The Trial of SBF: A deep dive with Inner City Press's Matthew Russell Lee | E1833

0:00There's an intersection between sort of VC thinking and philanthropy of like, let's find cutting edge non-profits that can go to scale. I know those people, but effective altruism goes one step further and says, we're going to go out and make all kinds of money, and then we're going to save the world. I guess you could say it's kind of like, it's not like, you know, Andrew Carnegie made the money and then did libraries. They're convincing themselves that the reason that they're doing these things is they ended up never doing it. Like with Sam Bankman-Fried, there was a big moment where they said, Nishad Singh said, I went to meet with Anthropic because I was going to make a donation because I love that technology so much.

0:41And then the question was, well, did you ever make a donation? Well, no. This Week in Startups is brought to you by Squarespace. Turn your idea into a new website. Go to squarespace.com slash twist for a free trial. When you're ready to launch, use offer code TWIST to save 10 % off your first purchase of a website or domain. Catalog. Stop wasting time and money with expensive design firms and unreliable freelancers. Get fast, three-day turnarounds for a flat monthly fee with Catalog. Get$1 ,200 off right now at trycatalog.com slash twist. And.techdomains has a new program called Startups.tech, where you can get your company featured on This Week in Startups.

1:29Go to startups.tech slash Jason to find out how. Okay, today on the podcast, we have maybe the world's number one source on the SBF trial, the explosive trial taking place in Manhattan for the founder of FTX, who allegedly stole billions and billions of dollars. Matthew Russell Lee runs an account on Twitter slash X called Inner City Press, I-N-N-E-R City Press. I found out about this account when he was covering the Nikola trial. We'll get into that in a minute. But his account has absolutely blown up over the past couple of weeks because of his extraordinary in-depth threads on the SBF trial.

2:16He's one of the old school journalists out there who goes to the courts and does real reporting. And so a little history for Matthew and I, who we've never met. But back in September of 2022, Matthew was covering the fraud case of former Nikola CEO Trevor Milton. You remember that I had Trevor Milton on this podcast, episode 1090, back in July of 2020. And during the case, prosecutors actually played a clip of Milton for that infamous interview that I did with him. And that specific clip that was played in court is at the 46-minute mark in that episode. It's when Milton talks about being inspired by Apple to launch the Nikola Badger.

3:00That was a pickup truck that never launched because it inspired more consumers to buy the stock. Here's a clip. So now you've got all this cash on the balance sheet and you've got all this runway. but you this building a network of hydrogen chargers and coordinating the building of hydrogen trucks and satisfying a bunch of customers seems like an awful lot of work and then i'm not sure exactly the date you announced it what date did you announce that you're going to take on ford's f-150 pickup truck and elon cyber truck and the rivan rivan is uh the Rivian Rivian sorry Rivian uh so now you decide F it I'm going to create an F-150 the best-selling car uh in the United States I think and obviously the best-selling truck why would you take on more work that's a good question yeah so here's the reason why our trucks are gravy trained with money um that's where all the money comes from is our is our is our big semi-trucks right the problem is is 90 percent of Americans will never own a semi-truck and so your investment, your portfolio of investors can be very limited.

4:09And we wanted to go and build a company that's going to be worth$500 billion, trillion dollars over say 10 or 15 years. And if you're limiting yourself to 10 % of the market, you'll never do it. No matter how good your numbers are. The reason why people love Apple, everyone touches their product. Why do they love Google? Everyone touches their product. So what I did is I knew day one, once we started coming out, we had all this gravy train coming in from the semi-truck program. My question was, okay that's great but i'll never touch the average consumer so therefore 90 of investors will probably never invest in me so i needed to touch the consumer and so that the truck is for the profit the semi truck the pickup trucks for the consumer and the consumer is the one who is part of the robin hood portfolio is part of the the you know the family office or whatever and that's where all the the valuation of the company comes from all right a crazy crazy clip uh that episode recorded in july of 2020 the badger project was canceled four months later in november 2020 and obviously trying to bait retail investors to buy your company on the way to a trillion dollars quite a claim in 10 years um is a large part of um a bigger story milton wound up being found guilty of three of four counts of fraud in october of last year and he's getting sentenced in a few weeks faces a max of more than a decade in jail anyway uh my matthew russell lee welcome to the show great i'm glad to be on i do i do i very much remember that and it was that was a big part of the the the jurors had also seen the the infamous uh ad for the semi truck where they had still had no motor and they put it on a three percent incline to make it look like it was that it was running so it was a huge contrast to see but i agree the idea of sort of of of basically coming up with a product in order to make to make the stock sexy during covid where people are like whoa i've got this government check what a great company it's for climate change it was it was a it was smart while it lasted but he the thing is norm a normal defendant would already have been sentenced after this long after the conviction but he's managed to like he had a lot of post-trial motions he one juror contacted inner city press because once once the jury is released they they go online and they look at you know things about the trial and contacted me and i interviewed them they they they basically they said a lot of kind of anti-corporate things and they described the deliberations and how people ended up thinking he was really like a smart punk and so that's been one of the basis of his of his appeal so we'll have to see what happens ultimately with trevor milton but he was convicted yeah and it really is particularly sinister you know when you are incompetent you know you're not going to be able to build the product and i think that is the part about this where you know in our industry the technology industry we have a long history matthew of fake it till you make it or you know set audacious goals uh in fact it is a big hairy goal uh uh big hairy audacious goal a b hag is a term they use that google and that's fine but something along the way to a big audacious goal can throw it off the rails what is that what when does it become a legal issue you know since we have a lot of founders listening in your mind between hey this is an audacious goal and maybe you're committing a crime i mean i think it's it's i'll say it is as although to the prosecutors defrauding investors is is as much of a of a of a defraud, you know, securities fraud, wire fraud crime as defrauding, let's say, a depositor or somebody that, I'm going to turn it to FTX, somebody that put money and thought they were trading crypto when, in fact, Sam was just moving the money elsewhere.

