WEBVTT 00:00:00.000 --> 00:00:03.600 align:middle line:84% I did not know that there was any improper use of customer 00:00:03.600 --> 00:00:06.195 align:middle line:90% funds. 00:00:06.195 --> 00:00:10.110 align:middle line:84% Everybody wanted to find the chosen one, the genius. 00:00:10.110 --> 00:00:11.940 align:middle line:84% That person was Sam Bankman-Fried, 00:00:11.940 --> 00:00:14.490 align:middle line:84% and the company that he ran was FTX. 00:00:14.490 --> 00:00:16.079 align:middle line:90% FTX is a crypto exchange. 00:00:16.079 --> 00:00:19.545 align:middle line:84% Sam was the founder of FTX and the chief executive. 00:00:19.545 --> 00:00:22.080 align:middle line:84% FTX grew in about three years, exploded onto the scene, 00:00:22.080 --> 00:00:24.145 align:middle line:90% had the backing of celebrities. 00:00:24.145 --> 00:00:26.520 align:middle line:84% FTX is the safest and easiest way to buy and sell crypto. 00:00:26.520 --> 00:00:28.327 align:middle line:84% It's the best way to get in the game. 00:00:28.327 --> 00:00:30.660 align:middle line:84% At the heart of this you have an incestuous relationship 00:00:30.660 --> 00:00:33.315 align:middle line:84% between two companies that were supposed to be separate 00:00:33.315 --> 00:00:35.580 align:middle line:90% - FTX and Alameda. 00:00:35.580 --> 00:00:37.545 align:middle line:84% There was so much alleged misuse of funds. 00:00:37.545 --> 00:00:40.035 align:middle line:84% And it all came crashing down in a matter of days. 00:00:40.035 --> 00:00:43.440 align:middle line:84% When FTX collapsed, I ended up losing a $2.1mn. 00:00:46.860 --> 00:00:49.200 align:middle line:84% And US prosecutors say this is one of the biggest frauds 00:00:49.200 --> 00:00:51.705 align:middle line:90% in American financial history. 00:00:51.705 --> 00:00:53.190 align:middle line:90% Regulators fell for it. 00:00:53.190 --> 00:00:54.660 align:middle line:90% Venture capitalists fell for it. 00:00:54.660 --> 00:00:57.360 align:middle line:84% Everyone fell for the legend of Sam. 00:01:01.977 --> 00:01:04.519 align:middle line:84% Sam Bankman-Fried, almost universally known 00:01:04.519 --> 00:01:09.110 align:middle line:84% as SBF, or Sam, came from relative obscurity 00:01:09.110 --> 00:01:13.110 align:middle line:84% to King of the Hill in crypto within just a few short years. 00:01:13.110 --> 00:01:15.905 align:middle line:90% He's the son of law professors. 00:01:15.905 --> 00:01:17.240 align:middle line:90% He went to Math Camp. 00:01:17.240 --> 00:01:18.560 align:middle line:90% He went to MIT. 00:01:18.560 --> 00:01:20.520 align:middle line:84% And then, after graduating from MIT 00:01:20.520 --> 00:01:23.630 align:middle line:84% he went to Jane Street, which is one of the world's biggest 00:01:23.630 --> 00:01:25.063 align:middle line:90% market-makers, trading firms. 00:01:25.063 --> 00:01:26.480 align:middle line:84% If you think of Sam Bankman-Fried, 00:01:26.480 --> 00:01:29.735 align:middle line:84% you think of curly, messy hair and cargo shorts. 00:01:29.735 --> 00:01:31.150 align:middle line:90% He barely sleeps. 00:01:31.150 --> 00:01:32.150 align:middle line:90% He sleeps in the office. 00:01:32.150 --> 00:01:33.627 align:middle line:90% He sleeps on a beanbag. 00:01:33.627 --> 00:01:35.390 align:middle line:90% People look for geniuses. 00:01:35.390 --> 00:01:38.150 align:middle line:90% They look for the key man. 00:01:38.150 --> 00:01:41.000 align:middle line:84% He was like Elon, like Zuckerberg. 00:01:41.000 --> 00:01:42.080 align:middle line:90% He was just Sam. 00:01:42.080 --> 00:01:43.265 align:middle line:90% He was SBF. 00:01:43.265 --> 00:01:45.170 align:middle line:84% He wasn't at Jane Street for very long. 00:01:45.170 --> 00:01:47.870 align:middle line:84% The phrase he used once was 'neutral, but a waste 00:01:47.870 --> 00:01:48.860 align:middle line:90% of brainpower.' 00:01:48.860 --> 00:01:52.550 align:middle line:84% He went to work at the Centre for Effective Altruism, 00:01:52.550 --> 00:01:55.250 align:middle line:84% a think-tank that encourages people to give away 00:01:55.250 --> 00:01:57.050 align:middle line:84% lots of their money, in certain ways. 00:01:57.050 --> 00:01:59.420 align:middle line:84% He was working at the charity during the day and trading 00:01:59.420 --> 00:02:00.260 align:middle line:90% crypto all night. 00:02:00.260 --> 00:02:03.110 align:middle line:84% He talks about how he wants to accumulate as much wealth 00:02:03.110 --> 00:02:05.510 align:middle line:84% as possible to distribute it to people who need it, 00:02:05.510 --> 00:02:06.638 align:middle line:90% as fast as he can. 00:02:06.638 --> 00:02:08.180 align:middle line:84% And that's where the idea for Alameda 00:02:08.180 --> 00:02:10.919 align:middle line:84% came from - that they were going to get into this market 00:02:10.919 --> 00:02:16.070 align:middle line:84% and use traditional finance strategies to make 00:02:16.070 --> 00:02:19.160 align:middle line:90% a load of easy money in crypto. 00:02:19.160 --> 00:02:21.860 align:middle line:84% In 2017, Sam founds Alameda Research, 00:02:21.860 --> 00:02:24.602 align:middle line:84% which was a proprietary trading firm, a market-maker. 00:02:24.602 --> 00:02:26.810 align:middle line:84% Imagine it being founded in somebody's basement, five 00:02:26.810 --> 00:02:29.810 align:middle line:84% or six people, college roommates, old friends of Sam 00:02:29.810 --> 00:02:30.680 align:middle line:90% from Math Camp. 00:02:30.680 --> 00:02:33.248 align:middle line:84% The prices of cryptocurrencies, like Bitcoin, 00:02:33.248 --> 00:02:34.790 align:middle line:84% were different on different exchanges 00:02:34.790 --> 00:02:35.880 align:middle line:90% in different countries. 00:02:35.880 --> 00:02:38.090 align:middle line:84% If you bought in one and sold in another, 00:02:38.090 --> 00:02:40.550 align:middle line:84% you could make money for free, because the market 00:02:40.550 --> 00:02:41.502 align:middle line:90% was inefficient. 00:02:41.502 --> 00:02:44.840 align:middle line:84% Supposedly, this is where he made enough money to get 00:02:44.840 --> 00:02:47.105 align:middle line:90% Alameda Research rolling. 00:02:47.105 --> 00:02:49.370 align:middle line:84% Even at that point there were people 00:02:49.370 --> 00:02:52.590 align:middle line:84% who thought that what they were doing was too risky. 00:02:52.590 --> 00:02:55.490 align:middle line:84% So one of their earliest investors walked away. 00:02:55.490 --> 00:02:57.590 align:middle line:84% FTX, which is a company that people have heard of, 00:02:57.590 --> 00:02:59.270 align:middle line:90% comes out of Alameda. 00:02:59.270 --> 00:03:00.680 align:middle line:90% It's basically the same team. 00:03:00.680 --> 00:03:01.790 align:middle line:90% 2019... 00:03:01.790 --> 00:03:03.350 align:middle line:84% they're talking about, hey, maybe we 00:03:03.350 --> 00:03:05.315 align:middle line:90% should found our own exchange. 00:03:05.315 --> 00:03:07.190 align:middle line:84% FTX exploded into the mainstream. 00:03:12.440 --> 00:03:15.060 align:middle line:84% I think we're pretty ambitious about FTX, 00:03:15.060 --> 00:03:17.620 align:middle line:84% and certainly, we're aiming to become the biggest crypto 00:03:17.620 --> 00:03:18.120 align:middle line:90% exchange. 00:03:24.270 --> 00:03:28.140 align:middle line:84% 2021 was the year where FTX really burst onto the scene. 00:03:28.140 --> 00:03:29.590 align:middle line:84% The wider crypto industry was also 00:03:29.590 --> 00:03:30.840 align:middle line:90% exploding into the mainstream. 00:03:30.840 --> 00:03:34.290 align:middle line:84% At the end of 2020 there was some institutional buy-in, 00:03:34.290 --> 00:03:37.530 align:middle line:84% a lot of interest in digital assets like Bitcoin. 00:03:37.530 --> 00:03:41.880 align:middle line:84% It signed a sponsorship deal with Mercedes Formula One. 00:03:41.880 --> 00:03:44.310 align:middle line:84% It signed up Tom Brady and Gisele Bundchen. 