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Welcome to Search Engine. I'm PJ Vogt. Each week, we answer a question we have about the world. No question too big, no question too small. This week on the show, the story of former crypto wunderkind Sam Bankman-Fried, who the government is saying stole over $8 billion from his customers. Our question, where did all that money go? We'll get some answers after these ads. Search Engine is brought to you by SpotPet.
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Can we just take a time machine back to very recent history for a moment? Two years ago, the price of crypto was through the roof. Everyone but you was getting rich, many of them from something called Dogecoin. It was an absurd state of affairs. Was this a good idea? Most people thought it wasn't. I was actually uncertain. What I was sure of, though, was that crypto was creating some of the best stories that the internet had provided in many years. And the very best one of all was the story of Sam Bankman Freed.
I think some people are overly familiar with the details of this story, but just in case. Last year, Sam Bankman-Fried was known as a 30-year-old crypto multi-billionaire, one of the richest people in the world. He ran FTX, a crypto exchange, a website where investors could buy, sell, and bet on cryptocurrencies. It was sort of like a crypto casino. And what made Sam Bankman-Fried really unusual, even in crypto, were two things.
One was that he claimed he's going to give almost all of his money away to charity to buy mosquito nets to prevent the next pandemic, to fight against an evil AI that could take over the world. And two, just for being a strangely compelling character, this schlubby guy, shorts, sweatshirt, socks and sandals, who really perhaps more than anyone else was responsible for mainstreaming cryptocurrency last year.
He was getting celebrities like Larry David and Tom Brady to appear in ads at the Super Bowl telling normal people it was time to join before it was too late. But last November, news broke that FTX had less money in its coffers than it was publicly saying. A lot less. Enough less that Sam Bankman Freed's company collapsed, and then crypto, which had already been collapsing, further collapsed. The criminal trial of Sam Bankman Freed begins in a few days, on Tuesday, October 3rd.
He faces seven charges that amount to an allegation that he stole his customers' money. Sam Beckman-Fried has pled not guilty to all charges. We reached out to him through a spokesperson who declined to comment. We also reached out to FTX, which did not respond to our request for comment. Many questions about Sam Beckman-Fried have been asked. Some you may never have been curious about. What kind of stimulant medication was he taking? Was he really in a polyhuel, or did he just date a coworker?
But the question I have that I cannot let go of is, how do you disappear $8 billion? That's significantly more than the entire GDP of Barbados. $8 billion is just a lot of money to hide or to vaporize, particularly in an ecosystem, crypto, where the whole point and promise is that every transaction is recorded and public on immutable ledgers.
I wanted to know where the money had gone. So I summoned an investigative reporter to Search Engine's recording studio on Wall Street. First of all, can you just introduce yourself, like say your name and what you do? My name is Zeke Fox. I'm a investigative reporter for Bloomberg and the author of Number Go Up, Inside Crypto's Wild Rise and Staggering Fall. So I want to just talk about like your story
journey into this first? Like, when and why did you start writing about cryptocurrency? So my specialty is investigating shady things on Wall Street. And we're here in the financial district right now. This is my spot because the real Wall Street firms are long gone. And all the towers like the one that we're in right now, there's tons of them that are filled with boiler room operations like pump and dump scammers, loan sharks, and
For like 10 years, I made it my business to get to know these people, to figure out how their schemes work, and to write about them. And when crypto started booming, people would tell me, it would be perfect for you. You should investigate crypto. And I was hesitant to get into it. The hype around crypto was kind of a turnoff, and it was hard to see what I would investigate. Wait, why? Why was it hard to see what you would investigate? Yeah.
So what I love to do is to like decode a complicated contract and see how they're operating in like a legal gray area and trace money through their offshore companies. In crypto...
a lot of the pitches were just like, hey, I got Shiba Inu coin. You should buy it because it's so funny. And then it would go up and people are getting rich on it. But I felt like basically sending an investigative reporter like me to investigate a crypto scheme was like sending the snooty New York Times restaurant reviewer to check out like the new branch of Taco Bell. Like, of course, I'm going to say it's a scam.
So part of what was interesting about figuring out how to cover crypto was like figuring out like, was this a scam? Was this a scam? Which parts were scams? Which weren't? For you, though, it was more like, obviously, the system is going to create a lot of incentives for scamming. But the scams themselves to you didn't seem like elegant or sophisticated enough to be worth untangling. Yes. And like objectively, in hindsight, this was totally wrong. Right.
Zeke feels he was wrong to have been so snobby about crypto scams because once he dug in, he found a lot to be interested in. He covered Tether, Terraluna, Celsius. But one of the most interesting stories during the crypto years, to Zeke, to me, to a lot of people, was actually the story of one person who did not seem to be running a scam at all.
I think the first time I heard about Sam Bankman Freed, I read about him in New York Magazine in February 2021. And this is the article that outed him as one of the biggest donors to the Biden campaign. Oh, interesting. And then...
there's a photo of him on his beanbag where he claimed he slept every night. He's wearing his uniform, the cotton shorts, the white gym socks, and an FTX t-shirt, kind of showing off his thighs. And in the article, he talks about this arbitrage, how he'd made his fortune. And it was this kind of
weird trick. It's like, you know, remember the old online ad thing that you'd be like, lose 20 pounds with this one weird trick? I think that's a good way to think of stories. If the story can be boiled down to this guy made $20 million with this one weird trick, that's like a good story that people will read. This is a trick that Sam Beckman-Fried actually figured out in 2018. He'd not yet started FTX, his offshore cryptocurrency now. Instead, he'd founded a trading firm called Alameda Research.
