NEWS: Breaking down SBF's trial and the downfall of FTX | E1824

0:00remember right after uh this all collapsed and then he did like 10 interviews on good morning america and yes 60 minutes and everybody's like why is he's making himself look so bad i think somebody was i said that oh is it you yeah you thought that this is part of his defense argument this is the defense argument like i'm a lunatic i have absolutely no judgment and i'm i won't even listen to my lawyers and shut up yeah i literally said that i was like i think that this is part of his i am deranged i don't i do impulsive things and i don't think things through and i won't even listen to my lawyers and then when the judge tells me hey don't use a computer and don't talk to the press i'm gonna get a vpn i'm gonna use my computer all day long and i'm gonna talk to the press i mean not only did he do it before he was indicted after he was given house arrest yeah he was on house arrest using a vpn this kid didn't know where the lines are or when he realized he had committed all these crimes he just said you know what i'm gonna lean into i'm a lunatic this week in startups is brought to you by house of macadamias is the next big health trend get a free month supply of macadamia milk with any order at house of macadamias.com slash twist by using code twist 20 roots invest in the only real estate investment trust that creates wealth for you and its residents at invest with roots.com slash twist and in broker's startup insurance program helps startups secure the most important types of insurance at a lower cost and with less hassle.

1:31Save up to 20 % off of traditional insurance today at ambroker.com slash twist. While you're there, get an extra 10 % off using offer code twist. All right, everybody, welcome to Friday. It's Friday, and we're going to do a little Jason unplugged. Producer Nick is with us. And I wanted, you know, I have such a busy week this week. I've been raising our fourth venture fund. You can read about that at launch.co slash memo and uh i've just been at a ton of meetings and that's been amazing uh but i am falling behind on the news and i need to catch up on this sbf stuff i started listening to the michael lewis podcast nick uh michael lewis is doing like the trial of sbf but he's not doing it himself i saw him on 60 minutes he's sending somebody to the report and they were talking about the jury selection process which i believe started this week everybody knows spf is um in all likelihood a deranged sociopathic lunatic and michael lewis's book just came out going infinite where he covered it and he's created a little bit of controversy because he's one of the only people that doesn't think that spf is a uh deranged sociopath he's sort of gotten roasted a little bit because he's kind of he's sort of defended spf oh no he's definitely defended spf He said on 60 Minutes that SBF had a real business.

2:53He was the casino and that the FTX exchange was printing money. It was a very real business. And he said, if it wasn't for Alameda, which he should have shut down, there would have been no problem here. Of course, that's like saying like, you know, Al Capone would have been fine if it wasn't for the murder. If he never killed anybody. Yeah. And yeah, if it wasn't for the murder and the rum running and the gambling and this ring and that ring. Extortion. Extortion, loan sharking, whatever. So sure, yeah, he wasn't a criminal if he didn't do the criminal stuff. But obviously, you know, listen, he's got to have his day in court.

3:30And here we are, it's his day in court. But yeah, bad look for Michael Lewis. But I'm a huge fan of Michael Lewis, so I'll give him the benefit of the doubt. I understand. Michael Lewis is like one of those artists that, you know, like sort of like Kanye West, right? Kanye can say a lot of crazy things. Still made some of the best music I've ever heard. Yeah. So, you know, like Michael Lewis, I don't even care. I could separate the art from the artist a little bit. He can say whatever he wants. I can't wait to read the book. Big Short, Moneyball. Come on. Moneyball is such a great film. I mean, that's one of the things about Michael Lewis.

4:01He's such a good storyteller that the films turn out great. This film is going to be amazing. I'm not sure who's going to play SBF in this, but - Apple bought the rights to it, I believe, before the book even came out. Yeah. Yeah. Makes sense. I'm sure he got five or$10 million for it because that's going to be a huge hit. There's going to be a lot of interest in it. But let's get started here. What is happening in the trial? Yeah. So the trial of SBF just kicked off this week and we'll just give you a little update on how it's going. So a quick refresher on the FTX collapse, if anybody forgot, just some of the major players and what happened.

4:35And so the big issue was that Sam Beckman Freed controlled both FTX, which is the crypto exchange where users could buy and sell crypto like a Coinbase or a Binance. But he also controlled Alameda Research, which was a crypto trading firm that actively was almost like a crypto hedge fund. You can think of it as basically. So he owned the casino and then he had a bunch of players in the casino. Yes. Which is like rule number one of what you don't do. But okay. Yeah. He allegedly told investors that Alameda received no special treatment from FTX. That's actually what one of the investors of FTX testified, one of the paradigm founders.

