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One thing, um, about FTX that's, like, really particular is that it's apparently very uncommon for most of the, like, creditor claims to be individual people who were customers of a company.

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FTX was just, like, hundreds of thousands of people. You know, instead of getting their assets returned in, like, in the form that they were holding them, they were getting them back, uh, in dollar values.

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And in FTX's case, this was pegged to, like, the time of the bankruptcy filing, which was when obviously the market was at its lowest point.

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So it's like parts of the company, its cryptocurrency assets, its venture assets, like, all of these pieces. And then the other category is actually just fees.

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And not just Sullivan & Cromwell, but other professional firms that are involved in the bankruptcy.

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Because, like, when we talk about the almost one billion dollar figure, it's not-- that's not all going to Sullivan & Cromwell.

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Um, I think they're the, like, big name that's, that's become associated with, uh, high fees, but, like, there are a lot of different firms that are involved.

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There's a conflicts council, there's, um, investigatory firms. There are all kinds of stuff. Bankruptcy can't just be right, it has to seem right. Um, and I think this is really a case where, like, it didn't seem right.

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And so, you know, if you're somebody who's waiting to get your money back, it's-- and it's the bankruptcy team is saying, "We don't think you're gonna get your money back because this company is such a mess," and then you're looking at these fee statements, you can understand why somebody really starts to say, "Something is really wrong here."

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Welcome back to Bitcoin Season two. You remember the SBF-FTX crash and fallout story, but that is not really where it ends.

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The bankruptcy proceedings are ongoing, and it turns out maybe way more interesting than you realize.

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There is definitely a part two to this story, and I have two folks who worked on investigating the bankruptcy process on the show today, and I'll read a quote from one of their pieces.

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Quote, "All told, the cost of bankruptcy is expected to exceed one billion dollars. For some, it turns out bankruptcy can be astonishingly profitable." We're gonna dig into this. Welcome back. Let's kick it off.

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[upbeat music] Jonathan, Sophie, welcome to the show. Who, who are you guys? W-what do you do? Sophie, you wanna start with-- You start first? Sure. Uh, my name is Sophie.

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I'm a writer and an audio producer, um, and, uh, really excited to have been working with Jonathan on this very convoluted story. Yeah. And, uh, yeah, my name's Jonathan Jones.

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I am a reporter and producer for a radio show and podcast called Reveal. We air on public radio stations across the country, and obviously I also have a podcast.

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I failed to mention this before, but I started my career in public radio here in Oklahoma.

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So yeah, ten, fifteen years ago, ran the local news beat, but that's old lore that the audience is not [chuckles] they're probably not interested in. Um, this is a really interesting story.

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And you guys reach out to us because you're not really typically a crypto media, uh, outlet or a reporter, and so I actually-- And you got some interesting exclusive conversations with SBF.

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That might actually be a good place to, like, explain how we get hooked in here. Jonathan, how did you get involved in, in this story initially? Yeah.

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It was, uh, really random, and as you sort of noted, like, I don't cover-- I'm not a financial reporter. I don't cover crypto. Um, and I just got a call from a relative who was--

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He, he's from, uh, Palo Alto and sort of was, uh, having dinner with, uh, Sam Bankman-Fried's parents, Barbara Fried and Joe Bankman. Um, and he asked if he could, like, put us in touch. And so I said yes.

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Uh, and that be-- like, opened this sort of, uh, long dialogue about what had happened and I l-- you know, learning sort of what was out there, learning the story sort of that had been told, and also, like, trying to understand some of the claims that they were making.

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And so yeah, that's where we started. Yeah. And so Sophie, how did you get involved here? You produced this, but this is a really arcane, uh, crazy, multifaceted story. How, how do you find yourself involved?

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Um, I got a cold email from Jonathan [chuckles] um, saying, "I have a story that you're probably not gonna wanna work on." No. Um, yeah, I, I, I got an email from Jonathan, um, I think because the story,

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um, is so complicated because of the access, because, like, it was something that Reveal was already thinking about doing in more than a one-hour episode, so they knew that, um, they kind of wanted to bring on an additional producer to be really ambitious about this story.

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Um, so they reached out to me.

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Um, and I, I, I, I think I thought at the beginning, I work on this show, I produce this show called Shell Game, which is about AI, and so I kind of thought, like, "Oh, like AI, cryptocurrency," like, um, they're kind of part of-- They're both kind of Web3 ideas.

