to invest these things If you were involved in X Infinity or an NFT program and you knowingly sold to the public or you didn't put the controls in place for the other 94 % of non-accredited investors, non-qualified purchasers to invest, that's a pretty serious crime.

52:01Doing an unregistered secure, selling securities in an unregistered fashion like XRP did. And so, or I believe XRP did and the government believes they did and pretty obvious they did. the only thing that's not obvious is is it an actual security it was like for a couple of years just like no one cared about the rules um like when i was there at ape fest the yuga labs which is the company that created the board apes like the ugly monkey pictures they had just announced the creation of ape coin which was like a useless coin that didn't do anything but maybe they could use it in some metaverse that didn't even exist yet and they're giving people ape coin it's trading on coinbase people are making tons of money for some reason it still has some value on coinbase people making tons of money i'm at the conference uh which is like a party on a here in the south street seaport in manhattan snoop is performing and he's singing he's singing a song i don't know how this didn't get on the internet but uh he sings a song that's like ape coin like don't buy dogecoin buy ape coin and i'm like sounds like promotion to me yeah like do you own any ape coin like is that going to be disclosed in like the third verse like this is versus pump and dump i say pump you say dumb pump i mean it's literally laughable how crazy this was and you know the sec I know was looking at Yuga Labs back in 2022.

53:31I don't know. Yeah. I broke that story because I was talking to somebody else in crypto. I asked them about Yuga and they were like, oh, yeah, we're going to do a deal with them, but they got some big problems with the SEC. I mean, meanwhile, the person I was talking to, I'm like, you're doing the same stuff. Aren't you going to have problems with that? You're not worried about this? I think people suspend disbelief. This is what I've learned. And they convince themselves, whether they're high on speed or they're high on their own supply, does not matter. The book is incredible. Zeke Fox, Number Go Up, Inside Cryptos, Wild Rise, and Staggering Fog.

54:11I could talk to you for hours, but I don't want people not to buy the book. You got a taste of it. The stories are even crazier. I'm two thirds of the way through the book. You're a great writer. You're a great investigative journalist. The book's important and it's very entertaining. I hope to make a movie out of it for you. or a tv series or something did you get out did you get options yet or no no um somebody michael lewis has got his for uh five million i just read so really you can have mine like a lot cheaper yeah yeah give me a million go ahead just get a million to zeke and uh go buy the book right now audiobook's great uh congratulations zeke and uh the story is you know you have to do a follow-up because i think we're only halfway through the story we'll see you all next time on this week in startups bye-bye

54:57Thank you.