And at the time, they were entirely devoted to executing his one weird trick. And the trick was that in the United States...
One Bitcoin cost at the time maybe like $9,000. So if you wanted to buy a Bitcoin, you had to send $9,000 to Coinbase or a U.S.-based exchange. There you could buy a Bitcoin for $9,000. But in Japan, on Japanese exchanges, a Bitcoin went for the equivalent of $9,900 in yen.
So in theory, you could buy one Bitcoin in the U.S., send it to Japan, sell it at a Japanese exchange for $9,900 and make an instant 10% profit, then send the money back and do it all over again. And if you do the math on that, if you're earning 10% a day, you will be a trillionaire like within a year. It's unheard of on Wall Street that you could get these kind of returns.
But he pulled it off. This arbitrage only worked for about a month. And in that month, he was able to earn something like 20 million bucks. I was captivated by this story. And I also read in this story that, you know, he'd given $5 million to the Biden campaign, which made him one of the biggest donors.
So what you see is like, okay, one, it's interesting that this person found one weird trick online to make $20 million, a thing that is often promised, rarely delivered. And two, it's interesting that this crypto person is immediately clearly trying to exert political influence. Like $5 million to the Biden campaign is really significant. Yes. And he said that he'd never spoken to Biden. And he said...
Of course, it didn't turn out that way. Zeke would see and hear about Sam Beckman-Fried plenty.
June of 2021. The vaccines had just come out. Lockdown was ending. Many people were getting sick of hearing about crypto. Zeke was becoming more obsessed with it. Remember, crypto's spike had been, like sourdough starters, a pandemic phenomenon. Bored people stuck inside with their stimulus checks just betting on internet money. The crypto fanatics believed all this money would lead to a future. Skeptics like Zeke were convinced that the whole Jenga tower had to fall down soon.
And Zeke had a theory about what would bring the tower down, a coin called Tether. And he wanted to talk with Sam Bankman-Fried about it. Not because he thought Sam Bankman-Fried would be responsible, but just he wanted a quote from someone who had become, in a short span of time, a star in the crypto world. By this point, Sam Bankman-Fried had expanded well beyond his one weird trick. He now was worth, according to Forbes, $22 billion. He'd started a company called FTX, which was a lot of people's favorite crypto exchange.
So the first time we met in person was at Bitcoin 2021 in Miami. Oh, he was at Bitcoin 2021? Yes. And I arranged a meeting with him because I wanted to talk with him about the mystery I was pursuing. I was investigating this coin called Tether and that he was one of the biggest users of Tether. He would probably know some stuff about it. And maybe he'd tell me since obviously he likes to run his mouth. Yeah.
Real quick, I want to start with each of you telling me very quickly what your company does, why it's cool,
So Zeke is at Bitcoin Miami 2021. A moderator on stage is talking to Sam Bankman-Fried. There's two other panelists, very archetypical Bitcoiners. They both have novelty Bitcoin shirts on. Sam, compared to them, seems more sober. Yeah, so at Bitcoin 2021, surrounded by these like wackos, he seemed like, despite his casual slash slovenly dress, he seemed kind of like the grown-up in the room. Sam. Sam.
Yeah, FTX, Global Crypto Exchange. We're one of the bigger ones, not the biggest yet. It's very funny watching this. The dynamic is Sam will give a flatly generic LinkedIn-sounding monologue, and then the crowd will react like he's the fifth Beatle. It wasn't until I attempted to get a bank account while in crypto that I started to learn why...
Maybe there was some impetus to try out a new financial set of rails. He had experience on Wall Street working at Jane Street Capital, which is like a really well-regarded high-frequency trading firm that hires only, you know, physics PhDs from MIT.
Their reputation is that they don't take big bets. They're just like trading all day long and coming up with like these super complicated formulas to make sure that they're always earning like a tiny spread. Now, that's not to say you're not negative EV if you're doing 100x leverage, but you have to go further than just talking about probability of loss, right? If you have a 10% probability of 10x-ing and a 90% probability of going to zero, that's not a negative EV position to have on.
So he was good at talking in a way that was understandable to Wall Street guys or to someone like me who was used to covering Wall Street. He didn't sound like one of these Bitcoin to the moon people. He sounded like a smart guy who had found one weird trick and maybe now would find many other weird tricks and make a lot of money.
The story of Sam Bankman-Fried at that moment, it went like this. He was a curly-haired whiz kid taking his Wall Street expertise to crypto. There, he was essentially minting money through two different companies. One was FTX, the online crypto exchange, which made its money by taking commission from every trade that a customer placed. But then on top of that, Sam Bankman-Fried still had his existing company, Alameda Research, a crypto hedge fund.
They'd started out with their one weird Bitcoin trick, but now they made all sorts of bets on crypto, many of them actually on FTX. As the billions piled up, what made Sam so irresistible to reporters was not just all the fast money he was making, it was what he said he wanted to do with it. He promised to anyone who would listen that his plan was just to give it all away. And not when he was in his 80s, to give it all away soon.