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Um, I, I sort of thought that maybe I was building a reputation for myself as a tech reporter, but I don't-- actually don't think that's what happened at all. Um, but yeah.

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But I will say, hold on, that when you do a story about crypto and bankruptcy, it is... It's not-- doesn't really lend itself to a narrative audio storytelling. And if you look at Sophie's work, like, that's [chuckles]

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She-- Like, it w-- she was just, uh, she does amazing work in that area, and so I-- that was why we, we reached out to her. Yeah. And at time of recording, there's two parts to a-- that are really well produced.

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Gotta hand it to you. Recommend people go listen to those. I'll put a link in the show description. And then an associated, I believe, Mother Jones article, which kinda, uh, explains a lot of the beats.

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Um, [clears throat] so you, Jonathan, started talking to SBF, and there's not a lot of people who ha- who had access to him while he is going through this, is it an appeal process?

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Is, is, is he-- He's in court, he's in jails and prisons. He hasn't been sentenced yet. Like, where do you wanna cut in here? 'Cause you started talking to him at some point.

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What were you-- What did you start talking to him about? Sure.

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So it was after he had been sentenced, um, and-The, the sort of like overarching claim that Barbara Fried, Sam's mother, was making to me initially, and is basically the basis of the appeal, is that, like, that the story was all wrong.

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We all got the story wrong. You had only heard one side of the story or an incomplete p-picture. That seemed implaus-implausible to me considering how much media coverage this story had received. Uh,

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but, you know, there was, there were, there were filings, there were academic-- there had been a lot of academic research. There was a lot of stuff in, in the, in the court filings that ke- made me look a little closer.

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Um, and then, um, so, uh, you know, through the parents, I just got this access to Sam Bankman-Fried, uh, over a period of about,

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I don't know, I s- it was a-- I started, like, talking to him in maybe October of, uh, last year, and then he ended up do- y- uh, talking on Tucker Carlson, and after that got transferred out of the prison.

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I don't know if the two were related, although, uh, I did lose access to him after that video appeared. Uh, so I haven't spoken, you know, to him since, since that time.

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And [clears throat] so purportedly, like, he want-- You know, he's always been a very forward guy in the media, in his political activism, and so he cares a lot about, uh, it seems even post-sentencing, cares a lot about the image.

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And, [clears throat] um, that is one part of the story. But

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I think the real interesting part is the, is the side that a lot of the people in my world of crypto and Bitcoin don't-- haven't followed, which is, like, how the bankruptcy process has gone.

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And there may be, like, another interesting s-- There's definitely another story here, which is that, uh, there are some-- there's a lot of the customers who are frustrated with the bankruptcy process and how it's handled.

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I don't know where we want to begin explaining. Like, maybe, like, how does bankruptcy work, [chuckles] if you can start with that, and then how did this bankruptcy begin?

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I mean, I will say, just to tie it back to Sam, is, like, you realize that there was this other story going on and that so much of this had nothing to do.

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He was out of the picture at the time that this bankruptcy had unfolded. And, you know, what made this bankruptcy so unique is, uh, I mean, there are a, a lot of things that make this bankruptcy really unique, right?

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You had this, like, apparently, like, very stable company, like, fall apart, like, within days, you know?

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And then you basically had this, um, [lip smack] this new, these new people come in, take over the company without absolutely any of the former leadership, you know, that had been involved.

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And then they have to do all this work, uh, to sort of rebuild the books and figure out where assets were and that sort of thing.

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And they pre-just presented a very different picture than what had been told by Sam Bankman-Fried.

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But then, like, I think what makes this bankruptcy r- interesting, probably from your listeners' perspective, and I mean, you had all of these customers from around the world who were, you know, trying to recover their, their, their assets and the- a-and they, you know, instead of getting their assets returned in, from the, like, in the form that they ha- were holding them, they were getting them back, uh, in dollar values.

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And in FTX's case, this was pegged to, like, the time of the bankruptcy filing, which was when obviously the market was at its lowest point.

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So you, you know, you, you don't-- they didn't get any of the rebound that had happened, you know.

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And that's-- So those were just-- Oh, and just the last thing is that then there was this parallel criminal case, and that is happening at the same time as this bankruptcy.

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And so they are, you know, they, they, they, they overlap, they link. I mean, we can talk more about that, sort of the other part of our story.

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Let's imagine I'm a, I'm a customer of, of FTX, and the- they go bankrupt, or at least November 22 happens, uh, new leadership comes in. Uh, what do I see? Do I get something in the mail?