7:48I think that it becomes, there's, you have to show, it's like see enter, you have to show that they knew that the statement was false, that it wasn't just that they were sort of puffing, puffery. The same thing is actually coming up in this, there's a Trump trial right now in New York about his real estate and the idea that he somehow misled deutsche bank about the value of mar-a-lago and his various properties personally when i look at it it's hard for me to see deutsche bank as a big victim in the sense that it's their job to do due diligence there's another case it's charlie javis i don't know if you've heard about that one she had a she had a a uh trying to think what it was called she had a a platform that was supposed to help people fill it out fafsa frank exactly and so yeah total fraud Oh, yeah, we did cover Frank.

8:31Yeah. She sold it to JPMorgan Chase and claimed to have hundreds of thousands of customers. She didn't. She actually went out and just bought an email list. But so that's fraud. That's fraud. At the same time, what are the prosecutors? This, to me, sounds more like a civil case in the sense that, like, JPMorgan Chase dropped the ball. They didn't do any due diligence. And now, alongside their civil case, they have the prosecutors conveniently. I'm not a fan of JV. I'm just saying. And then the other option, obviously, I'm sure you guys have talked about Theranos and Elizabeth Holmes. That's where it gets terrible.

9:03That's where fake it when you're actually faking like cancer test results is worse than a pickup drop. Yeah. Worse than a pickup drop, worse than crypto. So there's a whole continuum here. I will say just in FTX, it's beyond. I mean, in Trevor Milton, they did show sort of, you know, extravagant spending by Milton in the Caribbean. But I think that the prosecutors in the FDF case have really managed to show the specifics, not just a sort of, you know, do you resent this type of excess and the$35 million condo over the Bahamas, but the taking of customers' money to make political contributions, to give it to your brother's foundation, to buy real estate for the parents who say they're such ethical, you know, pro-poor people.

9:52I think that's ultimately, if I were a juror, that's what sort of gets their ire up. And I don't know how Bankment Treaty is going to rebut that, honestly. If your landing page is terrible, I'm out, right? Most consumers are. It's 2023. You can't have an ugly website. Stop selling for okay or good and have great. And great means you're using Squarespace. It's out of the box. Beautiful. These websites have templates made by the world's greatest designers that are going to engage your audience, let you sell anything. And Squarespace, over the past decade, has just added feature after feature on top of the gorgeous templates that are designed for mobile.

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11:02When you pay one price, but the product gets better and better and better. You get that with your Tesla, you get that with your iPhone, you get that with Squarespace. These are the legendary brands of the internet of this era. Go to squarespace.com for a free trial. And when you're ready to launch, I want you to go to squarespace.com slash twist. And they're going to give you 10 % off your first purchase of a website or domain, go to squarespace.com slash twist because they know we sent you. Yeah. And so let's get to this. The case has been going on for a couple of weeks now. And it's gotten really interesting.

11:30Because I think this is the key to it. You know, he's had like four of his top lieutenants plead guilty. And I think three of them are cooperating with authorities in order to get reduced sentences. I'm not sure if they've already negotiated those sentences or not. i'll tell you if you want to know yeah they can't actually know just just just to to explain that they don't know yet what their sentence is going to be they basically they plead guilty to a slew of charges all of which some of which have mandatory minimums and the government commits as long as they tell the truth whatever the outcome of the trial is commits to write something called the 5k1 letter to the judge when they come up from sentencing saying how useful their cooperation was and then it's totally in the judge's hands like honestly they're all they're totally it's total there's no guarantees here at all and honestly if if a judge himself concludes in this case it's judge lewis kaplan concludes that one of the witnesses might have been lying or trying to make themselves look better that's going to hurt them at sentencing so it's it's an interesting i think they had almost no choice they're going to get much less than if he's convicted than than sam bankman treat is but they definitely don't have any assurance of what that will be yeah and so they might get i mean if we're going to take a percentage of it yeah like half of it a third of it whatever it is sometimes they get time served it's really it's really an interesting and i'm sure that they're all of them have like super high high power white shoe law firms representing them so i'm sure all of them have shown them like charts of like not just here's generally what cooperators uh might get i covered another crypto fraud case uh one coin which didn't even have a blockchain there it's called the the crypto queen a woman from romania yeah called called ruj ignatova anyway a cooperator against her who helped her launder money and then and then provided a lot of information to the government got five years so you can get wow yeah he got his name is gilbert he also violated his cooperation agreement by like selling his jet without telling the government stuff like that but so it's a there's no assurance they don't have any assurance but they definitely have an assurance that they'll do better than than uh the defendant if he's convicted if he gets off they're screwed because they're going to go to jail and bankman freak won't but i i'm feeling that's a lot yeah yeah i mean because they pled guilty right they pled guilty to they can no longer say i didn't do it they they confess to all those things so so tell me you've been in the actual courtroom sure and you are an expert at getting into the courtroom i'm just curious from a mechanic standpoint how does one get access to the courtroom is it easy is it difficult you have to show up at 4 a.m.

14:02Do you know people there? And yeah, how does it work? I will explain this. I've been covering the court very like on a daily basis. I used to do the same thing at the United Nations until my reporting there got me into some trouble there. So I came down to the court and I was like, here I am. I was covering a UN corruption trial, Chinese bribery of UN officials. And every day I have to leave my laptop and my phone downstairs. I go upstairs and And I noticed there were other reporters covering the trial that were not leaving the building to do broadcasts, you know, during the break, but had their electronics with them.