00:03:44.310 --> 00:03:44.910 align:middle line:90% It's not that. 00:03:44.910 --> 00:03:45.900 align:middle line:90% This is big. 00:03:45.900 --> 00:03:47.940 align:middle line:84% It commanded a mainstream awareness 00:03:47.940 --> 00:03:51.825 align:middle line:84% that perhaps no other exchange has enjoyed. 00:03:51.825 --> 00:03:52.690 align:middle line:90% He's everywhere. 00:03:52.690 --> 00:03:54.090 align:middle line:84% And it's the one that you mention 00:03:54.090 --> 00:03:56.220 align:middle line:84% when you're talking about, well, there's 00:03:56.220 --> 00:03:58.770 align:middle line:84% a lot of quite sketchy shops out there in crypto. 00:03:58.770 --> 00:04:02.205 align:middle line:84% FTX is where they do things properly. 00:04:02.205 --> 00:04:03.810 align:middle line:90% My name is Sunil Kavuri. 00:04:03.810 --> 00:04:05.790 align:middle line:84% After graduating from university, 00:04:05.790 --> 00:04:08.190 align:middle line:84% I joined Deutsche Bank and worked 00:04:08.190 --> 00:04:09.690 align:middle line:90% at JPMorgan, Morgan Stanley. 00:04:09.690 --> 00:04:11.910 align:middle line:84% Over 10 years ago I left the City. 00:04:11.910 --> 00:04:15.030 align:middle line:84% I trade for my personal account as a retail investor. 00:04:15.030 --> 00:04:20.610 align:middle line:84% Since 2016 or so, I invested quite a bit into crypto. 00:04:20.610 --> 00:04:26.490 align:middle line:84% I had $6mn, $7mn on FTX at the end of 2021. 00:04:26.490 --> 00:04:28.957 align:middle line:84% They were promoting it to retail investors 00:04:28.957 --> 00:04:31.290 align:middle line:84% and saying, if you want to get in crypto the safest ways 00:04:31.290 --> 00:04:33.712 align:middle line:90% to get into crypto is use FTX. 00:04:33.712 --> 00:04:36.360 align:middle line:84% July 2021, FTX closed the funding round 00:04:36.360 --> 00:04:39.270 align:middle line:84% of $900mn, which valued the company at the time 00:04:39.270 --> 00:04:40.765 align:middle line:90% at about $18bn. 00:04:40.765 --> 00:04:44.400 align:middle line:84% Within two or three years this thing 00:04:44.400 --> 00:04:47.708 align:middle line:90% is supposedly worth $32bn. 00:04:47.708 --> 00:04:50.250 align:middle line:84% The company is worth more than Deutsche Bank was at the time. 00:04:50.250 --> 00:04:52.950 align:middle line:90% That is unbelievable. 00:04:52.950 --> 00:04:55.230 align:middle line:84% Investors were incredibly keen to get 00:04:55.230 --> 00:04:56.760 align:middle line:90% a piece of the crypto action. 00:04:56.760 --> 00:04:58.775 align:middle line:84% It seemed like the market was only going up. 00:04:58.775 --> 00:05:00.150 align:middle line:84% Has investment from a whole bunch 00:05:00.150 --> 00:05:02.910 align:middle line:84% of huge names like Sequoia, like Paradigm, 00:05:02.910 --> 00:05:04.290 align:middle line:90% Temasek from Singapore. 00:05:04.290 --> 00:05:05.943 align:middle line:84% You've got SoftBank, Tiger Global. 00:05:05.943 --> 00:05:07.860 align:middle line:84% You've got the Ontario Teachers Pension Plan - 00:05:07.860 --> 00:05:09.405 align:middle line:90% just these huge investors. 00:05:09.405 --> 00:05:12.030 align:middle line:84% And BlackRock - I mean, a traditional finance who 00:05:12.030 --> 00:05:14.250 align:middle line:84% are very sceptical about crypto - 00:05:14.250 --> 00:05:17.340 align:middle line:84% they invest in FTX, rather than Binance. 00:05:17.340 --> 00:05:19.830 align:middle line:84% So I thought the safest place to park 00:05:19.830 --> 00:05:21.975 align:middle line:90% my money was, obviously, FTX. 00:05:21.975 --> 00:05:24.750 align:middle line:84% Before you know it he's making comments to the FT, 00:05:24.750 --> 00:05:26.670 align:middle line:84% saying, oh, yeah, at some point I'd quite 00:05:26.670 --> 00:05:27.960 align:middle line:90% like to buy Goldman Sachs. 00:05:34.525 --> 00:05:35.200 align:middle line:90% It's FTX. 00:05:35.200 --> 00:05:39.250 align:middle line:84% It's a safe and easy way to get into crypto. 00:05:39.250 --> 00:05:41.220 align:middle line:90% Yeah, I don't think so. 00:05:41.220 --> 00:05:43.070 align:middle line:84% And I'm never wrong about this stuff. 00:05:43.070 --> 00:05:45.700 align:middle line:90% Never. 00:05:45.700 --> 00:05:49.300 align:middle line:84% One of the biggest highs for the exchange came in February 2022, 00:05:49.300 --> 00:05:51.475 align:middle line:84% when it managed to score a big Super Bowl ad. 00:05:51.475 --> 00:05:52.680 align:middle line:90% I left my cane in there! 00:05:52.680 --> 00:05:53.770 align:middle line:90% What! 00:05:53.770 --> 00:05:55.960 align:middle line:90% Hey, that's an expensive cane! 00:05:55.960 --> 00:05:57.663 align:middle line:84% Larry David was the star of the FTX ad. 00:05:57.663 --> 00:05:59.830 align:middle line:84% And then, in June, it also secured the naming rights 00:05:59.830 --> 00:06:01.735 align:middle line:90% to the Miami Heat NBA Stadium. 00:06:01.735 --> 00:06:03.940 align:middle line:84% In some ways what made Sam special 00:06:03.940 --> 00:06:06.745 align:middle line:84% was the mainstream acceptance that he got. 00:06:06.745 --> 00:06:09.250 align:middle line:84% At one point he was literally sharing a stage 00:06:09.250 --> 00:06:11.620 align:middle line:84% with Bill Clinton and Tony Blair. 00:06:11.620 --> 00:06:19.250 align:middle line:84% Something about Sam just drew in really intelligent people. 00:06:19.250 --> 00:06:23.380 align:middle line:84% So there's a really important stage in the narrative arc, 00:06:23.380 --> 00:06:25.502 align:middle line:90% if you like, for FTX. 00:06:25.502 --> 00:06:29.560 align:middle line:84% Around May 2022, there was a so-called stablecoin 00:06:29.560 --> 00:06:34.960 align:middle line:84% and an associated crypto, this Terra Luna pairing that just 00:06:34.960 --> 00:06:37.150 align:middle line:90% unravelled in dramatic style. 00:06:37.150 --> 00:06:40.150 align:middle line:84% It took down with it lending platforms in crypto, 00:06:40.150 --> 00:06:41.890 align:middle line:84% a bunch of trading platforms in crypto, 00:06:41.890 --> 00:06:43.630 align:middle line:84% and who was there to pick up the pieces? 00:06:43.630 --> 00:06:45.275 align:middle line:90% Sam Bankman-Fried. 00:06:45.275 --> 00:06:49.450 align:middle line:84% FTX CEO Sam Bankman-Fried discussing his thought process 00:06:49.450 --> 00:06:53.200 align:middle line:84% behind offering crypto company bailouts, saying, it's, quote, 00:06:53.200 --> 00:06:56.800 align:middle line:84% 'worth incinerating a small amount of money to keep crypto 00:06:56.800 --> 00:06:57.865 align:middle line:90% infrastructure going.' 00:06:57.865 --> 00:06:59.590 align:middle line:84% He was the lender of last resort, 00:06:59.590 --> 00:07:02.230 align:middle line:84% and wealthy enough to be able to plug the gap when 00:07:02.230 --> 00:07:04.480 align:middle line:84% bits of the industry got themselves into trouble. 00:07:04.480 --> 00:07:06.280 align:middle line:84% It only took a few months, come November, 00:07:06.280 --> 00:07:08.425 align:middle line:84% for everything to come crashing down. 00:07:08.425 --> 00:07:12.490 align:middle line:84% On the 2nd of November, CoinDesk raised questions about FTT. 00:07:12.490 --> 00:07:15.730 align:middle line:84% Alameda was listing as an asset very, very large holdings 00:07:15.730 --> 00:07:19.000 align:middle line:84% of FTT, a token that is issued by FTX. 00:07:19.000 --> 00:07:21.850 align:middle line:84% They control the supply - the equivalent 00:07:21.850 --> 00:07:25.630 align:middle line:84% of counting your own stock as an asset on your balance sheet. 00:07:25.630 --> 00:07:28.660 align:middle line:84% FTT as a token that is not widely held or traded. 00:07:28.660 --> 00:07:30.015 align:middle line:90% It's not like Bitcoin. 