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And then what do-- Like, w-walk me through, like, the first six months of figuring out how I get my money back, and maybe that'll be a good angle to understand what's happening over at the-- during the bankruptcy, uh, on the FTX side.

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I was just gonna say, actually, like, in, in response to your previous question about, like, how bankruptcy is supposed to go.

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Um, one of the things that was really helpful that somebody said to us who we interviewed, who's an expert, um, is that, like, bankruptcy is a negotiation that's mediated by a court.

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So it's like you have a company that can't pay, pay back its creditors. They're trying to figure out. There's obviously different types of bankruptcy. There are bankruptcies that are designed to keep a company alive.

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There are bankruptcies that are designed to wind down a company. That's something that also became a little bit controversial in this case. Um,

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but the b- the basic idea is that it's a negotiation between, like, on the one hand, getting creditors as much value back as possible, um, and the, on the other hand, figuring out, like, how potentially people's jobs can be saved within the company or, um, how, like, assets can be preserved.

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And so thinking about it as something that inherently has a little bit of a, like, push and pull, um, and then the v- like, the, the fact that this all takes place in court.

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Um, and so something that was, like, really fun for our reporting is that bankruptcy court, like, it's public record.

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We had these audio recordings, um, from within the court, so you get to actually hear how people are presenting these cases. You get to hear creditors coming in and complaining about how things are going.

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Um, and that was really, really valuable for us.

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Um-And the other thing that I think is, like, really important about bankruptcy is that, um, as Jonathan Lipson, this professor we talked to a lot for the piece, said, "It's supposed to have this public interest focus, too."

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Um, particularly in a case like FTX, where there is this alleged fraud that has happened at the company.

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It's supposed to be a way that you can figure out what went wrong so that you can prevent it from happening in the future. Um, and so I think, like, it's really...

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Like, looking at the bankruptcy, it's not just a question of, like, the individual people who were hurt in this case, which of course is really important, but it's also, like, societally, culturally, like, what can we take from this so that it doesn't happen again?

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As you start to look at it, like, the reason people have concerns is because we have these expectations that this system is supposed to be giving us these different things.

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It's supposed to be getting people back their money. It's also supposed to be getting us answers to questions that we have. Um, and I think this is a case where that definitely didn't happen for a lot of people.

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'Cause FTX, uh, it wasn't totally just bankrupt, I mean, in that they had zero money, because there was real enterprise value and investments they made.

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Like a, a large position in Anthropic, which, you know, crazy valuable company now. Um, Ledger X, like a futures exchange.

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Uh, I assume kind of with bankruptcies are figuring out what to do with these assets, and do you sell them? How do you-- Do you rope them into, like, paying back customers?

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Um, t-t-t-take me more into the world of, like, who takes over the operation of FTX during the bankruptcy, and, like, what happened and what were they, what were they doing in the months following the transition?

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So on the day that Sam Bankman-Fried signed over the company, he signed it over to this kind of outside, uh, restructuring expert named John Ray. Um, and they, uh... And then, like, hours later, they file for bankruptcy.

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And then from a customer's perspective, uh, if they weren't following the news at the time, uh, they would have received emails about the situation there.

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There then begins sort of a-- I mean, it-- there's a multiprocess. Ray hires a bunch of, uh, outside experts. Um, he's got, uh, a lead legal counsel. He's got forensic accountants. Um,

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you know, they're evaluating assets, trying to recover, figure out where things are. And I-- That with, with FTX was a particularly, I, I think, challenging moment.

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Um, also, as I'd mentioned earlier, they did not have any of the senior leadership sticking around.

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And then there's, like, a claims process, where, like, you have to, you know, kind of file and, and, and, and prove, you know, that you, uh, you have a certain amount of holdings.

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And there's a whole sorrie-- series of, uh, verification processes, you know, um, and that sort of, uh, part of it.

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And then it, you know, everything else, sort of how these things, like Sophie said, these negotiations, how the plans are and, you know, it, it, it goes through this bankruptcy court, which is providing some sort of oversight on the process.

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One thing, um, about FTX that's, like, really particular is that it's apparently very, um, very uncommon for most of the, like, creditor claims to be individual people who were customers of a company.

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One person we talked to who's, like, very involved in bankruptcy proceedings said that, like, if American Airlines goes bankrupt, like, most of the thing-- most of the people they have to pay back are, like, their suppliers, um, they're, like, kind of these big, like, corporate deals.