5:15FTX, now this is where it gets really gnarly and where all of the alleged fraud and crime, or no, I don't know if we have to say alleged because some of the, his co-founders already admitted to fraud and flipped on him. So I don't know if you have to say alleged there. but yeah you know that's um it's alleged he did it and i guess for those folks they have admitted guilt so that would be i think the proper hygiene as a journalist he has denied it his co-founders or his compatriots have admitted it so we're in process um it would be as if you know somebody the accountant working for al capone says we committed crimes but al capone is still saying he's innocent.

5:57Or in the Trump case, people are starting to flip on Trump and they said, we committed crimes, but Trump is saying, I'm being railroaded. So you got to give people the benefit of the doubt. I believe in that, although it's not looking good here. So FTX had its own native token, which was called FTT. It's like a platform token. So if you wanted to transfer funds from your FTX account into the FTT token, just to hold it and then transfer it back into another crypto that's sort of what the token was it was basically buying that token was a bet on ftx's platform right but it was not just so we're clear ftt was not a stable coin no it's not tether which has its own reputation issues and it's not usd c uh it was not pegged against any dollar yeah okay great was ftt was majority owned by alameda and ftx itself so only a small percentage of ftt actually was traded publicly it had a very small float as we just talked about actually recently with arm and instacart um and clavio they all had a very small float a small percentage of the company that's actively trading publicly and what this did allegedly was allow ftx to manipulate the price of ftt thus increasing its holdings on paper then so if you own 99 of ftt and the public owns one percent and you start trading between your own accounts you could paint the tape create a bunch of trades fake trades wash trades whatever you want to call them and then you know have alameda or ftx or whoever individuals buy ftt from each other at increasingly high prices and then the public gets some benefit from it, but they only own 1%.

7:39So if it goes up 10%, the majority of that value accrues to the 99 % hold. I'm making numbers up here, but yes, that is a classic technique. So their FTT would increase in value as they inflated it, allegedly. Then FTX and Alameda would use these inflated tokens as collateral for loans between the two of them. So allegedly, Alameda would acquire FTX customer deposits to trade by loaning FTX its worthless FTT token as collateral if that makes sense i know there's a lot of letters and numbers and nonsense there but the two entities would use the ftt tokens um as collateral which would be like you know if you and i were like hey i've got this imaginary exactly you know paper over here this magic paper that's worth a billion dollars and we would give each other loans based on it or you i would say to you oh i'll give you a loan against your house that's worth a hundred million dollars you're like okay I'll give you a loan against your house that's worth a billion dollars, which is exactly what they're trying to get Trump for in this New York case, inflating the asset values.

8:42So if you inflate the asset values and take a loan against it, right. Which is a fancy collateral is a fancy way of saying that, that, you know, it's, it's what you get if the loans don't get paid back. But if the loans don't, are not forced to be paid back between these two parties, then, you know, the, it never becomes due basically. So, uh, feels like we're getting towards the Ponzi allegations. Yeah. So then it all came crashing down starting in FTX somehow withstood all the crazy BlockFi going out of business, three hours capital. They withstood all that, right? And everyone was like, wow, how are they doing this?

9:16And then finally, in November of 2022, someone at Coindesk got a leaked basically balance sheet of Alameda and it saw that a ton of Alameda's holdings were FTT. they reported that and then cz from binance uh who was the big rival of spf tweeted that binance was liquidating all of their ftp tokens that caused a sell-off of the public ftp tokens which crashed the value and then that eventually caused ftx to go and solve it so that was basically in sort of a high level way what happened and cz cleared some large amount of selling like he was the winner in all this he owned some percentage of ftx i believe and he sold it yes he sold it before though i think like a year before this before earlier but he owed some ftt tokens he starts selling them and uh he basically gets to make money and kill a rival so it's like a double joy for him yes okay i got a funny story to tell you house of macadamia has graciously sponsored the all-in summit and to wow the crowds they created a special edition salt and vinegar pack of macadamia nuts and guess what people went crazy for them dozens have been messaging the founder brandon asking him to make the salt and vinegar nuts available on the website listen you've heard me rave about the health benefits of macadamias but don't take it from me the most health conscious people in the world are eating them dr andrew huberman i like his podcast i started listening to it he mentioned he snacks on macadamias in his gq profile and that guy brian johnson he was on the podcast when he wasn't a health lunatic he's trying to versus aging and he eats macadamias so all you really need to know house of macadamias products are delicious and they support good health my favorite dry roasted chocolate dip macadamias you know i get my chocolate dipped in there and they also have a dipped snack bar so i put a couple of those in my backpack i put a couple of them in my little roller so i have a healthy and delicious snack i make a better decision listen if i had a candy bar which you know like sometimes i break down and i buy one of those not a good choice for me now i make a better choice house of macadamias they got a new product macadamia milk get a free month's supply of macadamia milk with any order at house of macadamias.com slash twist that's a free month's supply of macadamia milk with the code TWIST20 at houseofmacadamias.com slash TWIST.

