Yes, Kevin McCarthy has been having a really, really bad week— but he’ll get over it and at least he’s not going to prison for decades like Sam Bankman Fried well might. Yesterday, before McCarthy was deposed, SBF showed up for the first day of his trial with a tame new haircut. Probably won’t do him much good in his fraud and money-laundering case. And he has a tough judge too, Lewis Kaplan.
Yesterday was the start of jury selection. Nothing to report on that and certainly not the kind of excitement to compete with Señor Trumpanzee’s civil fraud trial, at least not yet. Opening arguments began today "with prosecutors accusing the former cryptocurrency star of building his empire 'on lies' and living a lavish lifestyle while defrauding his customers... Prosecutor Thane Rehn: 'One year ago, it looked like Sam Bankman Fried was on top of the world. He ran a huge company called FTX. He lived in a $30m apartment in the Bahamas. He jetted around the world on private planes. He hung out with celebrities like Tom Brady and politicians like Bill Clinton' Rehn added: 'But all of that, all of it, was built on lies. Behind the curtain, Sam Bankman-Fried was not who he appeared to be. He was using his company, FTX, to commit fraud on a massive scale.' Rehn alleged that money from customer deposits was effectively going directly into Bankman-Fried’s pocket, claiming that their funds never made it into the FTX exchange and instead were funneled elsewhere without notice."
The prosecution’s first witness was Marc-Antoine Julliard, a commodities trader who became an FTX customer after hearing about it from a friend and looking into the company online. He recalled seeing FTX sponsoring Formula 1 racing along with ads featuring celebrity endorsers like model Gisele Bündchen. Julliard described believing at the time that Bankman-Fried was a good-faith operator and “the future face of the general crypto industry.”
When FTX fell into crisis last November, Julliard said he kept his deposits in the exchange after seeing Bankman-Fried’s reassuring tweets and positive messages. He changed his mind a day later, but it was already too late– he was unable to withdraw around $100,000 worth of investments that he’d left in FTX. The prosecution asked him whether he had ever been able to withdraw his funds.
“Never,” Julliard told jurors.
Adam Yedidia was the second and final witness to testify on Wednesday, and did so under an immunity order– meaning he couldn’t be charged based upon his testimony, so long as it was truthful. Yedidia said that he formerly worked for FTX and was a close friend of Bankman-Fried’s from university.
When Yedidia was employed at FTX last year, he told the court, he received a phone call from another developer at the company who told him that Alameda was using FTX customer profits to pay back its creditors. Yedidia testified that he resigned following the call. The prosecutor Danielle Sassoon, who questioned Yedidia, asked why he was appearing under an immunity order.
“I was concerned that, as a developer for FTX, I may have unwittingly written a code that contributed to a crime,” he said. Yedidia is set to testify again on Thursday.
Many members of Congress who took part in the orgy of bribery from SBF— over $100 million distributed to members of both parties— are too spooked to move on the crypto regulatory agenda. So far, no members of Congress have been arrested, indicted or anything. Most haven’t even returned the stolen funds. The scandal is too bipartisan.
Yesterday, though, a team of Politico reporters wrote that “The House is preparing to vote on landmark bills that would set up regulations blessed by the industry. At the same time, lobbyists are trying to fend off a push by Sen. Elizabeth Warren (D-MA) and a growing list of crypto skeptics who want to crack down on financial crimes that use digital currency. How it all shakes out may be impacted by Bankman-Fried’s trial, where Washington’s former go-to crypto magnate and a major source of campaign cash will fight charges that he orchestrated one of the largest financial frauds in U.S. history at the helm of his FTX exchange… ‘Sam Bankman-Fried’s trial will remind everyone in Congress about the risks that an unregulated crypto industry poses for all of our constituents, for our economy and for international stability,’ Warren said in an interview.”
But House Republicans, led by Patrick McHenry, the very crooked new acting speaker, chair of the House Financial Services Committee, “have approved bills that would set up a regulatory regime that digital asset firms have long sought. The bills would curb the reach of the Securities and Exchange Commission, an agency that’s facing off with the biggest exchanges and token providers in court. The proposals would also boost the growth of so-called stablecoins used in payments.” This is exactly what Bankman-Fried was paying off the members of Congress to do. In fact, the Politico reporters wrote that “In key respects, the end result of the House Republican legislation would resemble policy that Bankman-Fried had championed. The SEC would take a backseat to the Commodity Futures Trading Commission, a smaller agency that’s historically played less of a role in regulating consumer-facing financial products.”
The CFTC regulates agricultural commodities and, unlike the SEC, is expected to be easily tricked and bought off by the crypto industry. That’s why SBF and the rest of the industry was spreading around so many millions of dollars. McHenry, Bill Huizenga (R-MI), Tom Emmer (R-MN) and the other corrupt Republicans who wrote the "regulations" meant them to “weaken industry oversight rather than improve it.”
Republican lawmakers are trying to brush off the SBF baggage before House floor votes this fall, but some see a potential challenge ahead.
Rep. Bill Huizenga, a senior Michigan Republican who’s helping shepherd the bills, said he thinks more Democrats would be supporting the legislation if not for Bankman-Fried’s downfall.
“That flame burned pretty close and hot next to a number of them,” he said, referring to the millions of dollars Bankman-Fried spent to back Democrats. It “is not unexpected to have them step back from their enthusiasm.”
Rep. Jim Himes of Connecticut, among the few Democrats who support the House bills, said he warned crypto lobbyists last week that they have a “fundamental problem in this space.”
