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Frank Cappello: [00:00:00] Hello, and welcome to Lever Time. I'm Lever Producer Frank Capello, filling in for David Sirota.

On today's episode, we'll be talking about everyone's favorite cryptocurrency fraudster, Sam Bankman Freed. Two weeks ago, a federal jury in New York found Bankman Freed guilty of seven counts of fraud and conspiracy related to the collapse of his cryptocurrency exchange, FTX including stealing as much as 10 billion from FTX's customers and investors, according to prosecutors.

For today's interview, I spoke with cryptocurrency critic Molly White, who closely covered the trial and helps break down what the conviction could mean for the broader cryptocurrency industry.

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right, we're going to jump right into today's main story about the trial and conviction of Sam Bankman Fried, but first, a quick refresher of how we got here.

the story revolves around Bankman Fried's cryptocurrency exchange, FTX. You may remember FTX from those 2022 Super Bowl ads featuring football player Tom Brady and comedian Larry David, where they promoted FTX as the premier exchange to buy and sell cryptocurrency.

Separate from FTX was a company called Alameda Research, which has been described as a sort of crypto hedge fund, and was also founded by Sam Bankman Freed

last November it was reported that a significant portion of Alameda Research's assets Consisted of a crypto token created by FTX, which was the first indication that both companies may have been mishandling customer assets. The report prompted a sell off of that crypto token, which abruptly led to the collapse and [00:02:00] bankruptcy of FTX and the resignation of then CEO Bankman Freed.

A few days later, the Wall Street Journal reported that FTX had been lending Alameda Research billions of dollars of customer assets to fund Alameda Research's risky investments.

This led to Bankman Freed being arrested in December of 2022 and charged with defrauding investors. Flash forward almost one year later, and a New York federal jury has found Bankman Freed guilty of seven counts of fraud and conspiracy. Bankman Freed will most likely appeal the verdict.

So for today's interview, I was joined by researcher, software engineer, and prominent critic of the cryptocurrency industry.

Molly White, Molly covered the Bankman free trial very closely and helps break down the implications of this high profile crypto case, including what the ramifications may be for the broader industry and where Congress is at in regulating the wild, wild west of crypto.

All right, I am very excited now to be joined by Molly White. Molly, thank you so much for [00:03:00] being here today.

Molly White: Thanks for having me.

Frank Cappello: Of course. so, before we get into the Sam Bankman Freed trial itself, all of the stuff with FTX, his crypto exchange, um, I want to start with your work for the audience.

So, you are a self proclaimed cryptocurrency critic, and you've written a lot on the topic. So, can you explain for our audience who may not know as much about the crypto industry, you know, other than it is, so called internet money, uh, why you are so skeptical of the industry writ large?

Molly White: Well, I started to pay attention to the industry a lot more closely in late 2021 or so, which was when there was this enormous bubble surrounding the whole crypto world where prices were really high and everyone was talking about it and everyone was wondering if they should be putting their money into crypto.

And it felt to me like the coverage was very one sided at that point. Where there was a lot of promotion happening [00:04:00] and a lot of media outlets and people on social media were just sort of repeating what the crypto industry was saying, which was at some times fairly shocking. You know, people were starting to talk about crypto retirement funds and, you know, putting a lot of money into crypto, even though it was this highly volatile asset and at the same time, I was noticing just on a.

pretty much daily basis examples of crypto companies that were getting hacked or, you know, all the money would go missing or they would just make off with the money in a complete fraud. And people were getting really hurt by this, I thought, but I didn't see much of that getting written about in the news.

And so I ended up just writing about it myself and just trying to highlight. You know quite how often these types of so called disasters happen in the crypto world where you would expect, you know, in a more traditional financial world for these to be very infrequent. Um, it was, it was not the case in the crypto [00:05:00] world.

Frank Cappello: What do you think was driving that dynamic? Was it just the fact that there was so much short term gain for these investors on this speculative asset that it was kind of just like the train was going and it was just hard to... Or at least the, the narrative train that we were getting from the media.

It was just like off and running. It was hard to keep up with it.

Molly White: To some extent, I think that may be true. Um, I also think that a lot of people were chasing the kinds of returns that people had once talked about getting with assets like, say, Bitcoin, which is, you know, the probably the most well known cryptocurrency. you know, there was a time where someone would, you know, mine a couple of Bitcoins or maybe buy some off a friend and then forget about them, and now they're millionaires.

And people got really excited. And they started to chase that type of thing by looking for new projects that would go to the moon, you know, or something like that. And in doing so, I think a lot of people ended up taking part in very risky projects where there was no... You know, [00:06:00] actual company there. There was no real utility.