11:47So now that we've covered the basic of what happened, let's get to the argument. So the prosecution, which are federal prosecutors, by the way, their general argument is that SBF and his rise to fame as CEO of FTX were built on lies. They're alleging that he stole customer deposits through a secret backdoor to Alameda Research, which was SBF's trading firm. And then with these stolen customer deposits, SBF was able to make investments buy property in the bahamas and rich himself gets stuff for his parents and all that stuff and allegedly this is how he would have potentially either from the profits of ftx which did have some profits because they were taking a piece of every trade or from this stolen money or some combination allegedly possibly that's how he signed up all these celebrities mr wonderful and you know whatever uh giselle and everybody they gave money to uh to uh super bowl ads tom brady etc all that money was probably some combination of customer deposits or maybe the profits of ftx and then a ton of donations to politicians and then a ton of investments he was investing in a ton of stuff and i think some of those investments obviously since he was a trader might work out so that's another interesting wrinkle to all this and some in some of their investments gave the money back right semaphore was that one of the investments semaphore i think got 15 million from him the the journalists and i think they agreed to give it back so this is going to be one of these crazy things um you know if he gave you money to buy shares in your company are you obligated to give it back or not you know some courts will say if it's ill if it's stolen money you do have to give it back now what if you spent some of it i don't actually know technically what's supposed to happen you know if he invested in a startup if he invested in airbnb in the early days and they spent his money i guess then they would own shares and those shares would have to move from you know um sam bankman fraud's um personal account or ftx's account and they would be owned by you know whoever the bankruptcy judge was going to give them to right the creditors so i think that would be the process so i think semaphore could have uh just kept the money and given the shares to this bankruptcy but maybe it's just cleaner for them to give it back was probably right so that's the prosecution's argument how do you feel about that do you think that's a good strategy i mean that's really the only strategy right that's what they're going after yeah i mean they have information we don't have this is the thing i've learned about these cases over the years um these um very savvy da's uh when they do these kind of things they don't show you all their cards for obvious reasons they don't want you know uh people to get to the witnesses they don't want any tampering um and i think they give out to the public uh you know the least bit of information they can just enough to kind of let people know what's going on and then they want to tell their story in court so i i think that's what you're seeing whether it's the trump cases or ftx's cases or uh in the case of daranos whenever they have these things they'll drop certain specific pieces of information during the trial and they'll give just enough narrative i think up front to make sure the public feels that there's nothing fugazi going on right and so we're seeing that in um i hate to keep bringing up trump because i know that's polarizing people that's also happening at the same time the information new information is coming out in all those cases you may have seen like in the documents case different information came out after they have filed the initial one right and there are these superseding indictments which are additional indictments that come later because once you start having people roll over and people are rolling on sbf immediately right and there's no loyalty there whereas trump has some deep loyalty people who've worked with him for decades these people are rolling on sbf and so you will see more indictments probably emerge over time do you feel like people are so quick to flip on sbf because a lot of it is younger professionals who were really, really smart and went to MIT and were amazing in their fields.