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Um, FTX was just, like, hundreds of thousands of people who, um, you know, some of whom had a lot of money on the exchange, some of whom had not a lot of money on the exchange. Um, and so-- And they're around the world.

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They're mostly not in the US. This is all happening in the US.

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Like, so it, it's a really, really complicated situation right from the get-go, with stakes that are, I think, really, really high for individual people, but there's so many of them.

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Um, and I think that's something that's, like, really particular to this story. So FTX did what-- The, the, the bankruptcy process was able to recover some assets.

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Can you go into, like, specifics on what some of those assets were? Like, what they were-- Like, they were sold, what they were used for, how those processes went? 'Cause there were a few different, um...

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Like, there's-- They had a decent amount of liquid assets they finally were able to track down. Like, what did that look like?

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There's the-- There's certain, like, cryptocurrencies that the exchange held, um, that they were able to sell, um, to kinda third parties, um, and kind of liquidate that.

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There was a venture portfolio, which you alluded to earlier, um, of things like Anthropic, which, um, the bankruptcy team didn't sell for a huge amount. That's another thing that they've been really criticized for.

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Um, but so they start to go through that portfolio. They, you know, they have to go through and be like, "Are these things worth anything?" Like, "Where can they go?"

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Um, they also started to look at whether parts of the company could be sold off. So, like, sort of individual parts of the business that, um, could be sort of cordoned off and sold to interested buyers.

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Um, and Ledger X becomes kind of the only major, uh, part of FTX that gets sold in the bankruptcy, but that's another place that they can kind of try to find value.

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So it's, like, parts of the company, it's cryptocurrency assets, it's venture assets, like, um, all of these pieces. Yeah.

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Jonathan, yeah, you got-- You'll have some more insight on that, Jonathan, um, 'cause I think a lot of people are like, well, they just, like, maybe sold off their giant position of, like, they had, like, their own exchange FTT token, I remember.

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Right. Yeah. And did they, do they have any Bitcoin or liquid Eth or staked assets? I mean- Yeah. Yeah. I mean, we're talking about... I mean, that's the whole thing about a crypto exchange, right?

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Is they have all of these, you know, hundreds of [chuckles] different cryp- tokens and coins, you know? And, um, and then they also have these, like, assets, you know, the venture capital assets.

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And so I think part of the, the, the process was sort of tracking down where all of these digital assets were.

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And of course, as we know, like, Alameda, Sam's trading firm, had this, like, outsized role in which they were then using sort of, um...

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They were able to, like, use some of the funds from FTX for, like, uh, to invest in, [chuckles] in different things. So you had to then track it down through that.

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And then also, I mean, the big thing, I mean, I think the big challenge was that-FTT, you know, if you remember the story, F-- like much of Alameda's balance sheet at the time was sort of made up of, of this FTX token FTT, and so when the market crashes,

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uh, so does the value, uh, that which is sort of what Alameda had as this, um, uh, you know, as its collateral.

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And if you can think about it, I mean, really s- I mean, what, what, what Sam Bankman-Fried and his advocates would argue is like they were at-- they had a cash, a cash flow shortage, and if they were just able enough time, they allege, they could like sell it off different places.

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You know, obviously the estate says like that wasn't a reality, uh, and that like, you know...

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I mean, what they would say is they, you know, they sold off these assets in public auctions and through other, uh, you know, sort of court-approved means and tried to recover as much value as they could so that they could then pay people back.

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There's a firm, Sullivan & Cromwell, who've been working with FTX as their, uh, I believe on retainer or their legal counsel for a lot of the time.

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And, uh, then if you weren't paying attention, you may not have noticed that they also kind of find themselves on the other side of the deal of, like, also helping, like, liquidate the company.

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I'm actually really confused about this. How do you want to try to explain this, Sophie or Jonathan? Like, like, [clears throat] I don't know anything about this firm.

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I don't know, I don't know, like, their role, but their name appears a lot over the past year. I think the way to start with it is just to understand that like... Okay, so Sullivan & Cromwell is this

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big Wall Street sort of law firm. It deals a lot with regulatory issues.

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That's like sort of, you know, m-much of its core business, and as, and as FTX is expanding, um, particularly in the US market, they want lawyers who know how to, like, navigate that world.

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And so in about twenty twenty-one, uh, they bring Sullivan & Cromwell, uh, on board to sort of handle a whole bunch of different regulatory matters.