00:07:30.015 --> 00:07:32.710 align:middle line:84% Alameda, the market banking arm that 00:07:32.710 --> 00:07:34.720 align:middle line:84% is supposed to be separate from FTX, 00:07:34.720 --> 00:07:38.980 align:middle line:84% was holding over $5bn worth of FTT token. 00:07:38.980 --> 00:07:40.495 align:middle line:90% That is a significant figure. 00:07:40.495 --> 00:07:43.300 align:middle line:84% The relationship between Alameda Research and FTX 00:07:43.300 --> 00:07:47.000 align:middle line:84% might not be quite what everybody thinks it is. 00:07:47.000 --> 00:07:50.950 align:middle line:84% And a lot of the supposed assets that Alameda Research has 00:07:50.950 --> 00:07:54.070 align:middle line:84% on its books are actually tokens that are 00:07:54.070 --> 00:07:57.910 align:middle line:90% created by FTX out of thin air. 00:07:57.910 --> 00:08:00.370 align:middle line:84% When the CoinDesk article came out - and obviously, 00:08:00.370 --> 00:08:05.170 align:middle line:84% I feel really stupid now - so saying, I wasn't personally... 00:08:05.170 --> 00:08:06.940 align:middle line:90% I wasn't too concerned. 00:08:06.940 --> 00:08:12.330 align:middle line:84% It focused on the Alameda balance sheet, rather than FTX. 00:08:12.330 --> 00:08:16.540 align:middle line:84% FTX is an exchange, whereby you trade assets. 00:08:16.540 --> 00:08:19.870 align:middle line:84% Alameda is a prop hedge fund, totally separate, 00:08:19.870 --> 00:08:21.580 align:middle line:84% and they trade their own balance sheet. 00:08:21.580 --> 00:08:24.240 align:middle line:90% I mean, that's... 00:08:24.240 --> 00:08:25.810 align:middle line:90% that's how it's supposed to be. 00:08:25.810 --> 00:08:29.295 align:middle line:84% I mean, why would I assume otherwise? 00:08:29.295 --> 00:08:31.540 align:middle line:84% So there's various bits of lending 00:08:31.540 --> 00:08:37.299 align:middle line:84% going on here that are backed by these FTT tokens, that 00:08:37.299 --> 00:08:40.360 align:middle line:84% are only worth something if we all kind of look around 00:08:40.360 --> 00:08:42.380 align:middle line:84% the room and agree that they're worth something. 00:08:42.380 --> 00:08:44.590 align:middle line:84% But actually, they're worth absolutely nothing. 00:08:44.590 --> 00:08:47.020 align:middle line:84% They're like loyalty tokens for FTX. 00:08:47.020 --> 00:08:49.600 align:middle line:84% They enable you to trade on the platform 00:08:49.600 --> 00:08:51.700 align:middle line:90% and get certain discounts. 00:08:51.700 --> 00:08:52.810 align:middle line:90% Are they money? 00:08:52.810 --> 00:08:55.230 align:middle line:90% That's a huge assumption. 00:08:55.230 --> 00:08:56.230 align:middle line:90% My name is Nicola White. 00:08:56.230 --> 00:08:59.980 align:middle line:84% I'm the CEO of B2C2, the principal-at-risk liquidity 00:08:59.980 --> 00:09:00.730 align:middle line:90% provider. 00:09:00.730 --> 00:09:03.850 align:middle line:84% We support the institutional trading of crypto, 00:09:03.850 --> 00:09:06.460 align:middle line:84% and we don't face retail investors. 00:09:06.460 --> 00:09:09.970 align:middle line:84% Our clients are the largest banks and trading firms, 00:09:09.970 --> 00:09:10.720 align:middle line:90% globally. 00:09:10.720 --> 00:09:13.600 align:middle line:84% We had the opportunity to work with Alameda earlier 00:09:13.600 --> 00:09:15.520 align:middle line:84% in the year, which we had turned down. 00:09:15.520 --> 00:09:19.010 align:middle line:84% You know, we take a very conservative approach to risk, 00:09:19.010 --> 00:09:22.075 align:middle line:84% and they just didn't fit our risk profile. 00:09:25.315 --> 00:09:31.060 align:middle line:84% Just a few days later, enter stage right, CZ. 00:09:31.060 --> 00:09:32.050 align:middle line:90% Changpeng Zhao. 00:09:32.050 --> 00:09:35.770 align:middle line:84% He runs Binance, which is the other really big, kind of, 00:09:35.770 --> 00:09:38.635 align:middle line:90% global cryptocurrency exchange. 00:09:38.635 --> 00:09:41.050 align:middle line:84% He tweets that he is going to be selling 00:09:41.050 --> 00:09:44.830 align:middle line:84% his holdings or Binance holdings of the FTT token, 00:09:44.830 --> 00:09:46.795 align:middle line:90% due to some recent revelations. 00:09:46.795 --> 00:09:51.565 align:middle line:84% And the price of these tokens really starts cratering, fast. 00:09:51.565 --> 00:09:55.015 align:middle line:84% This really was the moment that caused widespread market panic. 00:09:55.015 --> 00:09:57.230 align:middle line:84% And that sent the price of FTT absolutely plunging. 00:09:57.230 --> 00:09:58.938 align:middle line:84% I was just watching the graph, and it was 00:09:58.938 --> 00:10:00.775 align:middle line:90% going further and further down. 00:10:00.775 --> 00:10:02.320 align:middle line:84% Binance is one of the major holders, 00:10:02.320 --> 00:10:04.490 align:middle line:84% other than FTX and Alameda themselves. 00:10:04.490 --> 00:10:07.150 align:middle line:84% And we know, from the balance sheet of Alameda, 00:10:07.150 --> 00:10:09.558 align:middle line:84% that value of FTT is kind of integral 00:10:09.558 --> 00:10:11.350 align:middle line:84% to the whole financial structure of the San 00:10:11.350 --> 00:10:12.520 align:middle line:90% Bankman-Fried empire. 00:10:12.520 --> 00:10:16.030 align:middle line:84% Very quickly after the CEO of Alameda, Caroline Ellison, 00:10:16.030 --> 00:10:17.665 align:middle line:90% came out and said, we'll buy it. 00:10:17.665 --> 00:10:19.060 align:middle line:90% It kind of smelt a bit funny. 00:10:19.060 --> 00:10:20.180 align:middle line:90% Something's going on here. 00:10:20.180 --> 00:10:24.235 align:middle line:84% Why do they want to hold the FTT token at a certain level? 00:10:24.235 --> 00:10:26.590 align:middle line:84% If they could keep FTT's price supported then 00:10:26.590 --> 00:10:28.100 align:middle line:84% they wouldn't have to kind of accept 00:10:28.100 --> 00:10:30.100 align:middle line:84% that the value of their own assets were falling, 00:10:30.100 --> 00:10:31.808 align:middle line:84% and that they were potentially insolvent. 00:10:31.808 --> 00:10:34.765 align:middle line:90% Then that failed. 00:10:34.765 --> 00:10:38.320 align:middle line:84% Within just a few days, FTX is effectively 00:10:38.320 --> 00:10:39.495 align:middle line:90% running out of money. 00:10:39.495 --> 00:10:41.440 align:middle line:84% This is a bank with nothing backing it. 00:10:41.440 --> 00:10:44.500 align:middle line:84% If you do not trust that your money is safe, 00:10:44.500 --> 00:10:46.840 align:middle line:84% it's very easy for a bank run to develop. 00:10:46.840 --> 00:10:50.690 align:middle line:84% 24 hours later, on November 7, Sam tweets that FTX is fine, 00:10:50.690 --> 00:10:52.085 align:middle line:90% and assets are fine. 00:10:52.085 --> 00:10:55.820 align:middle line:84% He was saying, right up to the very last minute, FTX was fine, 00:10:55.820 --> 00:10:59.990 align:middle line:84% or that FTX US was fine, or this is all just 00:10:59.990 --> 00:11:02.097 align:middle line:90% a big misunderstanding. 00:11:02.097 --> 00:11:06.560 align:middle line:84% Insolvency rumours plaguing crypto exchange FTX are being 00:11:06.560 --> 00:11:11.060 align:middle line:84% denied by CEO Sam Bankman-Fried after a CoinDesk investigation 00:11:11.060 --> 00:11:14.000 align:middle line:84% revealed the balance sheet of FTX sister company, 00:11:14.000 --> 00:11:18.290 align:middle line:84% Alameda Research, was loaded with FTX's native exchange 00:11:18.290 --> 00:11:19.730 align:middle line:90% token, FTT. 00:11:19.730 --> 00:11:21.800 align:middle line:84% On November the 8th, CZ said that he 00:11:21.800 --> 00:11:26.388 align:middle line:84% was going to acquire FTX, which was just completely insane. 