15:54And they were working in crypto, which is finance, but it's sort of outside of finance. And they kind of knew that they were doing something wrong, but they didn't know how illegal it actually was. Do you think that's why people are flipping so quick and they're like, I'm sorry, I just got caught up in something crazy. I don't want to go to jail. yeah you know i think that these individuals were this is like a total guess but um the there are a lot of claims that they were on speed uh all different types of speed and i'm using speed as a general catch-all term because i don't know all the different prescriptions they had these things i i believe have some use cases that are valid adhd etc um but i think they also have some impulsiveness that can come out of them or poor decision making um and so that combined with a very smart person in a low moral compass and a weird environment you know people can just get crazy if you saw the wolf of wall street you know just you know you could you can substitute cocaine the speed of the 80s to this the speed that these kids are taking i think it results in the same thing which is this feeling of invincibility um and that you're a genius and hey listen if you were buying whatever bitcoin or nfts you felt invincible because every year your you your book went up to three acts especially in 2021 yes and so if the world's telling you you're a genius and this super drug is making you feel like a genius and you know you're you know on eight trading you're on a trading turret with eight other people on their trading turrets man you can just get deranged i think and i i think that's a big part of this i have to be totally honest and i think the flipping is they all came down off of the high of this and were like wow um we were out of control there were no controls in place and so for somebody from mit with parents who teach at stanford uh and people who are this smart to claim that they don't understand like basic finance they don't understand controls they don't understand cfos boards and all this stuff they could have very easily understood it if they were doing all this sophisticated trading if they were making their own tokens if they were running a hedge fund and they built an exchange and they understood how the political uh infrastructure worked to make donations on both sides of the aisle to protect because they understood so many different systems to make to make dark donations right like come on they these these were you know really smart uh kids who knew how to manipulate systems and so um yeah i don't believe anything they say i think they were just straight up criminals and then what happened was they got ahead of themselves and then when things collapsed they panicked and they started doing all kinds of unnatural acts to try to keep the fraud up um and that's typically what happens you watch the elizabeth holmes story it starts with small lies small exaggerations then you're covering up you're covering up you're covering up cover up becomes much worse than the initial crime uh that's almost universally what happens it's like any like a gambler chasing it if you've ever had one of your friends like lose at a game and they they double the bat in the next game then they double the bat and they lose three games in their own like that's not possible and it's like okay flip a coin you know three times and see if heads comes up three times in a row like it's completely probable actually it's gonna happen i just wonder how much of it was like since it was crypto it just felt like almost not real you know it felt like pixie dust and that you couldn't do anything wrong with it like i remember there were so many people at the end of 2020 when everybody started going crazy and even like people that i know in my life are like oh what do you think about this token and you're like what are you doing and then they're like wait we have to pay taxes on this and you're like oh so i wonder how much that played into it like if this was traditional finance would this could this have ever happened yeah you know there is a thing in technology i've talked about it before here on the show uh many times where people believe if i can technologically figure out how to do something then it's legal because i technically figured it out and so you know somebody technically figured out how to build napster would be like the big example yeah and it's like i technically figured out how to let people share mp3s but i'm not sharing them i just figured out the technology to do it and it's like okay you know that that's a fine fine reasoning if you want to have it but no you still have to follow the law and this idea that you know like these tokens are not securities okay you know the sec gets to decide that not you yeah um and so that's why you've seen a lot of people lose their cases um and you know like wash trading and you know the front running of markets which happened at open coinbase and at the nft um openc openc both of those places didn't have tight enough controls in place apparently uh allegedly well not allegedly i think it's it's pretty clear they didn't have the tight enough controls and people front front run the market or did wash trading on on those sites so you know i do think you know people can get caught flat-footed in the case of coinbase and openc it might have been getting and caught flat-footed and yeah they just didn't respond fast enough or build the stuff quick enough or they just had a bad actor the funny thing about those two is on the coinbase side it was uh someone working there who was telling his brother i believe what coins were going to be listed soon so that he could buy them off exchange and then they could sell them in profit on openc it was their i think head of product nate chastain was the guy's name i think he got a couple months in jail just a couple weeks ago i remember it was on the ticker um he was actually bragging about front routing on twitter there was like a famous tweet and it was like oh he didn't even like he didn't even know that it was wrong that's sort of what i'm getting at like people didn't even think it was real yeah this is why regulations exist you know when you are raising a venture capital fund when you're investing in companies you know i i was aware of a situation where somebody was uh asking their friends you know telling their friends hey i'm investing in you know this vehicle i won't say what type of vehicle but an investment vehicle and um you know i i just had to tell the person listen i know you don't think that you're a promoter here but you are acting as an agent because you're going to your friends with an opportunity and then you're telling them you're investing and how much you think you're going to make and how great this is like you just got to be a little bit careful because you might be acting as an unregistered agent they're like what's that yeah okay you know just type in unregistered agent and you know there's been many instances of this people try to do something creative in venture capital you gotta be very careful you know syndicates were one where you know um angel list and naval did a really buttoned up job explaining every step of the way how spvs work and we had to get a little lesson in them and how they don't work and how you have to be careful because people's money is that stay uh and i think that you know my understanding of with all the spvs that have occurred on angel list there was one instance of somebody who was upset um and you know they had made like a 10k investment and they lost their money in it or whatever and they wanted their money back and they just created a huge stink and wrote some legal letters and obviously they didn't win but you know it was like one out of tens of thousands of people in the history of angel list and um it was because they were so buttoned up you know and they put investing in startups is high risk only invest what you can afford to lose majority of startups fail and i in to this day in my deal memos i put the majority of startups fail only invest what you can afford to lose these are high risk investments not that you really need to say that but why not say it an extra two or three times hey everybody today i'm joined by roots 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24:58That's invest with roots, no spaces, no dashes.com slash twist to sign up today. All right. You want to get onto the defense argument? Yeah, sure. So, I know it's tough. Defense argument is tough when you already have like four people that have flipped, right? It's like crazy. Odds are stacked against them. So the defense is conceding that many facts that the government stated were true. So they're already saying that like a lot of this is true, including that FTX customers deposited funds in accounts that Alameda research controlled but the defense is arguing that sbf operated in good faith and never meant to defraud anyone they're saying that ftx was a startup and they were figuring things out along the way okay and it was growing and things were crazy i'm paraphrasing here um and they claimed that alameda was not an ordinary customer on the exchange but a market maker that was really important to generate supply and demand in the early days of ftx so that's why that relationship was important early on.