It was part of this movement he joined, a philosophical movement that felt quasi-religious. Affective altruism. Had you heard of effective altruism before him? I'm sure I'd read about it, but I hadn't given it that much thought. And what was his description of what it was? What he described to me was that when he was a teenager or in his early 20s and at MIT, he was a committed utilitarian. He wrote on his blog back then,
I am a utilitarian. Basically, this means that I believe the right action is the one that maximizes total utility in the world. You can think of that as total happiness minus total pain. And he was really committed to this as like a driving principle for his life. And he'd become a vegan because he thought, you know,
Sure, it tastes good to eat chicken for 10 seconds, but that bird gets tortured for their whole life, and the pain the bird suffers...
my enjoyment of eating the bird. Therefore, I should not eat the bird. And so when he was in college, he was giving out, you know, animal cruelty pamphlets in like Harvard Square. He met this philosopher, Will McCaskill, who was kind of the founder of the effective altruism movement. And Will at the time was promoting this idea called earning to give. And he was
met Sam at a lecture. They're at the Oban Pan in Harvard Square afterwards. And Sam explained, like, he was really committed to doing good for the world. And Will, this young philosopher who was really just getting this whole thing off the ground at the time, was like, listen, anybody can hand out these pamphlets. You're very smart. You're good at math.
What if you just set out to get rich instead? You could give all that money away and we could hire, you know, a thousand people to give out pamphlets or do whatever other good thing for the world we can think of. And he did. He went and got this job at Jane Street, this high-paying trading firm. And then...
Less than 10 years later, he's sitting with me. He's 29 years old. He's worth $20 billion. He's one of the richest guys in the world. And he says he did it all just because of this meeting with Will McCaskill, basically. And I was just really fascinated by that idea and also by the question of would he actually follow through with
or had this 10-year mission to become one of the richest people in the world corrupted him. Right, and this is what I think about a lot with him is I don't know if he did it on purpose or by accident, but the thing I wonder about him now is like that question, is he serious about his promise to give the money away, is such an hypnotic question. Like it's so fun to think about and wonder about. And I feel like for most of us,
That question was so attractive that it actually occluded other questions. It's almost like a shell game where you're watching the one hand where you're like, is he going to give the money away? And so at least for me, it never occurred to ask, does he have the money? Is the money his? How did he get the money? It was all the one question, like, is he going to give it away? Totally.
At the conference in Miami, Zeke did end up getting a quote for his Tether article from Sam Bankman-Fried. And he managed to sneak in the fun fact that the then 29-year-old billionaire happened to be in town because he'd gotten the Miami basketball stadium renamed after his company. It was now the FTX Arena. In the months after Miami, Sam Bankman-Fried's star kept rising.
As the price of Bitcoin and most other coins surged, Sam Bankman-Fried was becoming the respectable face of crypto, a kind of nerd superstar. He seemed smart. He seemed less bro-y than other people in the space. In February 2022, FTX had maybe the most talked about Super Bowl ads, where it seemed like every celebrity you'd ever heard of was shilling crypto using scripts that felt nearly chat GPT quality.
Here's Tom Brady convincing you to hand over all your money with some subpar sports slash crypto puns. Hang on. There's a possibility of a trade. A trade? Are you sure? Not a trade trade. I'm trading crypto. FTX is the safest and easiest way to buy and sell crypto. It's the best way to get in the game. Sam was in an ad campaign with the supermodel Giselle. He was dancing on TikTok. He was being profiled by journalists whose profiles were being interrupted by him giving Zoom interviews to other journalists, sometimes while also playing a video game.
Zeke decides, screw it. He wants to write a story about Sam himself for Bloomberg. So shortly after FTX's big coming out party at the Super Bowl, Zeke flies to the capital of the Bahamas, Nassau, to go to FTX's headquarters. So FTX, they had plans to build like a lavish headquarters, but they hadn't done it yet. And they were in this office park kind of near the airport. And it was a series of
these little one-story buildings. It really didn't look like much. And very embarrassingly...
When I got in the cab in the Bahamas, I was carrying my L.L. Bean backpack that I always have. And the cab driver just looked at me and was like, crypto guy, huh? You going over to FTX? I don't think you like scan as a crypto guy. Like if you're walking down the street and someone's making fun of people on the street, I don't think they would look at you and be like, crypto bro. Thanks, PJ. Well, in the Bahamas, I totally did. And I had to be like...
Yes, please take me to the crypto place. Please take me to where you take all the other nerds. So Sam had an assistant who was very nice, who was like my main point of contact. And I'm talking with her in the kitchen of this little office. And they'd just gotten back from the Super Bowl. And she's like telling me about all their experiences there. When...
this curly-haired guy in his, you know, no shoes, wearing his socks. He walks into the break room, opens up a cabinet, takes out a pacifier
packet of microwavable chickpea korma, like one of those like ready to eat things you might see at Trader Joe's, does not microwave it, rips it open and just starts spooning it into his mouth. And I'm like, that's like one of the richest guys in the world right there. And then his assistant is like, Sam, this is like the reporter who flew down here to profile you.
And he's just like, well, hey. Had you ever met another person like that? Like in people you profiled or business people or anything? No, definitely not. But I actually found this very charming in a weird way because I'm kind of a slob myself. I would eat chickpea korma cold. And I actually thought to myself,
I don't think that they hired a private detective to research me and learn how to win me over. But if they had, this might have been the solution that they proposed. Just eat some gross stuff in front of Zeke. Of course, looking back now, I wonder, was it all a show? And that's something I talk about with his old friends. Did he sort of act in this way to seem authentic, or was this really who he was? Yeah.
It's also just funny, like, do you feel strange? And like, everybody did the same thing. I don't mean like, do you feel strange that you had come into the space being like, I think this is a scam and I'm investigating scams, and that you were walking around the scammy part of the scammy thing, and that you like, couldn't smell the exact scam? Does it bother you? Or do you think like, nobody exactly smelled the exact scam?
No, it bothers me all the time. He was pulling up financial records for his company right in front of me. This was like my big shot. I could have taken down a fraud that goes down in history, and I didn't. So I definitely am not happy about that. I remember Zeke's profile of Sam. It was a big deal.