It was just a hope that a token would go up in price and that, you know, a person could cash out at the right time. And a lot of those ended up being frauds, or they had poor security and they were hacked, or some combination of the two. and I think it was just this sort of mania about... Getting rich quick, that people, that led people to take massive chances in some cases, and I think in a lot of cases, not, they didn't necessarily understand the degree of risk that they were getting into.

Frank Cappello: mean, that's a tale as old as time. The get rich quick scheme. Um, all right. So now I want to turn to what you're here to talk about, which is the trial and now conviction of, uh, Sam Bankman Freed, who was the founder of the... Cryptocurrency Exchange, FTX. So after just a few hours of deliberation, a New York federal court this past Thursday convicted Sam Bankman Freed of all seven charges of fraud and conspiracy.

This follows, as I said, the collapse of FTX in twenty twenty two. And he has yet to been [00:07:00] sentenced, but his sentencing could result in over a hundred years in prison time. So you were following this trial very, very closely.

You were writing about it pretty much every day the trial was going on. What did you make of the verdict? Did it surprise you at all?

Molly White: The verdict did not surprise me. Um, I've been following this case pretty closely, you know, ever since FTX collapsed, and even to some extent before that. And I don't think there was much doubt around how this case was going to go, especially after we saw the indictment and then some of the You know, other reporting that had come out about what was happening there, um, including as a bankruptcy team has been rifling through the remnants of the exchange to try to uncover remaining assets and things like that.

We've, we've started to see a pretty clear picture of widespread fraud at the company, and so it was not a surprise when Sandbank and freed was found guilty of any or all of those charges.[00:08:00]

Frank Cappello: Do you feel like this was Sam Bankman Freed being made an example of or was he just such an egregious fraudster that he was the one that happened to get caught at this time?

Molly White: I think it's possible for both of those things to be true. Um, he was, I mean, the fraud at FTX and Alameda Research, which was this sort of sister trading firm, was quite egregious. They were siphoning customer funds from FTX to use for all kinds of things at Alameda Research, including venture investments, but also including things like real estate purchases.

And so it was very egregious. And completely outside of the bounds of what you're allowed to do with customer funds. But I also think that Sam Bankman Freed had become the face of the cryptocurrency industry in a major way. You know, he was speaking to Congress, and his face was in ads in big magazines.

And, you know, he was the

guy.

Frank Cappello: he sat on a stage with Bill Clinton and Tony Blair at [00:09:00] some point in shorts and flip flops. Yep.

Molly White: Yeah, so he, he was very much making himself out to be sort of the face of good crypto, trustworthy crypto, and when someone like that collapses in this huge, you know, fraud, I think it's tempting to make an example of them, especially when the public opinion of crypto regulation has been that it has not been, uh, taking place.

That, you know, there hasn't been enough enforcement, that crypto is this wild west. And so I think the government did want to make an example out of Sandbank Minfreed and say, no, we are taking this seriously.

Frank Cappello: A lot of the coverage that I've been reading about the trial has really been focusing in on Sam Bankman Freed, like, the character. I feel like a lot of the, the, the coverage I've been reading is like, not, not absolving him, but almost painting him as sort of like this This, this guy who was just in, in over his own head, you know, and he just didn't really know too much about what was going on.

And I think that does such a disservice to the actual content of the trial itself. [00:10:00] So as you were following the trial, was there anything that came to light, any revelations, anything that, um, was presented through discovery that surprised you as someone who has been covering the crypto industry for so long?

Molly White: A lot of it wasn't a surprise, just in the sense that Sam Beckman Freed went on this massive media tour shortly after he, after FTX collapsed. And so a lot of what he was saying was the same stuff he's been saying for a long time. But I think what was new is that we got to hear from some of the co conspirators at FTX.

There are three executives at FTX who have Pleaded guilty and who agreed to cooperate with the prosecution and they now have told their side of the story which For a long time, we were hearing Sam Behnken Fried's side of the story because he was talking to everyone who would listen, but the other co conspirators who were cooperating with the government were quite obviously keeping their mouths shut, as sort of a requirement of this cooperation.

And so, you know, I [00:11:00] think that it was definitely a new experience to get to hear their side of the story. Um, and hear them explain that, you know, it was Sam Ben Confreed personally directing a lot of this fraud and, you know, asking them to do things that were, that they knew were illegal.

Frank Cappello: Paul Brody, the head of blockchain at financial consulting firm EY, calls the outcome of the trial a wonderful moment for crypto. And Yatsu, the chairman of blockchain gaming company Animoca Brands, says it marks a new beginning for the industry. So is this a new start for the cryptocurrency industry or is, are we just still business as usual?