25:59And the defense also is placing some blame on Caroline Ellison, who is SBF's girlfriend, who is the CEO of Alameda. She was the head trader at Alameda. She's also going to testify at some point, I think. She also pleaded guilty and flipped on SBF. And they're blaming her for failing to properly hedge Alameda's exposure after SBF had asked her to, which they are claiming led to the collapse in the first place. got it do you think that is a good defense i mean it's finger pointing um and if they've cut a deal with her which it appears they have i don't know if they've been public about that or not if um she has officially cut a deal but you know um it does seem like it takes two to tango and that they were both involved in this and then there was a back door that somebody wrote so it sounds like a lot of nice words it doesn't sound like um you did your fiduciary duty and yeah so no i don't think you get to say like we're figuring it out in finance that'd be like if i did surgery on you i did plastic surgery on you and i'm like yeah you know you said you wanted the surgery and we're figuring it out like you don't get to figure it out in finance you don't get to figure it out in the medical field or health care there's some areas you don't get to figure it out because the cost is too high they knew that if he knows she should have hedged these things properly it was his duty to make sure she had as well right because they're the market maker so they should have had controls but he didn't have a cfo he didn't have a board that tells you everything you need to know and supposedly he talked about not having a cfo and was like what is even what what is a cfo you know he was like questioning like the existence and nature of cfos like they thumbed their nose at regulation it seems at every step of the way and i think my gut tells me they did that because they knew that they would not pass any kind of formal audits etc and so and then the venture community failed to uh put the controls in place so you know the the penalty the venture community gets is losing their money um and because they're part of the equity stack you know they're going to lose uh probably all of it or most of it and uh you know the people with the deposits will get their money out first of course and um they get a reputation hit and so this has made everybody i can tell you in venture especially as late stage investors they are no longer doing this like founder friendly to the point of absurdity like we have to invest now because the deal's gonna close and a train's leaving the station i always said you know if the train's leaving the station we'll meet you at the next stop you know like we don't need to chase the train down the tracks train will come back there'll be another train we'll get on the next train we don't it's absurd to be like i'm going to just do something dangerous like jump on the side of the train because he's leaving the station.

28:47You don't do that in any business. On the investor side, can you sort of bring people to, because I don't think a lot of people really understand this, what it was like at the end of 2020 and throughout 2021 and how investors looked at Sam Bankman-Fried and was he looked at as like this next Steve Jobs kind of figure? You were at a couple of events with him. You saw him walking around, right? You saw him in interaction. You interviewed him and got squashed or something. A friend of mine, you know, was a small investor and FTX was considered by most as the most legit of all of the exchanges. Even more so than Coinbase, right?

29:29I think it was considered on the same level as Coinbase. So those were considered like, these are the two legit ones. This kid's parents are Stanford professors. Right. He dropped out of MIT. This was what we call broadly signaling in the industry. um and then you know these politicians he's meeting with them he's got pictures of himself you know uh meeting with these folks he's flying to washington he's trying to do it right he's trying to create a framework he's in lockstep with these politicians so checkbox checkbox checkbox and then his eccentric weirdness also is kind of a checkbox right okay he's a little weird yeah you know he maybe he's on the spectrum because he shakes constantly maybe that's speed i don't know uh all of that put a lot of the really good ones are weird sure and so you you put all that together you know that's the signaling that i think led to people saying okay i'll take a leap of faith and then you see that all the previous investors are amazing and this guy was doing it this is where i find it completely insincere he was buying uh this influence whether it was celebrity influence uh or making investments in companies he very famously like tried to get himself inserted into the twitter uh you know takeover by elon and you know he was making all these claims and you know elon obviously saw right through it and was like this kid i mean i think he's been very public yeah they had like a famous meeting right where elon was just like i i just don't want to talk to this person again yeah like literally this crypto stuff is nonsense um you cannot build a database on the blockchain that's going to serve up you know a billion tweets you know every x number of hours and so you know elon's got actual engineering signaling and and there's different types of signaling you know my signaling um you know is can this person build a great product that's what i always look at and they understand their customers and so you know i would have discounted everything but the product and the actual performance and i would have had my people in there looking at the actual performance asking about and i also think governance is super important and people's approach to governance nick is super important so when somebody says i don't want to have a board i'm like hmm that's interesting uh why and it's too early i was told it was too early uh we want to stay focused on the product i'm like oh okay have you built a billion dollar company before no it's first time um if i could have three people meet with you every 90 days who have built billion dollar companies in finance would you have lunch with them for two hours and they'll say yeah of course i'm like okay that's a board so why don't we set that up and if if i frame it to you as you get to have lunch with three people who have been involved in building a billion dollar business in your vertical before you and you don't want to have lunch with them for two hours every three months four times a year that's a gift who wouldn't take that deal and why wouldn't you take that and why do you need control or controlling shares of your company you know why don't you want to have investors keeping you accountable um you know if you want their money and you don't want to be accountable to them that's like just major red flags like red flags all over the place so i i would have snipped this out immediately and that's why i didn't do any crypto investments because when i ask questions like the ones i'm asking now or how i frame things none of them pass the snippet no product no customers, no governance, and then all kinds of shady, weird stuff.