14:35So, they haven't, there's an in-house court system. There's an in-house press corps and a non-in-house press corps. And the way it was explained to me, and I give them credit for this. It's not just based on like, oh, you're a big journalist in from London. Here, take a press pass. Basically, they said to me, it's not enough to just be covering one case, no matter how much you are. You have to cover, you know, a lot. So, now, I mean, I'm covering actually a lot. I write 10 stories a day about the courthouse. Not all of them are financial fraud. A lot of them, I like criminal law, but a lot of them, I, I, I, you know, I, I, I, I, there's some really long sentences being given out.

15:06There wasn't a, in any event. So I'm an in-house reporter there so I can bring the electronics in and I don't. Let me ask you a simple question there. So you're an in-house lawyer. How do you sustain yourself? This is a hobby or you seem to be doing this full time. So no, no, I mean, a citizen journalist, how do you make money? Yeah. I was going to, I was going to break in when you said, You may know it through the Twitter feed, which is, or X feed, which is free. But I have a Patreon. I have a sub-staff. I have a, you know, so there's a variety of ways. I would say it's actually, I think this is a, I don't want to say it's a new model of journalism.

15:39Obviously, corporate media is going through various, trying to decide whether you should. The way I do is, if I had my druthers, I would put everything up for free. I want people to know the information. as it is i'll put almost every i'll put almost everything up for free but i'll also put put you know if i get documents i do a lot of foyer requests i do a lot you know the the people send me you know documents and so i put i put you could call it bonus material uh on patreon and i do do you make a living do you make six figures doing this can you can you survive i'm surviving here i am here i am and that's what i do and it's it's kind of i kind of learned during in the un as well i had the same there were people that wanted it's a it's an interesting i think as a as a kind of i don't want to say a lone journalist i like i like beats where you can really everything is within walking distance for example i mean i'm covering a lot of cases and it's because all of these cases are in two buildings in lower manhattan that i have a past i can go back and forth between and i can really cover i can cover a lot of things and so and and it's the same the un for all of its failures i enjoyed covering it because it's just 42nd to 46th street first avenue to the river and yet you can cover a lot of things you can build up a readership and there are people that are willing to pay for it amazing so i'm really happy for that everybody go to uh patreon right now and please subscribe to inner city press and we're going to do the same here from our program so thank you for you doing this so um tell me about the general vibes in the courtroom because these people work together um but they and they work together for years they're all very smart they're all very young they were all hopped up apparently on adderall speed all kinds of amphetamines which is a really interesting side discussion we'll put that on the side now put a pin in it but it doesn't seem like they had a massive amount of deep loyalty for SPF and they have flipped on him but what is that like because they're all in the courtroom looking at each other but these all seem like really weird Asperger-y kind of ADHD kids I think they've all used that in their defense so what's the vibe and compared to other trials and have you ever seen anything like this yeah no it is it's extraordinary the first thing I'd say is that they're not all there at once like because they're witnesses you can't be in the courtroom for example when Carol Carolyn Ellison was the first of these these three cooperators to testify but Gary Wang and Nishad Singh were not even in or there.

18:05They had to basically vow to not even follow the, follow the testimony because you don't want witnesses, you know, sort of putting their testimony together. Like, as she said, I'll say this. So, but it, so it's been one by one. And, and the highest profile one was, was Carolyn Ellison because beyond being Alameda's at one time co-CEO, and there's another guy called Sam Trabucco that I'll put a pin in that and get back to it. It's an interesting, he hasn't shown up in the trial. He hasn't been charged. People are writing to me saying, what was it like when carolyn was there very did they look at each other did they say hello to each other did they greet each other no they did not and in fact there was a a lot was made of this but when oh it is kind of like a perry mason like a like it's like your idea of what a courtroom would be they say do you see the defendant in the courtroom and she initially couldn't see him because he looks quite different than he did back in his back in his days of a podcast from the from from the bahamas with with big hair and cargo shorts he's now the hair has been cut he's a lot thinner which i don't know if he's trying they're going to in closing try to say he's been mistreated in jail or something his suit is too big so there was definitely i think ellison was was a very strong witness because it combined both the her describing you know how it worked and she was definitely she pled guilty she she acknowledges that she knew that alameda that alameda had this incredible 65 billion dollar line of credit with fdx that when people thought they were sending in money to to to trade on the ftx platform it was being diverted to alameda but she says very much sam told me to do this and she also has the added element of they were had a relationship they broke up and and you know it's i think that the quotes have come into evidence of things like he wasn't paying enough attention to me he he ordered me around and i think as much as saying that these four were like gary wang was a co-founder of both of both alameda and then ftx nishat singh was the engineer but this was not a an equal four-person relationship sam was clearly sam was the boss um the other ones have even though they've pled guilty they've tried to kind of say i went along and some of them even said both ellison and when were said the the on cross they were asked well why didn't you leave you know if you if it was so bad if you if you knew it was fraud why didn't you leave and basically the answer was we thought it would all fall apart even faster if we left or sam sort of like demanded loyalty like stick with me to the end of the three of the three the the most sort of sort of poignant was nishad singh it seems like he really believed in this ethic i don't know how since they were throwing money around like crazy yes he seemed to believe that the purpose of fdx was to help poor people and somehow in november 2022 he was disabused i don't know if the jury is going to believe that sorry to to no no no So, I mean, it's fascinating what you're describing because that's the dynamic I'm trying to get my head around is the interpersonal dynamic between them.