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I believe the independent examiner's report said something like twenty matters that they were in-involved in, including this acquisition of this, you know, US regulated ex-futures exchange, Ledger X, but a, a whole other things like, uh, I think the Voyager Digital bid and stuff like that they were involved in.

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And so, you know, they just had been doing a lot of work for FTX prior to the collapse.

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And then on the-- they were then retained the week of the collapse by FTX to help like sort of contingency plan for bankru-- for like potential bankruptcy.

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So they play this really pivotal role that week when everything is happening like super fast, right?

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And then immediately after John Ray takes over the company, he then retains them sort of as the bankruptcy lead counsel, um, which has to still go through a process.

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But some of the concerns that were raised back in that time, you know, by like a group of bipartisan senators and that sort of thing was, you know, in bankruptcy, you really want people to be disinterested parties.

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You know, you really want them to not...

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And, and I think there was some concern that this law firm that had d-done-- There were just questions that had been raised by different folks, customers, and, you know, uh, these senators about w-- sort of what, what they, what work had they done before, what their, their role was during, and like wh-whether they should be appointed bankruptcy counsel.

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So that becomes sort of like one of the main issues early on in the bur-bankruptcy that, that emerges. And so, like, um, what were some of the, what, what were some of the customer criticisms?

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I believe, like, there were a couple customers who were, like, questioning the, like, there was an independent, uh, uh, an independent source who

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looks and tries to evaluate, like, Sullivan & Cromwell's, like, you know, neutrality in this. And there were some customers had, who, like, were skeptical of this. What were their, uh, like, questions about this?

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So I think, um, the-- I would say that there are like two kind of big categories, and one of them is the thing Jonathan was just talking about, which is this question of whether they can, uh, handle a bankruptcy when they were involved in the company before it went under.

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Um, and that question I think really comes out of, like, well, if part of the bankruptcy proceedings are about figuring out went wro-what went wrong, and you guys were involved in the company, you guys were overseeing, uh, evaluating some of the actions that were happening within the company while fraud was happening, like, why would you be able to handle that investigation?

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Um, or wouldn't your participation in the bankruptcy in some way hinder an investigation? So that's like one category of concern that people have. Um, and then the other category is actually just fees.

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Um, and so, uh, Lydia, who's one of the customers we talked to, um,

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extensively for this project, um, when she first started to look into it, like the thing she was looking at was she was just looking at all of their fee statements that had been filed.

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And not just Sullivan & Cromwell, but other professional firms that are involved in the bankruptcy.

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Um, because, like, when we talk about the almost one billion dollar, uh, figure, it's not, that's not all going to Sullivan & Cromwell. Yeah.

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Um, I think they're the, like, big name that's, that's become associated with, uh, high fees. But, like, there are a lot of different firms that are involved.

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There's a conflicts counsel, there's, um, investigatory firms. There are all kinds of stuff.

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So-But she starts, Lydia starts looking at fee statements, and she starts pulling the Sullivan & Cromwell fee statements and asking questions like, "Why is there this one lawyer who left the taxi meter running while he went into a meeting for hours?

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Um, why are people flying first class? Um, why are they booking hotel rooms, um, that are, you know, above the caliber that you're supposed to book, um, for this kind of thing?"

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And when I say the caliber that you're supposed to, uh, book, like, Lydia's research and her kind of contention that she ends up making in these, uh, objections that she files in bankruptcy court is really that there are these guidelines from the Department of Justice, um, about, like, how much you're supposed to spend.

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Like, similar to, like, any of us who have a job, like, when you expense something, um, I'm sure, like, your boss is like, "Well, yeah, you're not allowed to stay at a five-star hotel," [chuckles] like, um, stuff like that.

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So there are guidelines that exist, um, and Lydia was kind of combing through and saying, "Doesn't really look like they're following these guidelines. Like, isn't anybody going to prevent this?"

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Um, so I think the, the-- I wouldn't say that that's the majority of where the, like, expenses come from in this case. Like, it's not, it's not like leaving the meter running on the taxi

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is the main reason that this is a billion-dollar bankruptcy.

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Um, but I think, you know, if you're somebody who's waiting to get your money back, it's-- and it's the bankruptcy team is saying, "We don't think you're gonna get your money back, um, because this company is such a mess," and then you're looking at these fee statements, you can understand why somebody, uh, really starts to say, "Something is really wrong here."

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And I mean, and, and I think that part of the sort of build-up of these concerns, it does trace back to this sort...

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So in mega f- in mega financial collapses like Enron and WorldCom, an, an independent examiner is appointed early in the process to sort of look at various, you know, uh, issues to make sure that every- like, there's no issues.