32:59Yeah. I would say you were a very product and customer focused investor. And there was very little, like a lot of times from what I remember you saying, you would meet with these companies and you'd be like, so who's the end customer? And they'd be like, you. And you'd be like, an investor? And they'd be like, yes. By the token. What? Yeah. Don't make any sense. Yeah. I think we had maybe of 400 companies in the history of my investing maybe less than 10 of them had any kind of crypto angle to them and i'd say if i pick a number eight six or seven of them added the crypto during that phase and one or two of them we invested in knowing they were crypto and so it's really that simple and those were founders i had known previously um and i thought let me make two small bets on founders i know who have done great things before and in both cases i think one's one didn't work out and one is still in play yeah so we'll see and that one has pivoted away from crypto so there you have it folks all right listen we work with startups and they are all over the map most of them very early stage pre-seed seed you know going on to their series a but some of our investments have gone on to raise those late stage funding rounds they've gotten acquired hey and a number of them have gone public and there is one thing that unites them all they need to have their business insurance tight if they want to succeed.

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34:53They're already amazing prices. Their startup package, Embroker.com slash TWIST, E-M-B-R-O-K-E-R.com slash TWIST and use the code TWIST for 10 % off. We love Embroker. Thank you for all the amazing support over the years, both on this program and the love and care you give to our startups. There were four witnesses so far in the trial. One of them was an investor, Matt Huang, the co-founder and managing partner of Paradigm. I hope I'm pronouncing his last name correctly. He mentioned Paradigm had invested$278 million into FTX over two rounds in 2021 and 2022, all of which has been marked to zero.

35:31So he mentioned that he was told in diligence that Alameda received no preferential treatment on FTX, which was a lie. And he also mentioned that he would have likely not invested if he had known about FTX's red flags, like their Alameda relationship and how they were allowing them to access customer funds. But the real testimony that I think is interesting so far was Gary Wang, who was Sam's co-founder and the former CTO of FTX and reportedly built the whole site and was actually like the one who was doing all of the coding. So Wang has already flipped on SPF. He's already pleaded guilty to fraud.