The subhead, the line after the headline, nicely encapsulated everybody's thumbnail understanding of Sam back then. Quote, Sam Bankman-Fried drives a Corolla, sleeps on a beanbag, and has a Robin Hood-like philosophy. In the accompanying photo, Sam wears a slightly mischievous smirk under a curly bird's nest of hair. That was April 2022, just six months before FTX would implode. But before that happened, Zeke would see Sam Bankman-Fried on top of the world one last time.
So the last time you see him sort of before the downfall, I believe, is Crypto Bahamas. Is that right? Yes. Can you just tell me the story of seeing him on stage there, what that was like?
So I published this profile that I had traveled to interview Sam for and did not identify this giant fraud. But he was having this big conference a couple weeks later called Crypto Bahamas. And like everybody who was anybody in crypto was coming to it. Welcome to the Bahamas. FDX released a promo video for this event that is in hindsight a strange document that
Over music library-grade techno, you just see a lot of big luminaries, like heads of state, at an event that, besides the famous people, actually seems a bit sparsely attended. The Bahamas is going to be a financial center of the future. It was his first conference. He was going to celebrate the success of FTX. And here was...
Bill Clinton flying in to speak on stage with Sam, Tony Blair, Katy Perry. You know, it was a hot ticket on Wall Street. And Sam took the stage, and he was there to be interviewed by the writer Michael Lewis. ♪
One of the things that interests me about your world, to which I'm very much an outsider. I mean, we have Sam Bankman-Fried, who founded FTX. We have Katie Hahn, who's now founded her own venture capital fund, which invests principally in cryptocurrency businesses. And I'm an author who has written lots of books, none of them about cryptocurrency. I'm an outsider here. Michael Lewis, the famed financial journalist, one of the many luminaries here.
He was writing a book about Sam, but Zeke was surprised to see him on stage interviewing his subject. I grew up reading his work, really admired Liar's Poker and The Big Short, and I was kind of curious. Like, here was a guy who showed me how Wall Street had wrecked the global economy with collateralized debt obligations. What does he think about crypto? And he's...
onstage interviewing Sam, which already strikes me as kind of odd. Like, to appear at a corporate conference that's hosted by FTX is in some way an endorsement of FTX. So I'm curious what Michael Lewis is going to say. And his questions for Sam are like total softballs. He's like, Sam...
And now you're sitting on the cover of magazines and you're a gazillionaire and your business is like one of the fastest growing businesses in the history of the planet. You know, one of the richest billionaires in the world and you're breaking land speed records. You're breaking land speed records. And I don't think people are really noticing what's happened, just how dramatic the revolution has become. There's a status upheaval that's going on in the financial world.
And you're sitting right in the middle of it. So just like very brief talk about the beginning of these change. And then I want to pivot to Katie. Yeah. I mean, basically, and I think the way that sort of I approached it was like, what should the product be like? You know, let's take everything that we've seen, everything that we can think about. And just like from the being, it goes on like this, a series of questions that are pretty polite, not especially probing.
Whatever doubts Michael Lewis might have harbored, he was not airing them here, on stage, at Sam Bankman Freed's own conference. In the audience, amidst a sea of Sam's admirers, sat Zeke. What were you thinking watching him? Because I feel like part of the subtext of what you're saying about seeing so many people
sort of notable people in the room is like, everybody wants to say that they knew everything was gonna fall apart. But at least for me, when I suspected that it might, the other thing I would think is like, am I smarter than all these people? And I often felt like, no, I'm not. And if you're seeing like, I mean, you're probably like a better reader of the world financial system than Katy Perry, but like Bill Clinton's pretty bright. And Michael Lewis, I think he got this wrong clearly, but he's like a brilliant, brilliant reporter. What are you thinking?
I mean, I don't think of myself as the smart person in the room, the one who knows everything. But I'm not questioning, did I miss something? At this point, like, I'm quite confident that there's not much to, like, any of these crypto things. So I'm just thinking, like, what am I supposed to do? Like, I'm hearing about all these asinine schemes, but, like, does anyone want to read an expose of them? Right.
Again, I had no reason to think that FTX was a fraud, but I was even more convinced that this was like an unsustainable bubble. But I'm starting to think, I don't know, if the number goes up high enough, maybe they'll make up some legitimate uses for crypto later. Like I'm starting to feel like what could pop this bubble? After the break, many things pop the bubble all at once.
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I have to say, as a person who by this point, by spring of last year, was also covering crypto professionally, watching the collapse was one of the strangest reporting experiences I've ever had. I was working on this podcast series called Crypto Island. We'd started covering crypto a few months before, which means we began when the prices were extremely high, and we had a front row seat to the moment soon after when everything plunged.
That April 2022, I'd just been to Bitcoin Miami, a 25,000-person festival dedicated just to the worship of a specific internet currency. The price of Bitcoin when I visited was about $42,000 a coin. Being there then was a hallucinogenic experience, vivid but scary. I'd met working people who'd plunged a lot of money into crypto, who were very confident and who I felt worried for.
Who knew what was going to happen? Or when it might? On May 20th, just over a month after Miami, the hull began to crack. A currency called Terra exploded. Not too long after that, a crypto hedge fund called Three Arrows Capital went up in flames. That spring through the summer, it felt like every week something you'd never heard of fell down. On Twitter, longtime skeptics went viral making fun of the explosion. On message boards, people who'd lost money shared the numbers for suicide hotlines.
Meanwhile, I just remember trying to make sense of it. It was confusing, but it was also exciting, like when the power goes out in your city. Until November, though, the system was still holding together. In no small part because Sam Bankman Freed, backed by his company, FTX, was going around almost behaving like the government, using his money to bail out some weak parts of the system. And then, this very ominous news article was released. November of 2022.