“I hear all these promises, but I say, ‘How is this going to change the neighborhood in St. Louis, or the state of Connecticut, or the United States?’” he said. “To the average member, [they see] $2 trillion lost over time.”
House Republicans argue that the failure of FTX should compel more lawmakers to back their legislation.
Rep. Andy Barr (R-KY), a senior member of the committee that drafted the bills, said Bankman-Fried is “exhibit A” for why Congress needs to act on the House legislation.
“Reminding everybody about the bad behavior of some market participants will help us make the case for why some basic rules of the road are necessary,” said Rep. Dusty Johnson (R-SD), who chairs a digital asset subcommittee.
But in the Senate, crypto critics are on the rise and betting that a re-tread of the FTX and Bankman-Fried calamity will help grow their ranks.
Warren has a bipartisan group of 15 senators on her bill that would impose new anti-money laundering rules on digital asset trading. She said the trial will strengthen the case for her legislation.
“The deep skepticism about crypto is even deeper with his arrest,” Senate Banking Chair Sherrod Brown (D-OH) said in an interview. “All of these things contribute to the deep skepticism that the public has about crypto and how some pretty unscrupulous people are using it for some very unscrupulous purposes.”
Have you heard about Michael Lewis’ new book about SBF, Going Infinite? The book came out yesterday, the same day jury selection began. I gather when Lewis started, he was planning a paean to SBF’s greatness. Somewhere along the way… full stop. Lewis had incredible access to SBF and his cronies. He was there for all of it… but didn’t understand what was happening around him. Jennifer Szalai reviewed the book for the NY Times.
“As late as the final days of October 2022,” he writes, “you could have ransacked the jungle huts until you were blue in the face and have had not the faintest sense that anything was amiss.”
“Not the faintest sense?” That April, Bankman-Fried had given an infamous interview to Bloomberg’s Matt Levine in which he all but admitted that the cryptocurrency industry— the linchpin of the Bankman-Fried edifice— was like a Ponzi scheme. (Zeke Faux’s recent book Number Go Up offers a shrewdly skeptical view of crypto where Going Infinite is stubbornly credulous.) Not to mention that a crypto crash had already begun earlier that year.
But Bankman Fried had long been positioning himself as a different kind of crypto guy. He was a vegan, because he cared about the earth; he slept on a beanbag chair by his desk, because he didn’t care about his personal comfort. In 2017, he helped found a crypto trading firm, Alameda Research, and two years later built a crypto futures exchange, FTX, because he was an effective altruist whose goal was to make enormous amounts of money to donate to worthy causes.
“Infinity dollars” was in fact how Bankman-Fried put it to Lewis at their first meeting, explaining how much money he needed to address existential risks, like an apocalypse started by artificial intelligence. Lewis found the discrepancy between Bankman-Fried’s grand ambitions and disheveled self-presentation intriguing. He was far from alone. The incessant video game-playing, the furtive lack of eye contact, the unkempt hair— it all became part of the billionaire’s brand, which was burnished by his supposed do-gooder intentions. While Lewis was shadowing Bankman-Fried, Bankman-Fried also seemed to be on an endless publicity tour, eager to sing to any journalist who was willing to listen.
And Lewis listened. He offers the quirky portrait that is standard fare in his books. We learn that Bankman-Fried is someone who is unmoved by art and disdainful of Shakespeare (“unrealistic characters, illogical plots and obvious endings”). He cares a lot about “humanity” but little about individual humans (“I guess I should care the same amount about everyone”). He has little patience with the concept of responsibility (“fault is just a construct of human society”). He allowed Lewis to read his “private writings,” in which he complained about being consistently misunderstood. “No one is curious,” a morose Bankman-Fried wrote while working at the quantitative trading firm Jane Street after college. “No one cares, not really, about the self I see.”
Given the financial wreckage in FTX’s wake, this kind of self-pity might sound like the world’s tiniest violin. Bankman-Fried is given ample space in this book to air his pet theories about what led to the collapse, while insisting that his intentions were always pure. Occasionally, Lewis will hand the mic to a devastated subordinate who finds Bankman-Fried’s excuses hard to swallow. “He made me try to believe it was an accounting error,” says one woman. He “let me go out and lie” for him, says another former employee. Lewis, for his part, says he kept trying to get to the bottom of what happened— though his endless interviews with Bankman-Fried seemed to yield diminishing returns: “I’d poke and prod and always come away with the sense that I’d learned less than I need to know.”
But this isn’t a book of investigative journalism; this is Lewis’s account of being a fly on the wall— a perspective that’s all well and good when your subject isn’t a billionaire savant who is charged with defrauding people who trusted him. Lewis seems so attached to the protagonist of his narrative that he takes an awful lot in stride. He tells us that Bankman-Fried is so worried about the threat to democracy posed by Donald Trump that he was planning to give the Republican Senate minority leader Mitch McConnell “$15-$30 million” to “defeat the Trumpier candidates in the U.S. Senate races.” Thirty million? To Mitch McConnell? To save democracy? (Bankman-Fried also said that he was told that Trump might be willing to sit out the next election for $5 billion.)
Lewis ends his story by describing how Bankman-Fried’s parents were so fearful for their security that they purchased a German shepherd named Sandor, who had been trained to kill on command when given the correct instructions in German. The parents had learned the commands, but Sam had not. “So when Sam was in a room with the dog, it always felt as if some accident was waiting to happen,” Lewis writes. “It would have been very Sam Bankman-Fried to have been eaten by his own guard dog.”