21:05And then, of course, on a trial basis here, how they're sort of framing their involvement because they knew that they had built this backdoor. They knew they were taking this money. They knew that these were client deposits. They're admitting to all of that. and they knew that they were doing they were bribing chinese exchanges correct correct no that there was a there was a time where fdx's money got frozen on two chinese platforms and so they wanted to get it out first they tried i guess legitimately with a chinese lawyer that's not really how china works and they had a guy they had a a staffer inside fdx an engineer who said i'll tell you how china works and they ultimately you first using the accounts of thai prostitutes Yes, this went into evidence that they stole the identity or bought the identity of Thai prostitutes to set up trading accounts to which they could lose in trading as a way to shift money.

22:02There doesn't seem to be any dispute that they paid a bribe to an unnamed, yet unnamed Chinese official, and their money was unfrozen. in the middle of this did it in the form of losing a trade in these accounts that were owned by prostitutes so that uh somebody who's a regulator if they didn't have any controls in place but if a regulator did see it it would just look like they made a bad trade this person went long you know some crypto they went short it and they won the trade yeah yeah they were exactly that was their way and the sort of to me the one of the interesting things about it was there was another fdx employee called uh heidi yang anyway her got her she's chinese and her her her father is a chinese government official and they were apparently talking like oh you know china all the officials are corrupt we'll just pay a bribe through the prostitutes and heidi was like no and so there's a there's a signal chat between between sam and this guy called sam trabuco saying heidi's a real like you know she's a she's did she turn us in you know we need to take her off all the communications channels and she very very quickly left i think she would have been a great a great witness in this trial because that's again again in terms of the jury it's not just showing there's the kind of bloodless there's a lot of balance sheets there's a lot of spreadsheets and then there's like this guy was just he was like screaming at his employees he was a he's now trying to blame carolyn ellison when basically i don't want to say she was a puppet of his but what he told her to do at alameda she did it wasn't she even if you look at her resume she didn't it wasn't like he hired some like huge hedge fund person i'm not saying you know again i don't it's not to be these weren't super experienced people and he didn't surround himself with adults who would have kept him in check he hired a bunch of kids peers and he is apparently you know directed them to do this stuff now they also participated so that's going to come in what what has the jury responded most to because you must as a reporter there sure uh when you're always looking yeah and they're taking notes or they did was there a moment where they gasped or they rolled rolled their eyes what have you seen i think absolutely matthew yeah i think because there have been other witnesses that have haven't been as kind of shakespearean there's an there's been there was an expert witness there were a couple of investors there was a guy who's a cocoa trader cocoa like chocolate he's a commodities trader in london that said he lost a hundred thousand dollars i have to say the jurors didn't seem that excited about that they very much focused on the three these three cooperating witnesses and there's also a kind of a hype celebrity aspect to this to this whole trial where they got into evidence not just that that that fdx paid more than 100 million dollars to rename the miami heat uh arena and and and for the larry davis david ad and tom brady but also like there's a there's a particular message where after the 2002 super bowl sam wrote to all three of his his his collaborators and said i'm just back from la i went to this super bowl party it was fabulous you know all these hillary clinton was there there's like then the jurors are like looking at this list of like and he's got you know gushing about the people that he was hobnobbing with this was all through this thing called k5 of michael kivas and he was yes i know michael yeah he was ready to do a huge investment with them saying like this is that this is a mixture it's an investment but really is it's really an investment to sort of get face time with these big names and take ourselves to the next level which by the way is a thing in business you know like sure people will make investments uh they will hire endorsers but they'll make investment in companies that give them access to a certain class of people or And so Kivas, you know, got a$700 million investment.

25:48There was some purchasing of shares, I guess, you know, I think from the co-founders of the firm. But FTX, Sam Bankman Free was doing this in your mind, and this is what they kind of portrayed to the jury, to try to put a patina of celebrity and excitement around the company, correct? no no absolutely and and kind of legitimacy to make it like you know people have heard for example binance and see his big pitch because at the same time that he was doing that he was also there's the jury's been shown footage of his testimony to the house financial services committee and his tweets praising maxine waters and stuff like this he was trying to take and that was i think very it was and again that that that's not fraud that's sort of that's how it works he was trying to take fdx out of the the the morass of crypto platforms even binance is it's a big platform and cz but it has a kind of like he made a big point of saying with its chinese founder they're never going to get anywhere in washington right i'm the you know i'm an american i'm you know hobnobbing with shack so it was i don't i don't think it would be unfair if the jurors were just like this guy was a social climber but i think what's amazing about this is that there wasn't there must like you're saying it's a it's a known business thing to make investments to get out they were just from as best i can make out and this is not from reading or coming into the trial literally from the exhibits it was just a piggy bank there it literally was and the amounts are huge they're they were lending each other like 300 million dollars now in some cases this was so they could make an investment for fdx they claim but the amounts there and there was no there's no paperwork They're literally like, you know, signal chatting each other and saying, okay, 300 for there.

27:36And then you have this, something that I'm very interested in. His mother, Barbara Freed, is a law professor at Stanford. Very progressive. She has a nonprofit called Mind the Gap. It was in turn giving money to many progressive candidates. She said things like, okay, I want a million dollars, but do it through Nishad Singh so it doesn't look like this is just a family affair. And that's in writing. The jury has seen that. Wow. Yeah. So it's pretty, and Barbara Freed is in court every day. So some people are joking, like, is she going to, at the end of this trial, are they going to pull the handcuffs I had on?