The crypto website Coindesk published what it said was an internal balance sheet from Sam Bankman-Fried's trading company, from Alameda Research. The balance sheet meaning the private document listing their assets. For this long moment, everyone in crypto just stared, trying to figure out what it was they were supposed to be seeing in these numbers. Again, here's Zeke. Essentially, no one knew what to make of this Coindesk article, which reveals that Alameda owns...
Billions of dollars of stuff. And it's all these different crypto tokens. And one of the crypto tokens that Alameda had was called FTT. FTT.
And FTT was this proprietary token that Sam had made up that related to his exchange FTX. It was sort of like a way, if you wanted to bet on just FTX, the casino, buying FTT, I know this is imprecise, but it was sort of like buying FTX stock. That is a perfectly good shorthand. It's essentially like thought of as FTX stock. So this article...
People didn't know what to make of it. It was kind of like puzzling. So just to recap, because I think this part's a little confusing, here is what everyone knew at that moment. Alameda Research, Sam's trading company, had been trading at FTX, Sam's exchange. This balance sheet shows Alameda Research's wallet. And instead of the billions of dollars everyone assumed Alameda Research had in that wallet, what was actually there was
was in large part just lots and lots of these FTT tokens. This would be like finding out that someone's wallet is filled with not money, but poker chips. Poker chips they themselves made at their own casino. Anybody else holding onto these tokens, which represented faith in Sam Bankman Freed and FTX, suddenly they felt very nervous.
CZ, who ran the rival exchange Binance, he reacted to this article and he said, I also own FTT tokens. I am now going to sell them. I do not want my FTT tokens anymore, which sets off this run on FTX. So
Customers who'd sent real money to FTX to gamble with were asking for it back because they were thinking, all right, I'm not sure something's wrong, but if something's wrong, I don't want to be the one who left my money at the casino. I just want it back for now. The problem was that the casino was gambling with the money. Yes. FTX customers who were trying to withdraw their money learned that they could not get their money back. The money was gone. Here's what had happened.
According to two FTX employees, as far back as 2019, they'd been asked by Sam Beckman-Fried to write a secret piece of code into FTX's database. That code gave Alameda Research special privileges on FTX. Alameda could borrow essentially an unlimited amount of money to make bets on the exchange. And when Alameda lost on its bets, which it did often, the company could just take customer money from the casino, from FTX, to buy back into the game.
When all of this became clear, it was obvious to pretty much anyone paying attention that this was going to end with someone in jail. The most likely candidate? Sam Bankman Freed.
November 30th, just a few weeks after this blowup, Sam had a pre-existing commitment to appear at the Dealbook Summit, this New York Times event where he was supposed to be interviewed by star reporter Andrew Ross Sorkin. In the span of about one week, Sam Bankman Freed went from a billionaire, the white knight of the crypto world, and running one of the largest exchanges to what he now calls the
some people think has become a wanted man. Sam had been posting online a lot, but it was pretty hard to imagine he'd video conference in so that he could be grilled by a reporter in front of a live audience. And yet, there he was. Look, thanks for having me. Sam, broadcasting live from the Bahamas. He's alone in a corner, fidgeting under apology video lighting. Clearly, I made a lot of mistakes or things I would give anything to be able to do over again.
Andrew Ross-Dorkin will spend the next hour peppering him with a series of increasingly exasperated questions.
You can tell he wants to get an admission of guilt somehow. At one point, he pitches an analogy designed to make Sam admit that what he did was just simple theft. If I worked at a bank and was a bank teller, and I decided to leave the bank at the end of the evening and take the cash that I sensibly had access to, even if I intended to bring it back to the bank later, even with more money to give them back, I still stole the money.
I mean, look, I wasn't running Alameda. I didn't know exactly what was going on. I didn't know the size of their position. A lot of these are things I've learned over the last month that I learned as I was sort of frantically digging into this on, you know, November. Sam Bankman-Fried is saying, I didn't know that my crypto trading company had lost a ton of money on a bunch of bad bets. In fact, I didn't know because I was intentionally not paying attention because I didn't want to create a conflict of interest.
If this were true, it would mean that Alameda Research, Sam Bankman-Fried's company, had stolen money from FTX, also Sam Bankman-Fried's company, without his permission and without him noticing. But I haven't been running Alameda. I haven't been thinking about its finances. I haven't been making those decisions.
But, you know, as CEO of FTX, it was still my duty to make sure that someone was doing diligence. I was a large owner of it. That is true. Part of what made this story hard to believe is that the person running Alameda Research was someone Sam knew pretty well, Caroline Ellison, his sometimes girlfriend. One reason that I didn't really believe the story that Sam was trying to say about where this money went was
His ex-girlfriend and top lieutenant, Caroline Ellison, who had been in charge of the hedge fund side of the operation, in November, after FTX had collapsed, there were a couple days when it looked like
Binance was going to save FTX, and everybody was in the clear. Oh, right. Yeah, CZ was like, I'm going to look at their finances, and then I'll make a decision. But it looked like they would essentially do a bailout of their competitor. Yeah. And so she thought she was getting a bailout, and she called a company-wide meeting of everyone on the hedge fund side. And at this meeting, she...
basically told everybody her version of what had happened. And what her version was, was that Alameda had essentially run out of money and they had made the decision to keep Alameda going by borrowing the FTX customer funds. And that she discussed this with all the top people at the company. Sam had made the decision. They'd done it on purpose. And more recently,
The prosecutors have obtained a tape recording of this meeting, and they published not the tape itself, but a transcript of what Caroline said. Oh, wow. Here's what she said. Starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments. Then with crypto being down, the crash, the, like, credit crunch this year, most of Alameda's loans got called.