Molly White: We're business as usual. Um, you know, there has been this very strong attempt by the crypto industry to paint the Sam Bankman Freed trial and the FTX collapse as this sort of freak accident in crypto where there was this one bad apple who was, you know, giving everyone else a bad name. And I think that completely ignores the [00:12:00] reality of the situation, which is that many people were enabling Sam Bankman Freed.

There were other lenders and crypto firms that they were doing business with that were not. Properly vetting FTX or Elimeter research. It ignores the multiple criminal and civil trials and lawsuits that are underway at the moment regarding other frauds at other companies, involving very similar behavior in a lot of cases.

from what I can see, this FTX trial was just sort of the tip of the iceberg, and people have been very... eager to proclaim the conviction as the end of the FTX saga, but I think that just ignores reality, which is that there are five more charges that are still scheduled to be tried against Sam Bankman Freed.

There are many, many lawsuits against him that are being, you know, working their way through courts at this point. There's the bankruptcy, which involves its own lawsuits. I mean, The ripple effects [00:13:00] of the FTX collapse were huge, and I think the ripple effects of the lawsuit will also be huge. Um, because this was not an isolated, you know, bad actor who was just maliciously, on his own, engineering this fraud.

It was, you know, completely enabled by the rest of the industry, and completely par for the course for some of the behavior that happens in this industry.

Frank Cappello: You know, someone said to me at one point, we hear so much from the crypto industry from, you know, the web three industry that, you know, they want to, they want to democratize the internet, you know, they want to, they want to create a new place where everything is equal, where everything is fair, And then, someone said to me, it was like, No, they don't want to create a democratized internet. They want to create a new internet that they are the ones with the most power. once I started looking at it through that lens, a lot of this behavior started making a lot more sense.

Molly White: and I think actually it's really important to know that like a lot of the people who are making those claims are the same people who have massive outsized control [00:14:00] over what we know as the internet today. I mean, Andreessen Horowitz is one of the largest Web3 investors out there, and they in many ways formed the way that the internet today exists.

You know, they have backed a lot of these so called web 2 companies also. And so they now want to be the kings of this new domain. And they use the same language, which I think is hilarious, around, you know, democratizing the web and taking the power away from the wealthy few. And it's like, can you look at yourself?

Like, what do you think you're saying here?

Frank Cappello: That's actually, that's a great, uh, segue to my next question. So, you know, we keep hearing that crypto is, you know, it's the Wild West. I think you are, you've already said it once in this interview, um, due to its lack of, you know, federal regulation. So has this trial had any impact on Congress and whether or not they will be imposing any regulations on crypto, in the near future?

Molly White: Well, it's hard to draw, you know, a through line directly to the trial, but I do [00:15:00] think that Sam Bankman Fried's fall from grace will definitely impact the regulatory environment, partly because he was the one who was selling congresspeople on crypto, and so some of them now feel like they've been misled, there was regulation that Sam Hankman Freed was seen to be basically spearheading, which I think has Completely fallen through at this point given you all that has happened and I think people, you know, just seeing the scale of this fraud or realizing that okay Maybe the way things we you know, the way we have been doing things is not sufficient and we need to make sure there is more transparency or oversight or disclosures or something like that to try to prevent this from happening again.

Frank Cappello: Are there any lawmakers or advocacy groups that you would point to and say, you know, Oh, they're, they're trying to do crypto regulation if not necessarily correctly, like they're at least trying to do something about it.

Molly White: Honestly, not really.

Frank Cappello: [00:16:00] Oh, okay.

Molly White: Um. There are a lot of lawmakers who are very friendly to crypto and have been trying to introduce regulation that I think, uh, would enshrine a lot of these loopholes and sort of legitimize the industry, which I think is a terrible idea. There are also lawmakers who are leaning very hard into the whole, like, crypto enables terrorism and drugs and things like that, and are going almost too far in the ways that they want to criminalize.

The software itself, and things like that, which I think is also really not the right approach. where I have seen promising regulation is in, clarity, for one, around who actually holds Regulatory power over a lot of the industry, just the, the ongoing turf war between CFTC, the Securities Exchange Commission and the Commodities Futures Trading Commission has been difficult, um, because that has [00:17:00] You know, completely stalled a lot of enforcement and then there's also been regulation and discussion of regulation that would attempt to firewall crypto from traditional financial markets.

And I think that's critical as well, just because, you know, these collapses and the frauds and things like that. You know, will become only more dangerous if they become worked into the traditional financial system and, you know, the, the FTX collapse, thankfully, did not really have any ripple effects onto.