00:11:26.388 --> 00:11:28.430 align:middle line:84% You've got the head of the world's biggest crypto 00:11:28.430 --> 00:11:31.610 align:middle line:84% company saying that he's going to buy his rival's crypto 00:11:31.610 --> 00:11:32.405 align:middle line:90% company. 00:11:32.405 --> 00:11:34.730 align:middle line:84% Sam is out in public trying to reassure people, 00:11:34.730 --> 00:11:39.170 align:middle line:84% and people have a lot of faith in FTX and Sam Bankman-Fried. 00:11:39.170 --> 00:11:41.060 align:middle line:90% My name is Carol Alexander. 00:11:41.060 --> 00:11:42.800 align:middle line:90% I'm a crypto expert. 00:11:42.800 --> 00:11:45.800 align:middle line:84% I had a small portfolio of crypto, 00:11:45.800 --> 00:11:50.870 align:middle line:84% so that I can teach the students what's happening on exchanges. 00:11:50.870 --> 00:11:55.460 align:middle line:84% My decision to put funds on FTX was just a personal connection 00:11:55.460 --> 00:11:58.250 align:middle line:84% of somebody who'd met Sam Bankman-Fried, 00:11:58.250 --> 00:12:01.190 align:middle line:84% and a lot of people recommended FTX. 00:12:01.190 --> 00:12:04.280 align:middle line:84% I first heard about the problems with FTX 00:12:04.280 --> 00:12:09.290 align:middle line:84% when I was out in Barcelona at the Quant Minds Congress. 00:12:09.290 --> 00:12:13.490 align:middle line:84% It's an annual summit for mathematical finance. 00:12:13.490 --> 00:12:17.090 align:middle line:84% Everybody there was really surprised. 00:12:17.090 --> 00:12:19.640 align:middle line:84% None of us thought it was going to be serious. 00:12:19.640 --> 00:12:22.190 align:middle line:84% Only takes 24 hours - one day later - for CZ 00:12:22.190 --> 00:12:24.500 align:middle line:84% to have a look under the bonnet, look at the books, 00:12:24.500 --> 00:12:27.350 align:middle line:84% and actually decide that, no, he is not going to buy FTX. 00:12:27.350 --> 00:12:29.990 align:middle line:84% And meanwhile, inside the company, 00:12:29.990 --> 00:12:32.000 align:middle line:84% people would describe just total chaos. 00:12:32.000 --> 00:12:34.400 align:middle line:84% Employees are quitting left, right, and centre. 00:12:34.400 --> 00:12:36.755 align:middle line:84% Sam is trying to kind of steer the sinking ship. 00:12:36.755 --> 00:12:39.110 align:middle line:84% The events unfolded very, very quickly. 00:12:39.110 --> 00:12:41.930 align:middle line:84% We tried to withdraw some funds from the exchange, 00:12:41.930 --> 00:12:43.910 align:middle line:84% and those withdrawals weren't processed. 00:12:47.160 --> 00:12:48.510 align:middle line:90% FTX suspends withdrawals. 00:12:48.510 --> 00:12:52.020 align:middle line:84% And in a memo to his employees SBF 00:12:52.020 --> 00:12:54.180 align:middle line:84% says that they're trying to raise funds. 00:12:54.180 --> 00:12:56.580 align:middle line:84% It was when he stopped withdrawals. 00:12:56.580 --> 00:12:57.930 align:middle line:90% That was the biggest thing. 00:12:57.930 --> 00:13:01.395 align:middle line:84% I thought, oh, shit, there's something wrong here. 00:13:01.395 --> 00:13:03.540 align:middle line:90% You have hedge funds. 00:13:03.540 --> 00:13:06.720 align:middle line:84% You have various market participants in crypto saying, 00:13:06.720 --> 00:13:09.510 align:middle line:84% yeah, Sam, can't get my money back here. 00:13:09.510 --> 00:13:11.200 align:middle line:90% I wasn't giving you this money. 00:13:11.200 --> 00:13:13.260 align:middle line:90% I was just trading through you. 00:13:13.260 --> 00:13:16.660 align:middle line:84% I didn't realise that you were going to take these funds away 00:13:16.660 --> 00:13:17.160 align:middle line:90% from me. 00:13:17.160 --> 00:13:20.520 align:middle line:84% We had about $9mn of assets on FTX, 00:13:20.520 --> 00:13:23.250 align:middle line:84% leading up to the time in which they suspended withdrawals. 00:13:23.250 --> 00:13:25.350 align:middle line:84% We felt comfortable that we could 00:13:25.350 --> 00:13:30.150 align:middle line:84% absorb the losses if one or two or three exchanges go down. 00:13:30.150 --> 00:13:33.270 align:middle line:84% On the day that FTX stopped paying back 00:13:33.270 --> 00:13:35.340 align:middle line:84% its customers, which is effectively the day 00:13:35.340 --> 00:13:36.060 align:middle line:90% it collapsed. 00:13:36.060 --> 00:13:39.120 align:middle line:84% That morning, major sophisticated investors 00:13:39.120 --> 00:13:41.220 align:middle line:84% in crypto were still telling me, safe as houses, 00:13:41.220 --> 00:13:42.030 align:middle line:90% it cannot go down. 00:13:42.030 --> 00:13:44.770 align:middle line:84% What was going through my mind was, first and foremost, 00:13:44.770 --> 00:13:46.830 align:middle line:84% how do we mitigate the risk to the firm? 00:13:46.830 --> 00:13:50.310 align:middle line:84% And then, secondly, what are the knock-on effects 00:13:50.310 --> 00:13:51.580 align:middle line:90% for the market, right? 00:13:51.580 --> 00:13:54.300 align:middle line:84% People having their cash tied up at FTX 00:13:54.300 --> 00:13:56.940 align:middle line:84% meant they weren't in the same financial position 00:13:56.940 --> 00:13:58.110 align:middle line:90% as they might have been. 00:14:02.750 --> 00:14:07.460 align:middle line:90% I end up losing $2.1mn US. 00:14:07.460 --> 00:14:09.680 align:middle line:90% Yeah. 00:14:09.680 --> 00:14:11.240 align:middle line:84% I think Sam probably still thought 00:14:11.240 --> 00:14:12.890 align:middle line:90% that FTX could be salvaged. 00:14:12.890 --> 00:14:14.150 align:middle line:90% But of course, he was wrong. 00:14:14.150 --> 00:14:15.980 align:middle line:84% FTX files for bankruptcy in New York, 00:14:15.980 --> 00:14:18.830 align:middle line:84% and Sam resigns as chief executive. 00:14:18.830 --> 00:14:21.930 align:middle line:84% I've never seen anything unravel in that sort of space of time 00:14:21.930 --> 00:14:22.430 align:middle line:90% before. 00:14:22.430 --> 00:14:25.340 align:middle line:84% It's had a significant effect on my life. 00:14:25.340 --> 00:14:27.830 align:middle line:84% I couldn't sleep and eat properly, 00:14:27.830 --> 00:14:29.780 align:middle line:90% for at least a few weeks. 00:14:29.780 --> 00:14:32.490 align:middle line:84% It was just, basically, stolen overnight. 00:14:32.490 --> 00:14:35.600 align:middle line:90% It's been difficult. 00:14:35.600 --> 00:14:37.700 align:middle line:84% On November the 12th, there are reports 00:14:37.700 --> 00:14:41.150 align:middle line:84% that at least $1bn worth of FTX's customer money 00:14:41.150 --> 00:14:42.050 align:middle line:90% has disappeared. 00:14:42.050 --> 00:14:43.550 align:middle line:84% Since then, that number has grown. 00:14:43.550 --> 00:14:46.850 align:middle line:84% There's an alleged $8bn hole of customer money that is just 00:14:46.850 --> 00:14:48.350 align:middle line:90% missing, unaccounted for. 00:14:48.350 --> 00:14:51.320 align:middle line:84% I don't think we've given up on the possibility of getting 00:14:51.320 --> 00:14:52.470 align:middle line:90% funds back. 00:14:52.470 --> 00:14:57.485 align:middle line:84% But we have written them down, from an accounting perspective. 00:14:57.485 --> 00:14:59.300 align:middle line:84% I filed a class action lawsuit, so I 00:14:59.300 --> 00:15:01.760 align:middle line:84% was the lead plaintiff, the international plaintiff, 00:15:01.760 --> 00:15:04.580 align:middle line:84% against all the people who profited and enabled 00:15:04.580 --> 00:15:07.550 align:middle line:84% the alleged fraud, the celebrity promoters. 00:15:07.550 --> 00:15:09.620 align:middle line:84% I felt that I had to do something. 00:15:09.620 --> 00:15:12.290 align:middle line:84% Thankfully, I've had a supportive wife, 00:15:12.290 --> 00:15:15.732 align:middle line:90% and it kept me going, mentally. 