And in order to, like, meet those loan recalls, we ended up borrowing a bunch of funds on FTX, which led to FTX having a shortfall in user funds. Then she said, I guess, like, then, yeah, what does this mean? I guess mostly I want to say, like, I'm sorry. This really sucks. It really sucks for all of you guys. I think it's, like, really not fair to you guys. Like, I think you've been doing a great job. You've been working really hard.
She's saying, we didn't tell you that we stole customer money and bet it and lost it. And then she's apologizing the way a friend in college apologizes for eating something out of your mini fridge. Yes. So, like, the people hearing this speech, right, they're very smart people. And some of them are like, wait, did she just tell us that we've stolen the customer money? And one of them asked...
who made the decision on using user deposits? And Caroline said, um, Sam, I guess. So I think that this is going to be very tricky for Sam at his trial because this is like a contemporaneous record of someone who thought that no one would ever find out
basically admitting that they'd made this decision to dip into the customer funds, which is a crime. They're admitting to a crime and they're very clearly laying out who knew about it and who ultimately had decision-making power, which is Sam. Right. And you could now say, oh...
Caroline and the other people who are going to testify about Sam, they're only doing it to save themselves. They'd say anything now to stay out of jail. But not with this. She said the same thing a couple months ago when she thought that everyone was going to be fine and no one would find out about any of this. Yeah. It's also just you hear the way she's communicating information and you think, I can't believe these kids were...
trusted with billions of dollars. It just never should have happened. Yes. So FTX is in bankruptcy, and the court has appointed a new independent CEO whose job it is to essentially take stock of what money is left and eventually distribute it to all the customers. This guy's name is John Ray. He was also in charge of the Enron bankruptcy, which was famously complicated. And
Ray, after his initial look into FTX, testified before Congress. Mr. Ray, you have compared FTX as worse than Enron. Can you please elaborate on some of the specific ways FTX is worse than one of the largest corporate frauds in history?
The FTX group is unusual in the sense that, you know, I've done probably a dozen large, you know, scale bankruptcies over my career, including Enron, of course. Every one of those entities had some financial problem or another. They have some characteristics that are in common. This one is unusual, and it's unusual in the sense that
Literally, you know, there's no record keeping whatsoever. It's the absence of record keeping. Employees would communicate, you know, invoicing and expenses on Slack, which is, you know, essentially a way of communicating for chat rooms.
They use QuickBooks, a multi-billion dollar company using QuickBooks. QuickBooks? QuickBooks. John Ray exhibiting true disgust. Not even for the magnitude of the alleged crime, but just the sheer sloppiness of it all. They were approving expense reports with slack emojis.
You get the sense that John Ray, an older gray-haired man in a Navy suit, is perhaps nostalgic for the days of Enron. You know, Enron was a different company. Crimes that were committed there were highly orchestrated financial machinations by highly sophisticated people to keep transactions off balance sheets. This is really old-fashioned embezzlement. This is just taking money from
customers, and using it for your own purpose. Not sophisticated at all. Old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose. It's not sophisticated at all.
In January of 2023, Sam Bankman-Fried is arrested. From crypto king to criminal suspect, Sam Bankman-Fried's stunning fall has just gotten worse for him. One of the most powerful people in the cryptocurrency industry, Sam Bankman-Fried, arrested overnight in the Bahamas. The federal charges just unsealed. The charges against the 30-year-old former billionaire include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy,
and money laundering. Nearly everyone around Sam Beckman-Fried, the friends he started FTX and Alameda Research with, have turned on him. They are cooperating with the government. In some instances, they've taken their case against him directly to the press or to Twitter. Many questions about him have been answered, but again, not the one I was most curious about. $8 billion is missing from FTX, money that belonged to customers, that they were storing on the exchange because they wanted to invest in or bet on crypto.
$8 billion gone. Where? After the break, Zeke helps us understand.
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Welcome back to the show. Sam Bankman-Fried's criminal trial begins in a few days, October 3rd. Besides the government, Sam Bankman-Fried will be fighting several class action lawsuits from former customers. There's also, separately, FTX bankruptcy proceedings, where newly appointed CEO John Ray, the one who sounds nostalgic for Enron, is going through the company QuickBooks, trying to piece together what happened here.
All of these court proceedings will generate more clarity, more answers in time. But here's what we know now about the pipeline that took billions of dollars, ran them through Sam Bankman Freed's companies, and turned those billions of dollars into vapor. Here is the picture drawn by the government's allegations. It's 2022. FTX is flying high, and I decide I want to buy some crypto. And I want to buy it on FTX.
I send the exchange $100. In return, I get some crypto. FTX takes a fee. And now when I visit the FTX website, I can just see it. I can see my crypto. I can imagine that it's just sitting there, which is what I've been told. But that's not true. Instead, according to the government, FTX was stealing that crypto, which they had promised to hold for me.
Some of it went to Alameda, where the company used it to cover its bad bets. Other money went to cover FTX's own business expenses, some of which were questionable. That, broadly, is how the government alleges over $8 billion in customer money got illegally spent. But I was curious, spent on what exactly? And Zeke says we do have some partial answers here on where customer money went.
So first, it gets thrown into a big pile with the rest of the company's corporate funds. Then it gets spent in all sorts of ways. We have divided that spending into four buckets. Bucket one, connections. Sam Bankman Freed, through his companies, spent a lot of money buying friends and political allies. Although it took Zeke some time looking at these documents to understand exactly what was going on here.