28:07And the father as well. Joe Bankman is a tax lawyer. Also, I believe he's a psychotherapist. Anyway, he's a very put-together guy. And he's known for, like, helping with, like, you know, easy tax filing for low-income people. Like, he's a self-described progressive. and yet he was in the signal chats to the last day of how they could like defraud potential investors about the financial condition. When I see a startup that's got bad design, it's hard for me to take it seriously in today's day and age. Why? Because having great design, having world-class design, it's kind of table stakes today with consumers, with employees, with partners, and of course, with investors.

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29:47Stop wasting time. Stop wasting money with all these expensive design firms and unreliable freelancers who disappear. What you want is fast three-day turnarounds for a flat monthly fee with catalog. And you're going to get$1 ,200 off right now at try catalog.com slash twist. That's$1 ,200 off at try catalog.com slash twist. What has come across there? Because there has always been this question. He's got these parents who are Stanford law professors who have written papers i believe on ethics and morality and these are seeming to be you know the elites of our society now elite people know right from wrong they know the law they're literally lawyers and professors so if they were involved in this that certainly means they know right from wrong so they must not only know right from wrong they must have known that this fraud was going on and they must be culpable right i mean i think i think so i i hate to to exactly i mean i think that there must have been a point in time and there's probably still some percentage of of their selves that are actually idealistic but they they lost their way i think there's a kind of arrogance i mean i don't know if there was a big there was the new yorker did a piece that i i don't know how to how to take it but sort of explicating their point of view the writer went out and walked around with them it was very criticized that piece because it felt like it was a little bit soft yeah oh very soft and in fact they without any rebuttal i think barbara freed said those who question us are like mccarthyites like they in their mind no seriously in their mind it's kind of like deranged that that's a direct quote like the idea is that it's so unfair like their son was a genius and he was there's what we haven't used these two words yet but effective altruism that yes explain what that is to the audience and how this became a rallying cry for them i really i mean i i wanted i want to say like i i've been contacted by adherence of it and i still i it's a weird i i guess it's the it's a kind of elitist elitist or quantitative philanthropy the idea and i've heard it there was a slow there's a lot of there's there's a there's a there's a there's a an intersection between sort of vc thinking and philanthropy of like let's find cutting-edge non-profits that can go to scale i know i've i know those people but effective altruism goes one step further and says we're going to go out and make all kinds of money and then we're going to save the world i guess you could say it's kind of like it's not like you know andrew carnegie carnegie made the money and then did libraries this they're convincing themselves that the reason that they're doing these things is they ended up never doing it like with sam bankman freed this there was a big moment where they said the shahd singh said i went to meet with with anthropic because i was i was going to make a donation because i love that technology so much and then the process then the question was well did you ever make a donation well no you know they made an investment that's actually in a way this is the manifestation of what happened with bill gates you know he made this extraordinary fortune.

32:51And then they signed this giving pledge. And so this is like an extension. I think it goes back to that giving pledge that Warren Buffett and Bill Gates came up with, I think, where they were involved in. And Bill Gates, basically after decades of being an extraordinary entrepreneur, just decided, I'm going to put all of this money to work in a very intelligent fashion. This is like the next generation saying, hey, that's why we're doing it. So don't hate us as entrepreneurs we get a pass and so is part of the prosecutions or the defenses um you know theories here and their angle in terms of either getting off or getting convicted this effective altruism how is that playing into the legality of this or the argument that's it's in in in pre-trial there's obviously a lot of skirmishes before the trial began And it's called motions in limine and they sort of decide in advance what can come in and what can't come in.

33:45We have not heard the word, the phrase effective altruism from either side because the judge said it's going to confuse the jury. But we've seen the we've seen him funneling Alameda money to his brother. Gabe Bankman Freed has it has something called guarding against pandemics where he was like, you know, and this is a big issue for the idea. they're saying like i think i want to go back to just say the sort of catchphrase of effective altruism is you could you know become a doctor and then go and say and work in gaza or in africa and try to sew limbs on or you could just go and like start a crypto platform steal everybody's money and fund 4 000 doctors in africa and isn't that more effective yeah now he never did find doctors in africa and also you no matter what you're doing with it you shouldn't steal other people's money it should it wasn't like they were using their personal money and they had quite a bit of it yeah they were literally just like scooping into alameda and giving it to the brother and nobody knows where did the money go yeah and so that see this is where i think their argument breaks down it's probably why the judge said hey listen you want to bring this robin hood stuff in no no bueno let's just talk about the actual actions that happened here and let's just judge this case based on that because i could see it being appealing to uh i'm trying to i want to i want to steel man for a second sure the the the the um spf side if they were allowing to talk about this he says listen i this is what i think the defense is going to be and i want to hear what you think there is me hey listen i was hopped up on speed i have adhd i got into this i really had great intent and i didn't know what i was doing i didn't have the controls in place i was trying to make as much money as i could and look i made a bunch of bets i thought that was the job i made the bets hey these bets worked out i think i'm with this anthropic investment everybody will be whole so yes i should have had controls in place i didn't know what i was doing um i should have had governance i had all these investors they didn't force me to have governance but at the end of the day i was just trying to make sure that you know the children were saved and i and i had this great money to do that and i you know i beg your forgiveness is that what they're going to go for i it it definitely remains to be seen because so far all we've seen from them are these not not visibly very effective cross-examinations of the cooperators.