00:15:15.732 --> 00:15:17.690 align:middle line:84% I've been probably more difficult, I would say. 00:15:20.657 --> 00:15:24.278 align:middle line:84% After FTX files for bankruptcy, Sam is still in the Bahamas, 00:15:24.278 --> 00:15:26.320 align:middle line:84% where he lives and where he was running FTX from. 00:15:26.320 --> 00:15:28.060 align:middle line:90% He started to tweet a lot. 00:15:28.060 --> 00:15:29.560 align:middle line:84% He's out here tweeting long threads, 00:15:29.560 --> 00:15:31.700 align:middle line:84% trying to explain what happened and how desperately he's 00:15:31.700 --> 00:15:33.533 align:middle line:84% trying to work to get customers' money back, 00:15:33.533 --> 00:15:35.050 align:middle line:90% and how sorry he is. 00:15:35.050 --> 00:15:38.060 align:middle line:84% All the talk online is, when are they going to arrest this guy? 00:15:38.060 --> 00:15:41.290 align:middle line:84% But in this intervening period, Sam Bankman-Fried 00:15:41.290 --> 00:15:44.095 align:middle line:90% hits the media circuit hard. 00:15:44.095 --> 00:15:46.450 align:middle line:84% After apologising profusely on Twitter, 00:15:46.450 --> 00:15:47.950 align:middle line:90% he talks to The New York Times. 00:15:47.950 --> 00:15:50.215 align:middle line:84% He talks to Good Morning America. 00:15:50.215 --> 00:15:53.470 align:middle line:84% I did not know that there was any improper use of customer 00:15:53.470 --> 00:15:54.415 align:middle line:90% funds. 00:15:54.415 --> 00:15:56.050 align:middle line:84% He eventually talks to the FT as well. 00:15:56.050 --> 00:15:58.090 align:middle line:84% His message is absolutely consistent. 00:15:58.090 --> 00:16:01.480 align:middle line:84% He says, over and over again, I fucked up, 00:16:01.480 --> 00:16:03.070 align:middle line:90% and I'm really sorry. 00:16:03.070 --> 00:16:05.020 align:middle line:84% And I didn't mean to do anything fraudulent. 00:16:05.020 --> 00:16:06.395 align:middle line:84% Have I done something fraudulent? 00:16:06.395 --> 00:16:08.080 align:middle line:84% I didn't mean to do anything fraudulent. 00:16:08.080 --> 00:16:11.290 align:middle line:84% You can just imagine his lawyers just tearing their hair out, 00:16:11.290 --> 00:16:14.710 align:middle line:84% like please, Sam, for the love of god, will you shut up 00:16:14.710 --> 00:16:16.090 align:middle line:90% and stop talking to journalists. 00:16:16.090 --> 00:16:18.673 align:middle line:84% There were a number of things I was paying close attention to, 00:16:18.673 --> 00:16:23.830 align:middle line:84% in terms of trading volume and revenue and liquidity. 00:16:23.830 --> 00:16:28.330 align:middle line:84% I wasn't, in terms of balances or positional risk. 00:16:28.330 --> 00:16:31.660 align:middle line:84% Sam gave us an interview shortly before he was arrested. 00:16:31.660 --> 00:16:34.870 align:middle line:84% He said to me, OK, how about 3:00 in the morning? 00:16:34.870 --> 00:16:37.090 align:middle line:84% He starts out sitting, looking normal at a camera, 00:16:37.090 --> 00:16:39.970 align:middle line:84% but he's always moving, and he's kind of shifting around. 00:16:39.970 --> 00:16:41.590 align:middle line:90% The camera angle's changing. 00:16:41.590 --> 00:16:43.510 align:middle line:90% He's moving his laptop. 00:16:43.510 --> 00:16:45.260 align:middle line:84% He's giving this interview from his bed. 00:16:45.260 --> 00:16:47.455 align:middle line:84% You would ask him questions that you would think 00:16:47.455 --> 00:16:48.580 align:middle line:90% are pretty straightforward. 00:16:48.580 --> 00:16:50.713 align:middle line:84% Every answer starts with, I'm not sure. 00:16:50.713 --> 00:16:51.880 align:middle line:90% I don't have access to this. 00:16:51.880 --> 00:16:53.395 align:middle line:90% I don't have access to that. 00:16:53.395 --> 00:16:54.910 align:middle line:90% Let me take a step back. 00:16:54.910 --> 00:16:57.070 align:middle line:84% There may be discussions I don't know about. 00:16:57.070 --> 00:16:59.530 align:middle line:84% I do remember that there were some discussions 00:16:59.530 --> 00:17:02.020 align:middle line:90% around Alameda's position. 00:17:02.020 --> 00:17:04.150 align:middle line:84% I don't remember numbers from those. 00:17:04.150 --> 00:17:06.170 align:middle line:84% I don't remember numbers being said. 00:17:06.170 --> 00:17:07.660 align:middle line:90% I'm not sure they weren't. 00:17:07.660 --> 00:17:09.504 align:middle line:90% Yeah, I think that's all I got. 00:17:09.504 --> 00:17:13.359 align:middle line:84% He was trying to manage the FTX narrative 00:17:13.359 --> 00:17:16.979 align:middle line:84% in a way that really put his apology at the forefront. 00:17:16.979 --> 00:17:19.300 align:middle line:84% But at no point is he saying this was fraud or this 00:17:19.300 --> 00:17:20.210 align:middle line:90% was on purpose. 00:17:20.210 --> 00:17:21.369 align:middle line:90% It's just one big mistake. 00:17:21.369 --> 00:17:23.080 align:middle line:84% It's just one huge misunderstanding. 00:17:23.080 --> 00:17:25.030 align:middle line:84% This is just not how anybody ever 00:17:25.030 --> 00:17:28.390 align:middle line:84% behaves when they are in the kind of legal position 00:17:28.390 --> 00:17:29.650 align:middle line:90% that Sam was. 00:17:29.650 --> 00:17:31.930 align:middle line:84% You do not talk to the press, and any lawyer 00:17:31.930 --> 00:17:32.800 align:middle line:90% would tell you that. 00:17:35.747 --> 00:17:38.600 align:middle line:84% Finally, on December the 12th, Sam Bankman-Fried 00:17:38.600 --> 00:17:40.270 align:middle line:90% was arrested in the Bahamas. 00:17:40.270 --> 00:17:43.660 align:middle line:84% Initially, he resists extradition. 00:17:43.660 --> 00:17:45.700 align:middle line:84% The conditions in the jail in the Bahamas 00:17:45.700 --> 00:17:47.185 align:middle line:90% are notoriously difficult. 00:17:47.185 --> 00:17:49.660 align:middle line:84% He didn't really want to be extradited to the United 00:17:49.660 --> 00:17:51.490 align:middle line:84% States, but I think after a short period 00:17:51.490 --> 00:17:54.130 align:middle line:84% in jail in the Bahamas that idea became a little bit more 00:17:54.130 --> 00:17:57.340 align:middle line:90% appealing to him. 00:17:57.340 --> 00:18:00.260 align:middle line:90% He was flown to the US. 00:18:00.260 --> 00:18:00.760 align:middle line:90% Come on. 00:18:00.760 --> 00:18:03.685 align:middle line:90% You got it, Sam. 00:18:03.685 --> 00:18:04.940 align:middle line:90% He appeared before a judge. 00:18:04.940 --> 00:18:06.430 align:middle line:90% He's pleaded not guilty. 00:18:06.430 --> 00:18:10.780 align:middle line:84% They raise a $250mn bail for him to, effectively, 00:18:10.780 --> 00:18:13.720 align:middle line:84% go and sit in his parents' house in California for as long 00:18:13.720 --> 00:18:16.405 align:middle line:84% as it takes until this goes to trial. 00:18:16.405 --> 00:18:20.037 align:middle line:84% He is charged with eight counts by the Southern District 00:18:20.037 --> 00:18:22.120 align:middle line:84% of New York, which includes wire fraud, conspiracy 00:18:22.120 --> 00:18:24.835 align:middle line:84% to commit wire fraud, campaign finance violations. 00:18:24.835 --> 00:18:27.262 align:middle line:84% The SEC and the CFTC, who are two major regulators 00:18:27.262 --> 00:18:29.470 align:middle line:84% in the States, have also brought charges against Sam. 00:18:29.470 --> 00:18:32.050 align:middle line:84% There is a future where Sam potentially spends 00:18:32.050 --> 00:18:33.460 align:middle line:90% the rest of his life in prison. 00:18:33.460 --> 00:18:35.650 align:middle line:84% This company is really unlike any other. 00:18:39.097 --> 00:18:40.470 align:middle line:90% FTX didn't have a board. 00:18:40.470 --> 00:18:42.640 align:middle line:84% There were no adults in the room. 00:18:42.640 --> 00:18:46.695 align:middle line:84% There was no one overseeing what was going on inside. 00:18:46.695 --> 00:18:48.137 align:middle line:90% No risk management procedures. 