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And in this case, like, that doesn't happen. The FTX estate opposes the appointment of the independent examiner. The judge, uh, signs off on it.

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It's then appealed, um, and eventually, the appeals court reverses, and then p- independent examiner is appointed. But, like, to some, it, like, comes way too late, and the, the scope is, like, like, limited.

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So, you know, ultimately, the independent examiner says, uh, they didn't-- it doesn't find any errors with sort of the appointment of Sullivan & Cromwell.

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But I think that that debate, which sort of also, you know, which plays out in court, but then, you know, as crypto does, also on social media, and all of these customers are following the proceedings.

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So you're seeing sort of some of these, like, arguments cropping up there, and that's-- And then, you know, this whole thing about, about the fees and sort of how much they're gonna be able to recover.

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This component of the story is almost [clears throat] you know, disconnected from crypto. It's just a general, um... Like, we're looking at how this, the state of how bankruptcies are handled in the United States.

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W- if, if this is, like, indicative that there is some s- uh, systemic problem with how obscured these processes are and, uh, um, just how much money these things do kind of wrap up and, uh, and, uh...

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'Cause this is a very, very profitable business. I mean, uh, you have, uh, some very big firms and, and giant moving parts of the state apparatus who come in and, uh, work on these things.

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What are your, like, reflections?

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Or maybe what would you, like, say to the average person, like, uh, like, h-how can they understand the justification for these or, or areas that they should continue to be scr-- they should be scrutinous of?

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I think the thing is that most bankruptcies that happen are, you know, uh, probably much more routine, in that they are restructuring and there's debt.

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But, like, with-- What makes FTX unique, like Enron or Mor-- are-- is, like, is that there was this allegation of, like, corporate misconduct. And so the stakes are a little bit higher in terms of oversight.

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Now, you know, I'm sure the FTX estate and the accountants and, and the folks that worked on this would say, "It was really hard to tr- to do what we were doing. You look at the books.

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You try to fi- figure out where the assets are, like, and the lack of due diligence that some of, that some of these investments were made at." And that costs money, and all of this costs money.

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Costs, you know, and I think John Ray once said, "Crime is expensive," and in that case, it was. But, you know, what I think you do want, and Sophie, I'd love to know what you think about this, is, like, you...

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So you do have an independent examiner, or you do have, uh, and hopefully you have a robust one in bankruptcies, or you have a fee examiner really feeling empowered.

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I mean, I will say that one thing that we benefited from so-- in our reporting was that there was, and to some degree, transparency in the hearings. Like, there were hearings that we could go through.

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We could hear these debates. Like, you were able, if you knew how to, to, like, file objections and speak up in court. That, but, but at the same time, like, I think some customers would really criticize the process.

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Considering the stakes, the nature, the money involved, the claims buyers, all these folks, like, it, it-- I just think that when you're do-dealing with those type of mega scandals and these type of issues, that the oversight really, uh, the more oversight, the better, I think, to protect the customer.

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Yeah, I think, um, something that, like, really stuck with me early on, um, Professor Lipson said this thing to us, and then he's quoting this, uh, judge, Judge Friendly, great name, um, who said, like, "Bankruptcy can't just be right.

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It has to seem right." Um, and I think this is really a case where, like, it didn't seem right. And so

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as we were reporting, it's like we kind of kept going through things, and it's like you, you look at this claim, and then you look at that claim. And

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even stuff that started to, like, as you look into it more, you're like, "No, you know, it kind of is fair for them to sell this thing off in this way.

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Like, it, there's not really anything necessarily nefarious about that." Um-It's very clear that it didn't seem right to people.

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Um, and there was enough kind of like obscurity around the decision-making process, um, that led to people having a lot of questions. And these are like, I mean, people really had like their life savings on the exchange.

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Um, and I think in particular, like something, something that's particular to cryptocurrency, um, is that it's a space that a lot of people who, for one reason or another, traditional finance system is not serving, turn to.

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Um, I think that was definitely true of Lydia. She was using the exchange sort of as a way to-- She's Italian originally. She lives in the UK. She wanted to...

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She's an artist, so she doesn't have a traditional retirement account. She wanted to put a like small nest egg of savings into the US stock market.

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And so to go from like euros to pounds to US dollars and do that through traditional banking is extremely prohibitively expensive. Cryptocurrency seemed like a really good option for her.

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Um, and so there, there's a lot of stories like that where you like see people who are kind of disenfranchised by the traditional financial system.