36:02Now, last night they put in a filing, they have one expert witness, a guy called Joe Pimbley, who's going to dispute the size of the line of credit between FTX and Alameda. I don't think that's going to go very far. Many people are saying criminal defendants in federal trials rarely testify because you open yourself up to like three days of cross-examination, and that's when things like prior statements on all and he has many of them will all come in and they'll ask him about it but i i it does seem like he might testify because it doesn't the feeling is it doesn't it's not a it's not a coin flip um it seems guilty yeah it's not going dead to rights it's not going well he's gonna have to convince and he's also he's got to throw a hell mary yeah and then so then yeah once he gets talking mary what would be the defense what do you think i think it's just that i think he's just he's almost and i what they've tried to show is it's not just bad investments like it would be one thing if the company failed because let's say they were a hedge fund and they made some bad investments and they and it flamed out that's not illegal that's just bad investments it's the misuse it's the you know they the clearest one is the people that put their money in and they said i i never authorized them to take my money and give it to gay bankman freeds yeah guarding against pandemics or to give it as a political contribution they stole it they literally stole it and then they and then they scammed people the whole grew up to the size of like eight billion dollars and they misled they also had very third point various investors in the company say if i'd known that there was this back door i would never have invested i still was that paradigm did paradigm come in yes yeah absolutely yeah the number the the and there was this the last witness of last week was a guy from third point i forget his name ah sure yeah uh brewer journey and he was describing these meetings in hudson yards and like they the thing is i you know i don't know from my point of view i feel like they needed to have better due diligence too like it wasn't rocket science i think that this is a key point um you know i know a lot of people i know matt from uh from paradigm and i know some of the people who invested and what happened was just to explain to you in the industry um people had come before and invested and there was a very hot market this company was growing very quickly so people were like oh the other people must have done diligence and they kind of suspended disbelief didn't do due diligence and then there was no board of directors and there was no cfo now these are extraordinary red flags for a company that had 100 million in revenue if you had 100 million in revenue and you had you know i don't know 50 million dollars invested in your company or 100 million you would certainly want board uh oversight.

38:41But I think because this had gotten so big, they basically gave him a pass because this was such an extraordinary success. So it's very bizarre. Now, those people, you know, in my mind, if you didn't do the diligence, you deserve to lose your money. But of course, the people who thought they were buying crypto, they don't deserve to lose their money. When we look at the defense, do you think there's a chance he will say I was drugged out, and I'm mentally ill, and i was in a manic state because he has been very public about his use of these patches and these weird oh yeah i was gonna i've never heard of do you think he goes for the i'm i don't want to say insanity but insanity defense i mean they would have had to kind of give notice of that but i think again once you get in front of the jury you know there are no these fine legal distinctions between did you give notice of this defense or not they so far the jury hasn't heard it out whenever the jury is out there's been a lot of discussion of adderall could he get you know he's there are many people in the mdc jail in brooklyn that i'm sure could use it and they're not getting it but you know he has a doctor that they've tried to say the doctor maybe writes too many scripts but they've gotten to the point where initially he was getting adderall in the morning and at night but they're saying in the middle of the day he's not able to focus and participate in his defense so he's he's getting sort of longer slow release adderall now the jury hasn't heard it yet he hasn't heard it yet but you're right that i don't know if it's going to be as as as as uh clear as saying i was crazy but it it i think he thinks he's charismatic i think he's gonna he's gonna try to create this this this uh kind of kind of dust storm of good just good intentions i was doing the best it's an under regulated field pixie dust it's a bunch of pixie dust you know people some some planes crash and now it might go up again and i'm a victim you know i'm just a sort of an innovator and again i get the the the the prosecutors are just going to try to like let's go back to basics i think that their approach to the case is that this is not really about crypto this is not about this is just fraud it's just just fraud it's fraud it's just fraud you say to somebody put your money with me and i'm not going to take it out and then you give it to your brother i think that's also their most that's definitely their most effective thing because that it's just it's it it doesn't pass the smell test when you're funding your family's foundations with somebody else's money.

40:58All right, we're back with another Pitch It to JCal segment brought to you by the fine folks at.techdomains. .techdomains are giving Twist listeners the chance to show off their startup here on This Week in Startups. And all you have to do is go to startups.tech slash Jason to apply. But there's one rule, you need to have a.techdomain name to get featured. This week, we got an amazing pitch from Whistle.tech. Whistle is a SaaS platform that consolidates multiple communication apps into one place. I need this. You ever spend like 20 minutes searching through five different apps trying to find a customer support ticket?

41:34Well, that's never going to happen again with whistle.ex suite of unified communication tools. Head to whistle.tech to check them out. And if you're interested in getting featured on this week in startups, get a dot tech domain name and apply at startups.tech slash Jason. That's right. apply at startups.tech slash jason let's go back to that jury this to me seems like it's a very interesting um you know did they respond strongly uh just before just did they respond strongly to any moments in the trial and then do you know um through the the selection process who the the jury is in terms of it's a firefighter it's a secretary what's the composure of this group because i think that will in some ways determine you know how they take some charismatic or i don't know nerdy looking kid and and and deliver their verdict yeah it's it's always i mean because this it's the jury pool is drawn from the southern district voter rolls so it's like the five it's not even the five boroughs it's manhattan the bronx and then six counties above it was there were a lot of professional people there were a lot of people that were like lawyers somebody had Yeah, I mean, and some of them got knocked off and some of them didn't.