So digging into it, the biggest chunk of where the money went was Alameda, the hedge fund, had sunk tons of money into illiquid investments. And what that means is like kind of obscure investments that would be hard to liquidate. And I'll just give you...
One of the craziest examples. So at the Super Bowl, Sam had gone to a party at this guy Michael Kives' house. Michael Kives is a former Hollywood talent agent who's a super connected guy. He knows Bill Clinton. He took Sam to the Super Bowl with Katy Perry and Orlando Bloom. Sam was quite taken with this Kives guy and his ability to introduce Sam to famous people.
And with apparently very little due diligence, Sam's hedge fund, Alameda, sent Kives $700 million for Kives to invest in other stuff. But Kives got $125 million personally for his ownership stake in this investment firm. Like, it sounds like someone just paying someone to be his friend. I mean...
It kind of does. And Sam talked about this. He called Kives something of a one-stop shop for relationships that we should utilize. So one place where Sam spent nearly a billion dollars alone was just on his relationship with this one person, Michael Kives, a former Hollywood agent who knew a lot of celebrities. Kives actually helps at least partly explain another mystery, which is why so many celebrities were in Sam's orbit and why he was in theirs.
And I have to say, from one point of view, investments like this one were actually pretty smart. The celebrities got FTX attention, which got the company more customers. Those celebrity endorsements also made FTX seem safe. I remember last February, Katy Perry, the singer, posting on Instagram this joke about how she was quitting music to become an intern at FTX. Keeves was valuable to Sam because he'd introduced him to Katy Perry and to a lot of people like her.
So Bucket One is just an old American pastime, rich nerds using their money to make famous friends. This brings us to Bucket Two, which is a big bucket I'm going to call gambling. Coins like Solana, SRM, Maps, but also they bought a bunch of bored apes. They bought into this company called Stepin that paid you in crypto for walking. They bought into Axie Infinity, a video game where you could earn real crypto by playing. It was popular as a job in the Philippines until the price collapsed.
Sam, at the time, presented Alameda Research as just an investment firm. But Zeke has a cynical theory about what might have been going on here. It could be seen more as like, we need to keep this crypto thing going. So we need to support the crypto world by investing in like everybody. Because like your view as a person who covers financial fraud is that most or all of crypto is a series of pump and dump schemes. In that theory of the case...
a few billion more dollars got vaporized with them being like, we need to make sure that the pump of every pump and dump is a big spike. And then, like, all these people will come into the casino to get into all these little scams, and we'll get the money back from them. Yes. So...
When I flew down to the Bahamas after the collapse, and I was interviewing Sam on this marathon interview, he revealed to me that there was one thing that he had misled me about the first time. He was willing to admit to. So he had said my net worth is around $20 billion, and it's mostly based on the valuation of...
So he's like, most of my wealth comes from my offshore casino, and it's a very valuable offshore casino, but that's where my interests lie. And what he said is that actually, on paper, at that time when I was meeting with him, he was worth more than $100 billion. And this was all at his hedge fund, Alameda, which just had like huge stockpiles of all these crazy coins. So...
His interests actually were more aligned with
keeping coin values high than I had thought. Because he had two businesses. He was running the casino business and he was gambling at the casino business. The gambling side was much more important to him than I had known. Which is crazy because the casino was a really good business. He could have just done that. For sure. And even now people trade crypto every day and there would be money to be made in running the crypto casino.
Okay, so a chunk of it gets vaporized on a bad investment that might be about making friends in celebrity world. A large chunk of it gets vaporized by gambling across crypto, which is just sort of the definition of an unhedged bet because the whole market tends to rise and fall together. What else do we know about the money? So they went on this real estate spending spree in the Bahamas. ♪
Bucket three. Sam, Bankman Freed's companies also lost their money the way so many Americans do, spending too much money on real estate. They spent $243 million. They bought 30 properties, including the $30 million penthouse in the Albany Resort, which was called the Orchid Penthouse, and that's where Sam lived with his other top lieutenants. And this is, I should say,
This would have been the home of the alleged polycule. Right. I do not think there was any polycule. These are like college kids essentially living in a dorm. Of course, some of them are going to like date each other. Yes. Yes. That's my read on as well. Although like in this sort of like gap between like how Sam presented himself and who he was, the $30 million penthouse was like a nice asterisk on I sleep in a beanbag chair all the time. It's like I sleep in a beanbag at work.
when I'm not going home to like a very nice penthouse that I share with some friends and my sometimes girlfriend. Definitely. So those are the three buckets of spending that, if not frivolous, at least ran counter to the story Sam Bankman Freed told, which is that he was earning to give. But there is a fourth bucket, the actual charitable giving, the supposed point of all this. So what did Zeke find there?
He did give a fair amount of money to charity. Oh, he did? Like, more than me. And Sam and I, when we were sitting together, this was the thing that he seemed most broken up about when we were talking. I read him some tweets that his mentor, Will McCaskill, the founder of the Effective Altruism movement, had put out around that time. And Will had essentially said, if what I'm hearing about FTX is true...
Sam Bankman Freed has betrayed our movement, like, I disown him. And Sam was trying to say to me, I feel so bad, like, this is such a powerful movement. It's going to hurt the movement that I'm associated with it. And, like, I really did try my best. I really did give a lot of money to charity. And we were tallying it up there. And if you were being really generous in what you counted as charity, you could almost get to a billion dollars of charitable donations. But that includes...