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Um, and I think like there's just a huge disempowerment that comes with like getting this notice in your email that's sort of like, well, this exchange that your like whole life's work is on went under, and now you have to like play by the rules of this like process that's like not even-- Like you-- Again, like the majority of people did not, who were customers of FTX, did not live in the US.

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So they're like, "Why do I have to deal with the US bankruptcy system? Like, that's not the, that's not the system I signed up for. I don't live there." Um, and I, I think the--

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I think everybody involved in this story had like a huge duty to, to be very transparent and to, and to just like over-communicate. Um, and, and that's, that's definitely not what happened. And it's- Especially-- Yeah.

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Just I, I mean, to Sophie's thing about, about the fees too, I mean, it, it's worth acknowledging when you've got a billion dollars, uh, you know, billions at stake,

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that like there is an industry that exists within bankruptcy, you know. So you have distressed claim buyers, and there's like, there is money to be made, which is also why there needs to be robust oversight.

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Let's talk about the state of the customers. Um, some reimbursements, as I can tell, have happened. But like what's the current state of customer reimbursement? Uh, who's got reimbursed? How much?

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What does it look like going forwards? Well [laughs] that depends on who you ask and how you calculate.

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Um, I think that-- So the, the figure that I think gets quoted the most is that like customers will be reimbursed a hundred and twenty percent. Um, but that figure is based on the dollarization of claims.

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Their dollar basis from the bottom of twenty-two, which all of us have blocked out of our minds who are in the industry. [laughs] Yeah. Um, yeah.

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So I, I think like, um, th- this is like the crux of what, uh, I think is the, probably the single biggest frustration, um, for a group of customers, um, who were impacted by this.

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Like, as Lydia put it to us, like the dollarization means that she will get back a third of what she originally put on the exchange. We've heard other figures from other people.

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Um, so people are getting-- I think the thing is that when the bankruptcy happened, a lot of people felt like that money wasn't coming back at all. It was just like, "Oh, I lost everything."

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And so then to get something back, uh, for a lot of people is a huge relief.

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Um, but I think for people who are looking at it like, "That was my crypto," like, uh, in, in Lydia's objections that she filed in bankruptcy court, um, she kind of points to the FTX terms of service, which end up being a big part of Sam's criminal trial as well.

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Um, and its terms of service say like, "Your crypto is your own. FTX doesn't own it."

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Um, and so she's using that claim in the bankruptcy court to say, "Okay, like if, if Sam is on trial in part because he said that the crypto is mine, and the company was actually doing something with that crypto they shouldn't have been, shouldn't it also be true that in the bankruptcy, the crypto is still mine, and I need the crypto back?"

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Um, and that's something that I think some of the most vocal critics of the bankruptcy have like really kind of come back to. Yeah. The, the- they're not getting their Bitcoin back in kind, if you will.

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Um, [clears throat] so- Which-- Oh, I guess we should say. Yeah. Like, because Bitcoin has completely skyrocketed back in value, um, and so if you look at the figures, like it, it is a huge difference.

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Um, like I also saw somebody tweeting at some point when the bankruptcy, um, sold off, uh, locked Solana, um, a bunch of locked Solana to a firm, and, um, there was like a creditor who was tweeting saying, "Well, can I just have my claim back in locked Solana instead of dollars?"

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[laughs] Um, and, and you also have like, this is something that has been really true about this story from the minute we started looking at it, I think.

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Um, it, it, it also is like really about like ideology and about like what types of institutions people trust.

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And I think if you are a like really dedicated crypto enthusiast, um, there's kind of just this like, well, crypto is obviously better, um, kind of feeling to it.

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Uh, and so I think you, you sort of see these camps forming, um, particularly playing out on, on spaces like crypto Twitter, um, where it's like, well, of course I would like prefer-- like I trust this, um, system a lot more.

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And, and so like being denied access to that, I think is like a, a huge frustration. What happens next? Like-The bankruptcy is, uh, is still break-- bankruptcy proceedings still going on.

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It sounds like customers are still -- Some customers are still sitting on their hands waiting to have further resolution. I don't know, like what happens next is my question.

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I mean, it's-- So, I mean, the bankruptcy plan has been approved. The recoveries, people who are filed claims are, are, are getting reimbursed.