42:52And then you had a very young woman that works as a, you know, a checkout in a supermarket. She's on the jury. So it's a pretty well, there's one guy that, you know, I feel bad for him. He's an alternate, but he got through the process and was selected. And the next morning he said, by the way, I'm a night watchman and they're not letting me out of my job. And the judge said, you should have told us that earlier because we've let the whole pool go. and so this is the one if you've seen some of the coverage has talked about a person sleeping on the jury he's an alternate so it possibly it's it's not necessarily going to give rise to it to an appellate issue there's one i want to jump back to this because there's something there's the the as people may know he was in the bahamas when when it all fell apart and he stayed there his his you know these three all left the country and went back to their parents homes and began very quickly to to get cooperation agreements but he stayed there kind of kind of it's a kind of shakespearean thing walking around in cargo shorts in the condo in the condo doing doing doing doing zooms with all in sundry but then he was arrested by the bahamian authorities they taken into custody and it became i remember this because it was a big we were in the courthouse wondering when is he going to come is he going to fight extradition he ended up not he ended up consenting to extradition but this is now being used to actually get him out of several of the charges The Bahamian authorities are saying, now that he's been extradited, he can only be tried in the United States on the charges that were on the table when he was extradited.

44:21So, as they've gone through the electronics and the various files of the cooperators… Yes, they would file a superseding indictment, yeah. They did. They filed one, including the Chinese bribery charge, including the campaign finance charges. And basically, he may be convicted in his first trial on securities fraud, wire fraud, money laundering, and never face the other charges. But right now, it looks like he – and this is where it gets – it may sound like kind of conspiratorial, but the political side doesn't – it's not just that he looks bad. The politicians that took the money don't look very good, right?

44:54Because they were being proponents of using the FTC, the CFTC. They were basically doing Sam's bidding for the money, which I guess no one is surprised by. that's that's washington but we have a political system yeah yeah many of them didn't want to didn't yeah and there was dark money too like these guys were not they were not just doing this the two thousand five hundred dollars to candidates they were funding like the republican governor and there was it was mostly democrat but they have this other guy called ryan salam who he's pled guilty but without a cooperation agreement so that's going to be to me it's interesting like they he may provide them with information but he hasn't testified this is the name that i put a pin in i'm remaining to go back to it there's a guy called sam trabuco he was a co-ceo of alameda with carolyn ellison and in the evidence at trial he left before the fall he left seven months before the fall but he's never been charged and he's not a cooperator but in the chinese bribery thing he was absolutely central to it like him and sam were saying like let's do it so he's he's not subject to this bahamian hail mary of knocking out charges he's an american citizen that on evidence violated of the campaign finance laws and the foreign corrupt practices act so it's a it's a mystery there's a lot of sort of rumors floating around like where's sam trabuco or that maybe doj is deferring it's not clear to me that the justice department has to defer to bahamas on this this is not they've admitted it's not really a legal requirement they're saying it's nice to be nice for for future extraditions from the bahamas we want them to feel comfortable but right and so some people say to me it doesn't really matter if he's convicted of the wire fraud he's going to do a lot of time in jail doesn't matter but to me it does matter like it does yeah the the specifics of the campaign finance charges and and and the chinese bribery these are issues that go well beyond sam breakman free they're like how does it work how does it work and it's it's too convenient i i i personally i go to to to press conferences with the the u.s attorney and i've asked him but you can't get an answer to this question who decided that that to that that these These really explosive charges that go beyond just financial chicanery would somehow get swept under the carpet.

47:04And I don't – that's something that I'm going to continue to pursue wherever the trial ends. Have they gotten the money back? Is that part of this trial? Have they talked about recouping the money and getting it back from different places? Or those – I know those would be separate actions in some cases. That's a total – yeah, there's a big bankruptcy case in Delaware. And in fact, a lot of the evidence in the case, they sort of the FTX debtors or there's a there's a snapshot that was taken of their their Amazon Web Services full cloud account of everything about FTX on November 6th, 2022, which seems to be like the day that it all fell apart, that the FTT token collapsed and people flew out of the country.

47:43and and down there those those are the guys that are the parents have actually been sued civilly for the money they took like this guy john ray who's the the bankruptcy sort of trustee he did the same thing in enron he's a fame kind of like try to get all the money back that you can yeah he's filing all kinds of lawsuits against against people trying to claw back i mean i wonder there's other people that got investments like you were saying i don't want to say michael kivas but you know scaramucci there are all these names floating around that took that got money um and and it seems pretty methodically they're trying to get to get all the money back it's ill-gotten gains and you spent it at a restaurant or on nix tickets i don't think the nix have to give that back if you consume something right but if you invested and you have it sitting in your bank account or some amount of it and you traded for shares then the shares are what should be given back but i think they could put pressure on somebody let's say you raised 10 million like there is a um blog uh like a news blog semaphore yeah i think that took 10 million and they committed to giving it back and they found new investors so i guess they just don't want to be involved in this so just give the 10 million back but let's say they had spent it well then you owned equity and so the i guess the people who are sold they would get the equity yeah um so that's a negotiation yeah Yeah, it is.

49:01And it's, I think a lot of like the Committee to Protect Journalists, a very high minded group, they got$410 ,000 in crypto from FTX or Bankman Free, no one's quite clear. And so some months after the flame out, they quietly gave the money back, which is good, because otherwise, John Ray is coming knocking at the door. And I think the parents, they're trying to say that they never knew the house was in their name. And it just doesn't pass the smell test. And they were using Signal and other services to try to cover their trails. But they seem to have gotten some of these signals. So does that mean somebody was taking screenshots or recording it?

49:43What's your take from that? That's what happened. And they've tried. The prosecutors, I don't know if it's fair or not. Because a lot of these, they focused a lot on Sam Bankman-Fried telling, you know, Gary Wang, Nishad Singh, Ellison to all set self-erase, you know, for four weeks or then as things got hotter, it seemed to have shrunken down to one week. Clearly, some of them stopped doing that because the messengers are there. But they've tried to sort of show like this. And I think they do have a direct quote from Sam. They have a witness saying Sam told them, let's not do this stuff in writing.