36:09And what I thought was really, really interesting is that one thing he said basically lends itself to all being sort of a grift from the start. So he said when they were creating Alameda and FTX, Wang said SBF named the firm Alameda Research because it makes it easier to do business if the name doesn't mention trading or cryptocurrency. conspiracy f uh sbf told him prosecutors oh sorry in the in the um uh from the one of the articles prosecutors then played the jury a recording of an interview in which sbf said he knew banks would not work with alameda if it were called shitcoin day traders inc but no one doesn't like research sbf said in the record this is where you get exactly sbf's premeditation and thoughtfulness clever you know premeditated you can frame it however you want but expertise he knew what he was doing yeah right he had a strategy this i mean this is he had a strategy to trick the banks right into working with him so that tells you everything you need to know about this individual and i think these moments is a great moment uh will build and build and build so uh wang will continue to testify on friday uh from what i understand and this thing's going to take six weeks i think they have six or ten weeks i think for this trial it's interesting with these trials they have a specific timeline they give everybody for trials um and so i think this is either six or ten weeks so this is going to be going on we'll talk about it here on the show every week uh you have a guess on the verdict uh yeah he's going to be guilty and i think he will um i could see him pleading you know at some point during this process uh they could come to terms because i think it's going to go really bad for him uh and i think we've only seen the tip of the iceberg of these kind of you know really bad moments uh there'll be all kinds of interesting we're two days in i think yeah it's going to get much worse i think he will get a bernie made off like sentence which was you know multiple life sentences i think it'll be closer to bernie made off than theranos theranos got like nine to eleven years each of them i think it was nine and 11 if i remember correctly i think he's going to be more towards the life in prison so i would say if i have to pick a number i'm going to go with like 30 years to life um i don't think he gets less than 20 so i'll put it at you know 20 30 years plus do you think he's a genius nah i don't i think if he was a genius he would have seen that ftx was a real business he would have seen coinbiz he would have said okay anything that's fugazi we got to stop doing uh we need to clean this mess up and uh alameda you're on your own um i'm shutting it down i'm selling my shares to you i'm out of that business i'm only going to focus on ftx ftx is going to be on the up and up we're going to put a cfo in place we're going to clean everything up if we've made mistakes we'll pay our penalties we'll come clean with it but uh that would be what a genius would do yeah uh this was just sloppy and i i honestly think the kid was on and and maybe this will wind up being his defense that he was in a drug-induced haze and he was losing his mind on speed i literally think he'll probably come to that like i wasn't thinking straight i have adhd i'm severely on the spectrum i didn't understand what i was doing i don't want to say it's like uh the pleading insanity but i think he's going to plead on the spectrum which i don't think is a an actual defense but i I think that's where this all winds up is that he was not thinking straight.

39:47He'd made super crazy risks because he was under the influence of, you know, really serious narcotics. I saw people speculating that remember right after this all collapsed. And then he did like 10 interviews on good morning America and yes, 60 minutes. And everybody's like, why is he's making himself look so bad? I think somebody was, I said that. Oh, was it? Yeah. You thought that this is going to be part of his defense argument. this is the defense argument like i'm a lunatic i have absolutely no judgment and i'm i won't even listen to my lawyers and shut up yeah i literally said that i was like i think that this is part of his i am deranged i don't i do impulsive things and i don't think things through and i won't even listen to my lawyers and then when the judge tells me hey don't use a computer and don't talk to the press i'm gonna get a vpn i'm gonna use my computer all day long and i'm gonna talk to the press i I mean, not only did he do it before he was indicted, after he was given house arrest, they had to put him in jail.

40:44Yeah, he was on house arrest using a VPN. Yeah. Using a VPN. You want to know who's a genius? Trump's a genius because Trump knows like exactly where the line is. He walks right up to it and he's like, I'm going to dance right along the line. You know, these prosecutors are, you know, horrible in these ways. It's terrible that America is doing this. It would be terrible if something happened. I don't think people should stand up for this. And then he can be like, I didn't tell anybody. I didn't cite any violence. inside just said it would be terrible in america's going dang i have freedom of speech he knows exactly he has that level of genius oh yeah no i mean uh now his defense for his apartments being overpriced is well i lived in them and you know it's a tradition like you know in real estate to talk up your assets of course yes the view may not be as great as i make it out to be like he knows exactly where the lines are this kid didn't know where the lines are or when he realized he had committed all these crimes he just said you know what i'm going to lean into i'm a lunatic with no filter no self-control he just went full lunacy i mean that was so weird he did that like andrew ross sorkin interview where andrew ross gave him like all those softball questions and that was bizarre it was like why would he even show up for that and everybody's like is he gonna show up for that really he was doing like everything he was doing everything he was george stephanopoulos like you don't you don't want to go up against a greek guy that greek guy you know he fellayed him like a spartan ridiculous all right listen this is great reporting uh everybody uh we'll we'll keep this up but we won't obsess over it we'll just give it to you when it's really important there's a lot of insights like we'll let it build up and then we'll give you the debrief and jason will fire off some takes we'll fire off some takes it'll be like every two weeks or every week or every three weeks depending on you know how important it is okay so we'll take a couple of questions can be about anything thank you everybody this isn't a question this is a comment that i think is interesting that you could reflect on though it's from a sweet spot 909 uh the venture community really has a lot takes a lot of blame most regular people invested because they saw all those big time nameplates venture funds investing regular joe said if they invested then it means it's legit how do you feel about that yeah i mean i've been a little bit outspoken about this i think venture firms that invested in tokens and then sold the tokens or enable these startups to you know dance along the lines of what the sec would allow knowing how um offerings work i think there's going to be some explaining to do uh now i don't know that they did anything criminal but i do think they might have uh bent the rules and used uh yeah they they might have used um their knowledge of the system to profit in a way that I would consider immoral or unethical, which is flipping tokens.