00:18:48.137 --> 00:18:50.220 align:middle line:84% They didn't have the corporate structure, perhaps, 00:18:50.220 --> 00:18:52.185 align:middle line:84% people would conventionally imagine. 00:18:52.185 --> 00:18:55.230 align:middle line:84% The whole empire, including Alameda and the various arms 00:18:55.230 --> 00:18:57.390 align:middle line:84% of FTX, were all kind of being run 00:18:57.390 --> 00:19:00.000 align:middle line:84% from a very small inner circle of people 00:19:00.000 --> 00:19:02.025 align:middle line:90% close to Sam Bankman-Fried. 00:19:02.025 --> 00:19:03.960 align:middle line:84% Right at the middle of the circle is SBF, 00:19:03.960 --> 00:19:05.730 align:middle line:90% and he ran the show. 00:19:05.730 --> 00:19:07.570 align:middle line:84% Then you've got Caroline Ellison, 00:19:07.570 --> 00:19:10.755 align:middle line:84% who was chief executive of Alameda Research. 00:19:10.755 --> 00:19:14.670 align:middle line:84% SBF and Caroline had an alleged on-off romantic relationship 00:19:14.670 --> 00:19:15.337 align:middle line:90% for many months. 00:19:15.337 --> 00:19:17.671 align:middle line:84% They shared the same penthouse apartment in the Bahamas, 00:19:17.671 --> 00:19:20.055 align:middle line:84% lived together, worked together, were super, super close. 00:19:20.055 --> 00:19:22.620 align:middle line:84% She has since resigned, and pleaded guilty 00:19:22.620 --> 00:19:24.180 align:middle line:84% to fraud charges, and is co-operating 00:19:24.180 --> 00:19:25.913 align:middle line:84% with law enforcement in the States. 00:19:25.913 --> 00:19:27.330 align:middle line:84% And then, you've got Sam Trabucco, 00:19:27.330 --> 00:19:29.940 align:middle line:84% who was the co-head of Alameda Research, 00:19:29.940 --> 00:19:33.360 align:middle line:84% alongside Caroline, until the summer when he resigned. 00:19:33.360 --> 00:19:35.310 align:middle line:84% And he ran the trading strategies at Alameda 00:19:35.310 --> 00:19:35.865 align:middle line:90% for a while. 00:19:35.865 --> 00:19:38.280 align:middle line:84% And you then have Gary Wang, chief technology officer 00:19:38.280 --> 00:19:41.670 align:middle line:84% and co-founder of not only FTX, but also Alameda Research. 00:19:41.670 --> 00:19:43.770 align:middle line:84% This speaks to the incestuousness, 00:19:43.770 --> 00:19:46.965 align:middle line:84% essentially, of both companies that were meant to be separate. 00:19:46.965 --> 00:19:48.790 align:middle line:90% And him and Sam go way back. 00:19:48.790 --> 00:19:50.940 align:middle line:84% They went to Math Camp together, and then they 00:19:50.940 --> 00:19:53.580 align:middle line:84% were also college roommates when they were both at MIT. 00:19:53.580 --> 00:19:56.520 align:middle line:84% Gary Wang is also co-operating with law enforcement 00:19:56.520 --> 00:19:58.763 align:middle line:84% in the States after pleading guilty to fraud charges. 00:19:58.763 --> 00:20:00.180 align:middle line:84% And then, you've got Nishad Singh, 00:20:00.180 --> 00:20:02.100 align:middle line:90% who was also very close to SBF. 00:20:02.100 --> 00:20:04.260 align:middle line:84% He shared multiple apartments with Sam. 00:20:04.260 --> 00:20:07.157 align:middle line:84% Again, this speaks to the fact that both Alameda and FTX, 00:20:07.157 --> 00:20:09.240 align:middle line:84% which were meant to be separate companies, really, 00:20:09.240 --> 00:20:10.245 align:middle line:90% in many ways, weren't. 00:20:10.245 --> 00:20:11.100 align:middle line:90% They lived together. 00:20:11.100 --> 00:20:12.150 align:middle line:90% They ate together. 00:20:12.150 --> 00:20:14.610 align:middle line:84% They did whatever else it is together. 00:20:14.610 --> 00:20:18.570 align:middle line:84% Everything was financed through FTX - the fast food, 00:20:18.570 --> 00:20:20.385 align:middle line:90% the grocery deliveries. 00:20:20.385 --> 00:20:22.290 align:middle line:84% When I was in the Bahamas I spoke 00:20:22.290 --> 00:20:24.793 align:middle line:84% to a person who worked for a food delivery company. 00:20:24.793 --> 00:20:26.460 align:middle line:84% And they'd be ordering, maybe, 500 bucks 00:20:26.460 --> 00:20:27.945 align:middle line:90% worth of takeout every night. 00:20:27.945 --> 00:20:30.420 align:middle line:84% It was just sort of freeflowing money, and getting 00:20:30.420 --> 00:20:33.270 align:middle line:84% Amazon packages flown in from Miami, 00:20:33.270 --> 00:20:35.760 align:middle line:90% nights out, and beach resorts. 00:20:35.760 --> 00:20:37.470 align:middle line:84% If you're a nerd, and you're working 00:20:37.470 --> 00:20:39.210 align:middle line:84% with a bunch of other nerds, and you're 00:20:39.210 --> 00:20:41.550 align:middle line:84% changing the world through sheer nerdery, 00:20:41.550 --> 00:20:43.710 align:middle line:90% you feel pretty powerful. 00:20:43.710 --> 00:20:45.780 align:middle line:84% No one outside the inner circle knew, really, 00:20:45.780 --> 00:20:46.530 align:middle line:90% what was going on. 00:20:46.530 --> 00:20:48.660 align:middle line:84% There was only a handful, maybe, five or six people 00:20:48.660 --> 00:20:52.500 align:middle line:84% at the top who knew the inner workings of FTX and Alameda 00:20:52.500 --> 00:20:53.610 align:middle line:90% and the crossover there. 00:20:53.610 --> 00:20:55.860 align:middle line:84% Everything that happened with FTX and Sam 00:20:55.860 --> 00:20:58.710 align:middle line:84% really highlights the need for a distributed management 00:20:58.710 --> 00:20:59.830 align:middle line:90% structure. 00:20:59.830 --> 00:21:02.370 align:middle line:84% No one person should be able to make 00:21:02.370 --> 00:21:04.590 align:middle line:90% every decision about a company. 00:21:04.590 --> 00:21:06.900 align:middle line:84% And also, there should be multiple layers 00:21:06.900 --> 00:21:08.660 align:middle line:90% of governance within a company. 00:21:08.660 --> 00:21:11.890 align:middle line:84% It's not just crypto traders, large and small, 00:21:11.890 --> 00:21:12.930 align:middle line:90% that have lost. 00:21:12.930 --> 00:21:15.780 align:middle line:84% Venture capital firms, professional investors 00:21:15.780 --> 00:21:18.450 align:middle line:84% that had helped get FTX off the ground 00:21:18.450 --> 00:21:21.150 align:middle line:84% have had to write down their investments, some 00:21:21.150 --> 00:21:24.180 align:middle line:84% of them worth hundreds of millions of dollars, 00:21:24.180 --> 00:21:26.820 align:middle line:90% down to a big fat zero. 00:21:26.820 --> 00:21:29.550 align:middle line:84% The one that everyone thinks of is Sequoia Capital. 00:21:29.550 --> 00:21:31.620 align:middle line:84% There are VC firms, and there are VC firms. 00:21:31.620 --> 00:21:33.840 align:middle line:84% Sequoia is a very serious VC firm. 00:21:33.840 --> 00:21:36.810 align:middle line:84% And it went to the effort of posting on its website 00:21:36.810 --> 00:21:40.830 align:middle line:84% an article running to 13,800 words talking 00:21:40.830 --> 00:21:45.640 align:middle line:84% about what a genius Sam is, how he has the status of legend. 00:21:45.640 --> 00:21:47.910 align:middle line:84% All of these venture capital investors 00:21:47.910 --> 00:21:50.280 align:middle line:84% say, look, we're as surprised as everybody. 00:21:50.280 --> 00:21:53.040 align:middle line:90% We did the due diligence on FTX. 00:21:53.040 --> 00:21:54.810 align:middle line:90% How? 00:21:54.810 --> 00:21:57.600 align:middle line:84% There's a great attraction for big institutions 00:21:57.600 --> 00:21:59.070 align:middle line:90% to go into crypto. 00:21:59.070 --> 00:22:02.580 align:middle line:84% Although it's high risk, it can be very high returns, 00:22:02.580 --> 00:22:05.520 align:middle line:84% particularly when the odds are stacked in your favour. 