50:15It's better regulators are going to come looking for this. and i but i mean that's all that that that doesn't necessarily mean you broke that standard business advice too which is hey we're talking about a legal issue let's not totally play pretend we're lawyers and talk about it on slack or i message because then an attorney is going to try to spin that in a case so that that's kind of like general health practices but i was just kind of interested in that you know when you set it on signal i believe it's mutual so if i set it to one week you're automatically set to one week it's kind of like we've agreed on one week so i was wondering if people did take screenshots i found a way yeah these are that's they may not have been very experienced in business but they definitely knew they definitely knew technology and somebody was probably knew to cover their tracks too so what's left in the trial here we've been at this for some number of weeks sure when they do a trial like this they set a number of weeks right they have a certain amount of time yeah they asked they said they thought it would be four to six weeks um okay and they tell the jurors that too we're we're we're past three weeks and there's been a kind of a hiatus here the judge kaplan had to go to some conference so there was no court last friday and and it's going to restart on thursday on thursday the government is closing its case they they've basically they yeah they're they're that's why we now know that trabuco is not being called as a witness they're you know they're there there was also the general counsel a guy called can son he was given he wasn't charged but he was given a non-prosecution agreement he testified and it can't be used against him and his his testimony was basically that he had no idea but that event in the final days Bankman-Fried asked him to come up with a justification for the missing eight million dollars and he told him there really is none but here's some plausible explanations but they're not plausible and Sam's reaction was like oh I get it which is sort of an admission I think that was the purpose of that testimony so basically before lunch on Thursday which is when this week they're going to rest their case the defense has tried to say give us another break they've already had this three day break but they don't that if they want another break and judge kaplan said no thursday after lunch you've got to start they might start three weeks to do their side yeah i don't think they'll take even if they it seems they don't have an extensive witness list they wanted six experts they're now down to one expert he probably will go on thursday and then there'll be this magical moment where the judge says mr bankman freed you have an absolute right to testify you they'll do it outside the presence of the jury you have a right to tell you don't have to testify it's your decision it's not your lawyer's decision and when people are i mean these are people that are like deep inside it they're thinking like probably the lawyers almost always lawyers say don't testify because it doesn't end well but this is not ending well either but it's totally his decision he could tell them i'm not going to and in that moment moment you could say i'm ready yeah i'm taking the stand so there's going to be that's like the moment and alger if he definitely if he says no i choose not i exercise my fifth amendment right i'm not testifying there's going to be a lot of disappointed journalists certainly and i think disappointed invest because people i think they do want to know they don't just want to see him flame out but they wanted there there's been a there's been a pretty you know a pretty workman-like presentation but there's still something missing just like you said how i mean i myself said when did even in that family when did it go from kind of arrogant pretentious but ultimately idealistic you know we want to help the poor to like screw the world we're better than everybody and anyone that criticizes it's like mccarthyism when did that happen but at what you know right meal there was a break and i think like it this might come out if you start i think you're going to get you're going to get closer not to the truth but to the the psychological truth of how it happened so i'm i'm hoping that he testifies what do you think the actual truth is if you had to speculate you know you're you're a student of this uh you see this every day you study criminals the criminal mind um it's entitlement it's how they were raised well in this case what what makes this guy tick based on everything you see yeah i think i i i think that i mean i think he's a very strange character it's not just that he was he was not just homeschooled he was kind of always off on his own he definitely does have some kind of attention deficit he's very smart guy but he's not he's not the world's most social person he's not a and i think i think i mean i think his initial you know he got out of mit he went to work with jane street then he had this yes this alami basically he had this idea of like buying you know buying bitcoin in the u.s and selling arbitraging and selling it in japan and i think i guess i mean i don't want to say that this type this type of like you know it's it's a funny way to invest it's it to me it's one step away from saying like wait a second if i can like find a weakness in the market and exploit it yes let me find a week let me find exactly but it's hard to then remind yourself you can find an you can find an edge in just what we were talking about trevor milton like the we there's people are going to feel better investing in nicola if they can think there's a pickup truck than if it's just some abstract stock and i think it's the same way for an edge you might wind up with edges that are illegal unethical immoral all of those things and then some individuals maybe they it doesn't matter to them they see through it like he does he i guess maybe he's on the spectrum in some way he doesn't feel empathy for people in a way other people might right yeah that exactly and i think in a way it goes this family background i they think they're better than everybody and it really despite the idealism there's this idea that like hey you know it's okay to do this because we have an our goal is good nobody the laws are for other people you know and i think i think even even if someone was brought up let's say in a family of people that are like even like a parent had you know served some time for stock fraud you know there's this legal system and that like you go up to the line and not over it or you know this was just outright like whoa we can do it for the law we we might is right we are elitists we we're stanford we're lawyers yeah we we we transcend the law it is absolutely disgusting and you know when you look at this case eight billion dollars stolen Is that the number they're claiming here?

56:25Eight billion dollars. You know, if you took every low-level criminal who robbed a grocery store or a bodega in New York, every dime bag sold in Washington Square Park, and you added it together over the last 50 years, it wouldn't equal eight billion. I'm going to give you two examples. Last Christmas, when Bankman freed, he was initially allowed to be out on bail at his parents' house in Palo Alto, which was amazing. It was amazing to me, like, because often they'll say risk of flight and also just the loss of out. But he was released. And I was covering in the courthouse the case of a guy called his name, Edwin Pozo, 19 year old Bronx resident that was along with his friends, you know, fell in and they did.