500 million or so that he invested in an AI startup, which he counted because he believed they were going to develop good AI, and that would somehow make it possible to stop the development of the evil AI which threatens our civilization. A minor quibbly fact check here, not on Zeke, but on Sam Beckman-Fried. He may have invested the money in an AI company to fight the evil future AI, but this was a traditional investment, not a charitable donation.
But still, whatever. Let's count it. And then similar to how he invested in like every crypto startup, he seemed to write a check for like anyone associated with effective altruism who asked him for money. He gave a $300,000 grant to an individual entrepreneur
to write a book about how to figure out what humans' utility functions are. That's an amazing book advance for a terrible idea. Yeah. We've got to wait for this to come out, and then we'll know he got $300,000. And even better is the foundation gave a $400,000 grant
to an entity that made animated videos on YouTube about rationalism and effective altruism. Jesus. So you've got these like bad investments, you've got real estate, you've got donating money to charity. No, I will also say a lot of this stuff Sam wouldn't really dispute. Like when I sat down with Sam, this was my question to him. I was like, where did this $8 billion go? And I
He wasn't really disputing that all this stuff had happened. And he even said he lost another billion on what he called fuck-ups and that he'd spent $1.5 billion on expenses. I mean, they were supposedly chartering a jet to fly their Amazon packages in from Miami. Wow.
But if you believe that you're like the heroes who are going to save the world, anything that enhances your productivity can kind of be justified. I mean, that's how I justify cabs that I shouldn't do. Like, I know that internal voice is like, well, this is worth it because if I get this work done, it's just crazy to hear it at the billion dollar level. So where did the money go? Here's the final tally. A summary of Zeke's reporting.
Over $5 billion in investments. Some of that connections, a lot of it in crypto bets and acquisitions. A quarter billion on real estate, a billion on charity if you squint, a billion on fuck-ups, a billion and a half on expenses. The company had about 300 employees. And then, I actually didn't mention this, but another measly $2.5 billion buying out rival company Binance's stake in FTX.
All of this adds up to actually over $10 billion. Again, that's a mix of customer money and the company's money. It is, as the SEC likes to say, commingled money. Zeke says that eventually a more comprehensive breakdown will come out of bankruptcy court, but this is the best available estimate based on the information we have right now.
When you look back at Sam and your conversations with him, and you look back at what is now publicly known, what is the picture for you that emerges of him? Do you think he was just a money-hungry scammer? Do you think he was somebody who was kind of a gambling addict who believed he was doing it for charity? What level of honesty do you think he was? So I may be too committed to my original thesis, but I do think that he wanted...
to make money and give it away, and that him and his top lieutenants became convinced that they were essentially the heroes of their own sci-fi movie, and that their ability to make billions was the only thing standing between humanity and the invasion of the killer robots. You mean literally, like that was one of the effective altruism ideas, was that one of the most important threats to defend against was an evil AI.
Yes. And by making billions of dollars and giving it to the right researchers, there was some non-zero chance that they could save the world. So...
If you really believe that and you are presented with this choice, admit defeat, go bankrupt, don't make any money to give away, or take the customer's money, gamble with it, hope that the number goes up and we can make it all back, and we will potentially still be in a position to make all this money and give it away. Put in those terms, that's the better choice. So I think that's what made him so...
and willing to take risk was that he did really believe in this stuff. It's also funny because if the question about him for most of his time was like, is he just a greedy person lying or does he have convictions? It sounds like he had convictions. He rationalized a lot of terrible choices in the name of those convictions. Had he just been greedy, everybody might be in a better position. Like, had he been greedy, it would have been like, run the casino and make some bets. But because he convinced himself that
if there's a 51% chance in his mind of saving the world from killer robots or God knows what else, he should take insane bets and disregard his customers, his fortune, his own future. Like, if you're right in your read of him, his convictions made him more dangerous, not less dangerous. Yeah, I mean, even if there's like a .0001% chance that you're going to save the world from killer robots, you should do whatever it takes. You know, because you're not just saving...
The current world. You're saving all the, like, trillions of people that would be born in the future if not for the coming of the killer robots, which is why some effective altruists have moved away from their original plan, which was, like, really, really observable charitable impact, like buying bed nets for people in Africa to prevent malaria. Yeah. They've swung the total opposite direction and go for, like, really, really speculative things that might...
Yeah, and I mean, at that point...
We may need to break Sam out of prison to run a new casino. I guess everyone would just give their money to stop the killer robots at that point. We would not need this convoluted mechanism to funnel money to anti-killer robot efforts. I don't think so. Zeke, thank you for talking about this and helping us understand where this money has gone. Thanks, Vijay. Zeke Fox. His book is called Number Go Up, Inside Crypto's Wild Rise and Staggering Fall.
I, this year, will read every Sam Bankman-Fried book. I will enjoy every Sam Bankman-Fried book. Zeke's, I have to say, is the funny one. Just a very funny chronicle of what it was like for a skeptic to watch crypto rise and then to see it come down. I really recommend it. Save on Cox Internet when you add Cox Mobile and get fiber-powered internet at home and unbeatable 5G reliability on the go. So whether you're playing a game at home or attending one live,
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Theme, original composition and mixing by Armin Bazarian. Fact-checking by Sean Merchant. Special thanks this week to Aaron Lammer. Our executive producers are Jenna Weiss-Berman and Leah Reese-Dennis. Thanks to the team at Jigsaw, Alex Gibney, Rich Pirello, and John Schmidt. And to the team at Odyssey, J.D. Crowley, Rob Morandi, Craig Cox, Eric Donnelly, Matt Casey, Casey Klauser, Maura Curran, Josephina Francis, Kurt Courtney, and Hilary Schuff.
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