00:22:05.520 --> 00:22:08.460 align:middle line:84% Their balance sheets are so large that they 00:22:08.460 --> 00:22:10.690 align:middle line:90% can afford to take risks. 00:22:10.690 --> 00:22:12.720 align:middle line:84% They don't need to do the due diligence. 00:22:12.720 --> 00:22:15.118 align:middle line:84% They just need to get in there early. 00:22:15.118 --> 00:22:16.410 align:middle line:90% They write down the investment. 00:22:16.410 --> 00:22:18.870 align:middle line:84% The people who get hurt are the retail investors. 00:22:18.870 --> 00:22:23.940 align:middle line:84% They - you can't write down, you know - 00:22:23.940 --> 00:22:26.820 align:middle line:84% I'm not going to write down $2.1bn, OK? 00:22:26.820 --> 00:22:29.055 align:middle line:84% And the other guy - it's like, come on. 00:22:29.055 --> 00:22:32.370 align:middle line:84% Many institutional investors parked due diligence, 00:22:32.370 --> 00:22:34.145 align:middle line:90% essentially, over FOMO. 00:22:34.145 --> 00:22:36.270 align:middle line:84% The fear of not being part of this new technology - 00:22:36.270 --> 00:22:38.312 align:middle line:84% people are calling it, like, 'the new internet' - 00:22:38.312 --> 00:22:41.760 align:middle line:84% that probably propelled some of these investors to not look 00:22:41.760 --> 00:22:44.000 align:middle line:84% deep enough and just say, hey, take my money. 00:22:44.000 --> 00:22:46.260 align:middle line:84% It's also possible some investors were turned away, 00:22:46.260 --> 00:22:47.677 align:middle line:84% because they were asking questions 00:22:47.677 --> 00:22:48.990 align:middle line:90% that FTX didn't want to answer. 00:22:48.990 --> 00:22:51.448 align:middle line:84% When you have a line up around the block of other investors 00:22:51.448 --> 00:22:53.250 align:middle line:84% who are ready to write your cheque today, 00:22:53.250 --> 00:22:54.660 align:middle line:84% you don't need to go with the investor who's 00:22:54.660 --> 00:22:55.875 align:middle line:90% asking difficult questions. 00:22:55.875 --> 00:23:00.390 align:middle line:84% One big VC investor, Chamath Palihapitiya, 00:23:00.390 --> 00:23:03.840 align:middle line:84% says that he was approached about putting some money 00:23:03.840 --> 00:23:06.702 align:middle line:84% to work in FTX, and he said, OK, look, this is interesting. 00:23:06.702 --> 00:23:08.910 align:middle line:84% There's a few things we'd want you to do differently. 00:23:08.910 --> 00:23:10.620 align:middle line:90% We'd want you to have a board. 00:23:10.620 --> 00:23:12.690 align:middle line:84% We'd want you to have some sort of oversight. 00:23:12.690 --> 00:23:16.110 align:middle line:84% And he says the response from FTX was, quote, 00:23:16.110 --> 00:23:17.250 align:middle line:90% 'go fuck yourself.' 00:23:17.250 --> 00:23:20.400 align:middle line:84% Backing from really big-name venture capital firms, 00:23:20.400 --> 00:23:21.960 align:middle line:84% really big-name investors, really 00:23:21.960 --> 00:23:25.353 align:middle line:84% matters, because it pulls in other people. 00:23:25.353 --> 00:23:26.520 align:middle line:90% It pulls in the hedge funds. 00:23:26.520 --> 00:23:27.945 align:middle line:90% It pulls in the retail traders. 00:23:30.650 --> 00:23:33.740 align:middle line:84% FTX's auditors were not in the Big Four, 00:23:33.740 --> 00:23:36.860 align:middle line:84% but there were Armanino and Prager Metis in the US, 00:23:36.860 --> 00:23:39.470 align:middle line:84% and Armanino is one of the top 20 accounting 00:23:39.470 --> 00:23:40.760 align:middle line:90% firms in the US by revenue. 00:23:40.760 --> 00:23:43.490 align:middle line:84% And the fact that they didn't catch on to any of this... 00:23:43.490 --> 00:23:45.822 align:middle line:84% it just shows a complete failure. 00:23:45.822 --> 00:23:48.305 align:middle line:84% Auditing crypto is really difficult. 00:23:48.305 --> 00:23:51.470 align:middle line:84% You have various tokens that are worth whatever 00:23:51.470 --> 00:23:53.810 align:middle line:84% it is the company says that they're worth. 00:23:53.810 --> 00:23:55.700 align:middle line:84% The big-name auditors are generally 00:23:55.700 --> 00:23:58.010 align:middle line:84% too nervous to get involved in this space. 00:23:58.010 --> 00:24:00.150 align:middle line:84% It's really incumbent on these crypto exchanges 00:24:00.150 --> 00:24:03.590 align:middle line:84% and these other crypto companies to convince big-time auditors 00:24:03.590 --> 00:24:06.050 align:middle line:84% that they should lend their legitimacy to these companies. 00:24:06.050 --> 00:24:10.430 align:middle line:84% And until that happens these legacy issues of transparency 00:24:10.430 --> 00:24:13.220 align:middle line:84% and safety of customer funds - they're going to persist. 00:24:13.220 --> 00:24:17.570 align:middle line:84% We have filled out more due diligence questionnaires 00:24:17.570 --> 00:24:21.200 align:middle line:84% in the last 10 weeks than probably we did in the year 00:24:21.200 --> 00:24:22.230 align:middle line:90% before that. 00:24:22.230 --> 00:24:24.560 align:middle line:84% But I think that's a really good thing, right? 00:24:24.560 --> 00:24:26.640 align:middle line:84% I think it's really good that the counterparties 00:24:26.640 --> 00:24:30.440 align:middle line:84% and the clients that we're facing are diving into details. 00:24:30.440 --> 00:24:32.660 align:middle line:84% They're understanding the risks that they're taking. 00:24:32.660 --> 00:24:35.540 align:middle line:84% We really need to work to build up that level of trust 00:24:35.540 --> 00:24:37.520 align:middle line:90% back in the industry. 00:24:37.520 --> 00:24:40.220 align:middle line:84% But I'm very encouraged by the fact 00:24:40.220 --> 00:24:42.220 align:middle line:84% that people are taking the time to do it. 00:24:42.220 --> 00:24:43.940 align:middle line:84% There's also the question of regulation. 00:24:43.940 --> 00:24:46.520 align:middle line:84% With crypto regulators don't know entirely how 00:24:46.520 --> 00:24:49.730 align:middle line:84% and what to do with it, how to classify it. 00:24:49.730 --> 00:24:52.430 align:middle line:84% Unfortunately, it's taken a catastrophic collapse of one 00:24:52.430 --> 00:24:54.770 align:middle line:84% of the biggest companies in the industry 00:24:54.770 --> 00:24:56.930 align:middle line:84% to prompt regulators to start thinking seriously 00:24:56.930 --> 00:24:58.910 align:middle line:84% about what they should do to protect consumers. 00:24:58.910 --> 00:25:03.260 align:middle line:84% It shouldn't be forgotten that FTX were very close to getting 00:25:03.260 --> 00:25:05.150 align:middle line:90% CFTC regulation. 00:25:05.150 --> 00:25:06.470 align:middle line:90% They'd applied. 00:25:06.470 --> 00:25:09.110 align:middle line:84% They had an excellent margin model 00:25:09.110 --> 00:25:13.550 align:middle line:84% that took account of very high margin requirements, 00:25:13.550 --> 00:25:17.420 align:middle line:84% and were not going to allow their customers 100 00:25:17.420 --> 00:25:18.860 align:middle line:90% times leverage. 00:25:18.860 --> 00:25:22.310 align:middle line:84% Binance even offers 125 times leverage 00:25:22.310 --> 00:25:25.740 align:middle line:84% on some products in some jurisdictions. 00:25:25.740 --> 00:25:27.945 align:middle line:84% So FTX was a completely different animal 00:25:27.945 --> 00:25:30.622 align:middle line:90% - this is FTX US - to Binance. 00:25:30.622 --> 00:25:33.080 align:middle line:84% FTX International, which is the main part of the business - 00:25:33.080 --> 00:25:34.705 align:middle line:84% it's much bigger than the US business - 00:25:34.705 --> 00:25:37.040 align:middle line:84% and is where the problems seem to have come from, 00:25:37.040 --> 00:25:39.590 align:middle line:84% along with Alameda, is based in the Bahamas, 00:25:39.590 --> 00:25:43.670 align:middle line:84% which has a tailor-made regulatory regime that they 00:25:43.670 --> 00:25:45.140 align:middle line:90% rolled out for digital assets. 