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Um, and, you know, many of the-- m-many of FTX's customers ended up selling their claims, you know, uh, not waiting for the process to, like,

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unfold, but just, like, let's get some money back and probably invest it back in, in, in, in crypto, you know, which might not have-- might have been the right call, depending on the perspective. Um,

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and, you know, so I, I-- and they're gonna be winding down, uh, FTX and, and, and I think probably my guess, though I haven't heard them say this, is that they're probably read-- everyone's probably ready [chuckles] for this chapter to be closed.

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And then, of course, there is-- I think there i-are the larger questions, which I think will continue. And so, like, part of that next month, you know, Sam's legal team will be back in court.

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He will be making the claim that he didn't get a fair trial 'cause he wasn't able to present a complete picture of what happened. Um, and so, you know, depending on

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how the court rules, that could sort of open up, uh, these issues again. Mm-hmm.

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Um, and then, you know, uh, I think there is this Washington component, you know, which is now you've got a very pr-crypto-friendly, uh, administration. You've changed regulations in Washington.

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Uh, we know Sam Bankman-Fried is lobbying for a pardon, um, making the argument that this was all sort of a...

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I mean, he's, he's become very critical of sort of the way that the, uh, previous administration, uh, approached crypto.

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Um, and so I think that, you know, I think we're still asking ourselves, what did we, what did we learn about what happened? [chuckles] And, like, and we'll- I'm not sure.

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[laughs] And, you know, whether, whether customers are any more protected, you know, in-- when a future, um, when a future scandal happens like this. I-it's, it's funny, I... More questions than answers.

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Like, there's a lot of crypto Twitter lore, such as, like, one of the early co-founders, Sam Trabuco for Alameda, wherever, wherever did he go? Or like- Mm-hmm.

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There was this exchange, Sushi, Sushi Swap, which was, like, run by a pseudonymous, enigmatic person who many people suspect was Sam's alter ego.

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There's this legend of a giant, uh, cube of tungsten that the FTX office purchased and installed in their main room.

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There's so many, like-- The funny thing is, like, you guys specialize on this, like, I would say, the actual journalism part, the actual investigatory, uh, journalism on the, uh, bankruptcy, but there's all of these loose ends on the, uh, crypto Twitter lore speculation world.

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Where do you-- Do you guys think you'll spend more cycles on diving down this rabbit hole? This, uh, has, has new information come across since you've put out these, this, uh, this report?

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Um, I'm curious what the, what this looks like going forward for you two.

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A-as, a-as we sort of started out, I, I found it implausible with all the media attention that there were still things that were unanswered about FTX, and then here we are at the end [chuckles] saying, "Oh, there are all these interesting things."

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[chuckles] So, you know, maybe a future intrepid reporter will kind of get at some of these ver- the, these, these other questions.

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I mean, uh, I would just say for myself and probably for Sov, I mean, I think once you've entered this world, it's probably impossible to completely disengage.

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Um, so yeah, people have reached out about not necessarily FTX, but crypto in general. Um, and so yeah, we'll just have to s- I'll just have to see [chuckles] where the-- what the future holds.

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[laughs] I think I, I was, um, I was up in San Francisco, um, doing a reporting trip for this story, um, and I met up with a friend who lives there, and we were kind of, like, walking to dinner, and I was kinda talking about the story a little bit, and he was like, "Have you done a bunch of financial reporting before?"

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And I was like, "No, I've never done [chuckles] financial reporting before. It's not something I ever intended to do." And he was like, "Oh, 'cause you just used the term derivatives really casually in conversation."

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[chuckles] Um, and so I think there's, like, something about learning the world of a story and then being like, "Well, I don't want that to go to waste. Like, now I know about that.

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Um, I know more about the CFTC than I ever wanted to know." Um, so I think, uh, yeah, I think, I think we're probably gonna keep paying attention at the very least.

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I, I plan never to use derivatives in casual conversation. [laughs] You say that. You say that now. I mean, but, you know, just when you think you're getting out, it pulls you back in. There will be more bankruptcies.

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There's an infinite amount of scams yet to happen in crypto and probably other areas of tech. So I wish you both godspeed and best of luck as you navigate this wild world of increasingly gratuitous financial crimes.

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Thank you so much for [chuckles] coming on Bitcoin Scenes. So I really appreciate it. Um, where do, where, where do people head? Uh, the news story, Twitter, where do people find both of you?

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Yeah, I mean, the best place to go is to, to Reveal, um, and you can check out and listen to the two-part series.

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Um, and you can also go to Mother Jones to read the print article, and I just-- bring, bring a healthy dose of skepticism with you, and you can.

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