People who had nothing to do with crypto, who had decided to avoid crypto, you know, it's not like the stock market crashed along with it or anything like that. and I think it's critical that that remains the case, you know, that only people who are opting into this very risky, volatile asset class are then exposed to the negative repercussions when things go wrong.

Frank Cappello: Sure. I mean, the, the traditional financial markets are already volatile enough. I don't think we need to add any additional [00:18:00] volatility into them. so the failing fortunes of the crypto industry over the last two years have, you know, more or less coincided with, global inflation, like a light recession, a lot of economic hardship.

Do you do you think either of those things are intertwined at all? Was crypto bubble kind of burst around the same time? and does the failing of the crypto industry have any possibility? Larger implications on the wider economy.

Molly White: Um, yes, there was a strong relation, I think, between the more general economic downturn that we've seen and the popping of the crypto bubble, so to speak. advocates really like to describe Bitcoin and various other cryptocurrencies as being divorced from traditional financial markets.

But... History does not really support that narrative. You can, you know, plot the Bitcoin price chart against, you know, the traditional stock market and see that the swings tend to line up pretty [00:19:00] closely. And, you know, it's just in the case of crypto, they're often more dramatic swings. But when there is sort of an economic downturn, when there's inflation rates.

going up, you know, interest rates are going up, people tend to pull out of riskier asset classes. That's just like traditional economic knowledge. And so, you know, when people don't feel like they have spare cash to throw around, the first thing they're going to do is take it out of something like Bitcoin, or, you know, whatever.

some other crypto project. and that's just sort of how it works. And so, you know, that was strongly correlated, I think the, the downturn more broadly affected the crypto markets. I don't necessarily think it goes in the opposite direction, you know, despite all of the coverage of cryptocurrency and these claims of, you know, at one point they were saying, oh, there's like 3 trillion in the crypto world, which Is not accurate, but, you know, that was the number that was going around.

Despite those claims, the crypto world is very small compared to [00:20:00] traditional finance. And so, it's not really surprising, I think, that there just hasn't been that much spillover in the opposite direction. But I do think, like I said before, it's critical that we make sure that continues to be the case, even if the crypto market cap were to increase.

Frank Cappello: alright, and for my final question, I wanna, you know, maybe get a little more optimistic. you know, crypto and NFTs and the whole, all of these speculative assets that have sucked up so much of the conversation over the last few years are only a small part of Web3 and blockchain technology.

I know a little bit about this, but I don't know, but I'm glad to be able to speak to you about it. So is there anything, inherently in Web3 or blockchain technology separate from crypto that you are hopeful about, or that you, or that you wish wouldn't be, you know, catching such a bad rap because it is associated with the cryptocurrency industry?

Molly White: Well, when it comes to blockchains, I would say no, not particularly. Um, I don't find much in that industry to be very promising. There are some things that I think [00:21:00] Web3 advocates have tried to sort of subsume under the Web3 umbrella, even though they strongly predate Web3 and even blockchains entirely.

So things around, you know, Distributed computing, decentralization, things like that. I think there is interesting work happening there. some of the stuff that we're seeing around federated social networks and things like that, I think are very interesting. Um, although I think that as soon as you start to incorporate blockchains, things tend to get really bad really quickly.

but when, you know, when people are talking about web three in such a broad way that they're including those things, you know, I can see promise there, but I also. object to them being categorized as Web3.

Frank Cappello: All right. A skeptic through and through. Molly White is a researcher, software engineer, writer, and prominent critic of the cryptocurrency industry. Her newsletter is on Stubstack, and she's also the creator of Web3 is Going Just Great, which tracks events in cryptocurrency and [00:22:00] blockchain based technologies.

Molly, thank you so much for being here today.

Molly White: Thank you for having me.

That's it for today's show. As a reminder, our paid subscribers who get lever time premium get access to our regular bonus episodes If you want access to LeverTime Premium, just head over to LeverNews. com to become a supporting subscriber. When you do, you also get access to all of the Lever's premium content, including our weekly newsletters, live events, more in depth reporting. And that is all for just 8 a month, or 70 for the year.

Frank Cappello: One last favor, make sure to like, subscribe, and write a review for this podcast, Lever Time, on your favorite podcast app.

make sure to subscribe to our other podcasts, The Audit and Movies vs. Capitalism. And of course, check out all of the incredible reporting that our team has been doing over at LeverNews. com. Until next time, I'm Frank Capello.

Rock the boat. The Lever Time Podcast is a production of the Lever and the Lever Podcast Network. It's hosted by David Sirota. Our producer is me, Frank Capello, with help from Lever producer Jared Jackangmayer. [00:23:00]