00:25:45.140 --> 00:25:47.150 align:middle line:84% They see this industry that's booming, 00:25:47.150 --> 00:25:48.575 align:middle line:90% and they don't want to miss out. 00:25:48.575 --> 00:25:50.240 align:middle line:84% It's just not the kind of thing that 00:25:50.240 --> 00:25:52.910 align:middle line:84% could happen if these companies were being regulated 00:25:52.910 --> 00:25:56.360 align:middle line:84% as tightly as companies that perform equivalent functions 00:25:56.360 --> 00:25:58.182 align:middle line:90% in major financial markets. 00:25:58.182 --> 00:26:02.000 align:middle line:90% Regulators are so far behind. 00:26:02.000 --> 00:26:05.660 align:middle line:84% There's a lack of knowledge and a lack of resources. 00:26:05.660 --> 00:26:09.090 align:middle line:84% These exchanges, they call themselves self-regulated, 00:26:09.090 --> 00:26:11.930 align:middle line:84% which basically means, not regulated at all. 00:26:11.930 --> 00:26:15.230 align:middle line:84% There will come a time when regulators eventually 00:26:15.230 --> 00:26:18.890 align:middle line:84% get their act together, and they stop platforms 00:26:18.890 --> 00:26:23.540 align:middle line:84% like Binance operating as shadow banks, their own blockchain, 00:26:23.540 --> 00:26:27.110 align:middle line:84% NFT marketplaces, limit-order books, brokerage, custody, 00:26:27.110 --> 00:26:28.830 align:middle line:90% and clearing and settlements. 00:26:28.830 --> 00:26:31.220 align:middle line:84% I mean, how do you regulate something like that? 00:26:31.220 --> 00:26:32.590 align:middle line:90% It's got to stop. 00:26:32.590 --> 00:26:34.310 align:middle line:84% We want to partner with regulators 00:26:34.310 --> 00:26:36.980 align:middle line:84% to create a framework that is fit for purpose 00:26:36.980 --> 00:26:39.140 align:middle line:90% for crypto and digital assets. 00:26:39.140 --> 00:26:41.120 align:middle line:84% Having worked in traditional finance 00:26:41.120 --> 00:26:44.630 align:middle line:84% for a fairly long period of time, 00:26:44.630 --> 00:26:46.130 align:middle line:84% I think it's important that we don't 00:26:46.130 --> 00:26:49.220 align:middle line:84% try to pigeonhole crypto and digital assets 00:26:49.220 --> 00:26:51.575 align:middle line:84% into that existing regulatory framework. 00:26:51.575 --> 00:26:53.900 align:middle line:84% As soon as you regulate something, 00:26:53.900 --> 00:26:56.500 align:middle line:84% just like with the venture capital firms... that is, boop, 00:26:56.500 --> 00:26:58.850 align:middle line:84% a stamp of approval... this thing has some sort 00:26:58.850 --> 00:26:59.990 align:middle line:90% of regulatory oversight. 00:26:59.990 --> 00:27:00.680 align:middle line:90% It's safe. 00:27:00.680 --> 00:27:03.260 align:middle line:90% I can put my money to work here. 00:27:03.260 --> 00:27:07.100 align:middle line:84% That's not a kind of indemnity that regulators and governments 00:27:07.100 --> 00:27:09.315 align:middle line:90% have wanted to give to crypto. 00:27:09.315 --> 00:27:12.350 align:middle line:84% Sam was really at the forefront of lobbying Democrats 00:27:12.350 --> 00:27:14.780 align:middle line:84% in the US, talking to regulators and lobbying 00:27:14.780 --> 00:27:18.230 align:middle line:84% them to change the crypto regulatory landscape. 00:27:18.230 --> 00:27:21.380 align:middle line:84% The money that was flowing into FTX - some of this money 00:27:21.380 --> 00:27:24.740 align:middle line:84% has ended up as political donations. 00:27:24.740 --> 00:27:26.870 align:middle line:84% A lot of this is to the Democratic party, 00:27:26.870 --> 00:27:29.540 align:middle line:84% and so one of the big lines that people throw about 00:27:29.540 --> 00:27:32.540 align:middle line:84% is, well, obviously, Congress never looked properly 00:27:32.540 --> 00:27:36.410 align:middle line:84% into FTX, because he was pumping money into the Democrats. 00:27:36.410 --> 00:27:38.570 align:middle line:84% It turns out, the firm was also pumping money 00:27:38.570 --> 00:27:39.695 align:middle line:90% into the Republicans. 00:27:39.695 --> 00:27:41.600 align:middle line:84% So a lot of folks saw what Sam was doing 00:27:41.600 --> 00:27:44.600 align:middle line:84% and accused him, effectively, of trying to lobby, not 00:27:44.600 --> 00:27:47.120 align:middle line:84% for crypto's interests in Washington, but for FTX's 00:27:47.120 --> 00:27:48.440 align:middle line:90% and Sam's interests. 00:27:57.615 --> 00:27:59.910 align:middle line:84% US prosecutors say this is one of the biggest frauds 00:27:59.910 --> 00:28:02.175 align:middle line:90% in American financial history. 00:28:02.175 --> 00:28:04.890 align:middle line:84% The most insane alleged fraud to have taken place, 00:28:04.890 --> 00:28:07.695 align:middle line:84% blowing Enron and others out of the water. 00:28:07.695 --> 00:28:12.660 align:middle line:84% The failure of FTX hasn't really affected the price of Bitcoin. 00:28:12.660 --> 00:28:16.815 align:middle line:84% People will cling onto these coins for dear life. 00:28:16.815 --> 00:28:19.500 align:middle line:84% People in the crypto industry say it's just an FTX problem, 00:28:19.500 --> 00:28:21.050 align:middle line:90% it's an SBF problem. 00:28:21.050 --> 00:28:22.240 align:middle line:90% This is a crypto issue. 00:28:22.240 --> 00:28:23.730 align:middle line:90% It's not just an FTX issue. 00:28:23.730 --> 00:28:27.045 align:middle line:84% Sam was the poster child of this crypto industry. 00:28:27.045 --> 00:28:28.770 align:middle line:84% Personally, I'm just taking a break. 00:28:28.770 --> 00:28:31.000 align:middle line:90% People who want to invest... 00:28:31.000 --> 00:28:34.650 align:middle line:84% I don't see why they should stop. 00:28:34.650 --> 00:28:38.190 align:middle line:84% What's happened to FTX tells you that the infrastructure here 00:28:38.190 --> 00:28:42.090 align:middle line:84% that's built on top of an asset - which, to be clear, 00:28:42.090 --> 00:28:46.320 align:middle line:84% has an intrinsic value of zero - is incredibly shaky. 00:28:46.320 --> 00:28:49.860 align:middle line:84% If FTX can disappear in a fortnight, then any of them 00:28:49.860 --> 00:28:50.535 align:middle line:90% can. 00:28:50.535 --> 00:28:53.040 align:middle line:84% 2023 is going to be a year where the crypto industry, 00:28:53.040 --> 00:28:55.590 align:middle line:84% writ large, and many chief executives of big crypto 00:28:55.590 --> 00:28:58.290 align:middle line:84% companies are going to have to deal with regulatory scrutiny 00:28:58.290 --> 00:29:00.540 align:middle line:84% that perhaps they wouldn't have had to have dealt with 00:29:00.540 --> 00:29:03.050 align:middle line:84% if it wasn't for FTX's collapse in November. 00:29:03.050 --> 00:29:04.920 align:middle line:84% This is a cautionary tale for investors 00:29:04.920 --> 00:29:07.358 align:middle line:84% who were jumping into stocks for fear of missing out. 00:29:07.358 --> 00:29:09.400 align:middle line:84% You have to do due diligence, first and foremost. 00:29:09.400 --> 00:29:10.860 align:middle line:84% You have to check what's going on. 00:29:10.860 --> 00:29:12.630 align:middle line:84% The crypto bros have been able to say, 00:29:12.630 --> 00:29:14.880 align:middle line:84% it's just FUD, Fear, Uncertainty, Doubt. 00:29:14.880 --> 00:29:15.750 align:middle line:90% Just ignore it. 00:29:15.750 --> 00:29:18.952 align:middle line:84% Turns out, everyone needed a whole lot more FUD. 00:29:18.952 --> 00:29:23.100 align:middle line:84% Sam - what he's trying to do is say - this was all an accident. 00:29:23.100 --> 00:29:25.200 align:middle line:84% And what prosecutors will try and pin 00:29:25.200 --> 00:29:27.770 align:middle line:90% him on is that this is fraud.