43:35If you're backing a startup, you're buying the tokens, and then you flip them, and you know normally when a company goes public and you've been involved in IPOs that you have a six-month holding period, and you know how secondary market works, and you know what an accredited investor is versus a qualified purchaser, and you know what a registered offering is, and you've raised different funds, and you know what a hedge fund is, and you're an LP and these things, and you've got the best lawyers in the world when you start stacking all that stuff up and then you start playing in this like imaginary crypto world and you're like oh well the rules don't apply here but we can profit off this non-rule based place it would be the equivalent of like you know somebody who operates a casino in vegas being like you know what i'm gonna do i'm gonna open up an illegal card room in my garage in you know texas and it's like well you can't do that i don't know maybe in texas you can well you're gonna do it in california i'm gonna do it in new york and i know you can't do in your it's like you know that you own a casino in vegas you you're you're regulated you you go in and you take tests and you have insurance and you run a casino properly and you opened up a bunch of illegal casinos in brooklyn what with rigged you know um slot machines in the back too like you know better and so i think that's going to be the issue do i think anybody winds up getting prosecuted you know it depends like i will see if prosecutors you know keep winning these cases and it seems like they've got a pretty good track record of catching people doing things maybe the vcs knew how to not do things that were illegal and so maybe they just held their tokens and you know they really didn't sell too many of them or they sold equity in the company so we'll see uh but vcs could have shown better leadership here i think yeah i think some vcs kind of just drank the kool-aid and was like yeah let's let's do what airbnb did or uber let's reinterpret the rules around ride sharing and renting a room as i've said before you know that's there are some areas where you don't get to reinterpret the rules health care and uh you know finance are customer deposits like you don't want to be too innovative there yeah yeah and a quote from jason in 2022 last year i think this was from odd lots but i'm not positive i believe the overwhelming majority of tokens are securities but they're being dumped onto retail investors and this is being done explicitly by venture firms calicanis said this is going to blow up in the faces of the venture community yeah i i believe that that's still a a big possibility now the question is you know to what extent did people dump these things right and um you know if you were in a venture fund and they sold the tokens and you got a return okay well you're kind of abstracted from it um but if you were on the board of the company and then you personally bought tokens and the company bought tokens and your firm bought tokens or you had a token side fund it all just gets really murky it gets really murky really quick and so yeah i i it's the whole thing is just a total uh side quest gone wrong here's a good question from keith okay are there going to be any more software unicorns in a world where increasingly software is going to be created by faster and smaller teams and i'd add to that question what do you think happens to the series cde and after that rounds of you know 250 million dollars kind of pre-ipo venture rounds do you think that still exists in 10 years i think uh okay so i'll take the first question i think there'll be more unicorns um because i think if you can get to if you get to 100 million in revenue but you only have 10 million expense and you got a 90 margin okay you know uh that's really easy to do to become a unicorn now if today you had to spend 200 million to make 100 million your money losing maybe people don't want to give you the unicorn moniker so i think the efficiency will then make the companies worth more 20 times earnings means anybody with 50 million in earnings is a unicorn uh as opposed to top line revenue and so 50 million in earnings in a software company that may take 250 million in revenue you got a 20 margin at the end of the day and you get 50 million ebita it's gonna be completely possible to have a 50 margin and get there you know much quicker so that's that's what i think and then i do think the people who dip down into the really late stages masa tiger koto whatever the the late stage players were yeah yeah maybe they maybe we don't need that dst dst like we might not need those later rounds and so those folks will either go early well they'll take them public, right?

48:01So that, that weird window that emerged where people just started overvaluing private companies, I think that's gone for a decade or two. Now, if things start going really well, again, yeah, maybe people will dip down there. But I think generally speaking, startups will need less funding. And they'll be more profitable, the successful ones will need less funding, and they'll be more profitable, that'll be the trend. And you know, that's a healthy trend. That's the trend that could get out of us, get us out of this mess. And when you see 20 000 people leave facebook 85 of the people leave twitter 20 000 people leave microsoft 20 000 people leave google 30 000 people whatever it is and the companies are doing just as well they're taking the medicine they're using software and ai to get more efficient get more fit as uh you know our friend says brad gerstner so if everybody's just getting more fit and getting you know running faster and being leaner that's great for the economy it's great for the economy it means these companies are stronger so great question all right everybody we'll see you next time on this week and uh this week in startups and fridays uh what are you calling jason unplugged i like jason unplugged on fridays and mondays casual vibes just some takes just talk it out live come join us on youtube if you want yeah go to this week in startups and then uh click the subscribe and the bell okay talk to you soon everybody

49:26Thank you.