#1951 - Coffeezilla

Nice to meet you, man.

Hey, thanks a lot.

I appreciate what you do. What you do is a very valuable service because you go so deep on some of these scammers. It's like, it's so important because there's so many people that just, they don't really understand what's going. Like the FTX thing, for example, the best one, because I was so in the dark about this thing, I was like, what is, like, what are they doing? Try to break it down for us. First of all, it's a crypto exchange, right? So how does that work?

So the first question is, when you learn about crypto, you're like, it's this magic Internet money magic. How do you get some of that, how do you get some of that magic Internet money? Well, you have to go somewhere to buy it. And so it's a crypto exchange is where you kind of go, you put your fiat on your dollars or whatever, euros or whatever, and you put it into this crypto exchange. They have a bank, and they work with that bank. Then they exchange that money for some type of crypto token. There's a lot of different tokens out there.

Explain tokens, because I don't understand tokens. I know there's crypto and there's tokens. Like, what is the difference between the two?

Yeah, tokens, like, is the individual. You can think of currency, right? So it's like the individual. So bitcoin is, you have bitcoin, then it's one of the cryptocurrencies. You have ethereum, you have dogecoin, you have safemoon, you have FTT, which is what FTX was using as their native token. So a lot of these guys, you'll start a crypto exchange, and then you'll launch your own token that people can invest in, sort of like they're investing almost in your crypto exchange. And so that was actually one of the ways that FTX really perpetuated their fraud. I can break it down. How much do you know about the FTX?

Let's break it down for people that don't know about. So let's do it.

So FTX was this crypto exchange located out in the Bahamas, which is a great place to put your.

Why do they do it in the Bahamas?

Because it's unregulated. So the problem with doing stuff in the United States or something like Europe or something like that, is you are subject to all these regulations which require you to be a little more careful.

Oh, those are pesky.

Yeah, they're.

That.

The famous example is like, coinbase is in America, and they have to file all these forms. They're a regulated entity. They're a publicly traded company, so they have to report everything. So if you're offshore, you can kind of not do any of that. You can play fast and loose. And for some people, they think that's better. They can offer, let's say, like 100 x leverage. Like, you have a dollar, I'll let you trade with $100. And that's going to be, like, one reason you come to my offshore exchange. I can offer you more leverage than the guys who are like Coinbase or something like that.

Right?

So FTX launches. Let's start with who Sam Bankman Fried is. He's kind of at the center of all of this. Sam Bankman Fried is this guy who comes, he's the son of two Harvard lawyers. Then he comes up prep school. He's kind of like built for success. Right? He goes to MIT, goes to Jane street as this quantitative trader, and then he goes into the crypto space and he launches.

Sorry, very young. Right? How old is he?

I think he is young. Maybe you can look that up, Jamie.

31.

31. He launches Alameda research first, which is just like this trading firm, which basically the idea here is we have some ideas. We're going to raise a little bit of money and we're going to do these trades that are profitable in crypto. So the way he first made his money was he did something where he bought bitcoin in the US and then he sold it on these japanese exchanges where it was worth more. So he was arbitraging this difference in prices. And then after he made his money that way, he launches FTX in 2019. And that's a crypto platform where, honestly, you can make a lot more money than just with a trading firm. So FTX quickly skyrockets in popularity. They bring on people like Tom Brady to promote it, Larry David in the Super bowl, they kind of get buy in from all these big sort of names. And also reputable people like Blackrock, Sequoia Capital, they all invest in this guy. Kevin O'Leary famously promoted it for like $18 million.

They gave him $18 million to promote it.

He says he lost it on the platform. He says the 18 million was on FTX or whatever, and he never got a dollar out of it, but that was what the deal was for. So they were paying everybody to promote this FTX crypto exchange. And the idea was, this is the next big thing, right? And this is where you're going to make money. There was a lot of fear of missing out or fomo in the markets at the time. Everyone thought, oh, cryptos, you have to get in now, right? Because if you get in now, you're going to make some money. And so people invested in FTX thinking that this is going to be a safe platform. This kid is smarter than everyone else. He's the son of Harvard lawyers. We just sort of can't lose. And nobody paid attention to some of the red flags that were going on until ultimately it was too late. It turns out he was pilfering FTX, the customer deposits, and was using it in Alameda research, which was his trading firm, to try to make extra money, and he lost it.

And so this is all because it's unregulated. Like, if he was doing this, Coinbase can't do this. Is that correct?

Yeah. Coinbase is much more heavily scrutinized. They actually have to file with the SEC. They have to say what they have, where they're putting their money. They're subject to more regulation about how they take care of customer deposits. One of the big things with FTX was they told people, hey, you put your money with us, we're not going to touch it, we're not going to move it. That's what FTX said in their terms of service. So one of the really big problems was they actually weren't doing that, but nobody knew because nobody had a look at their books, like it was very opaque. Nobody knew what was going on behind the scenes. So even though they said, we're not going to touch your money, as soon as you deposited bitcoin, I mean, I talked to some of the insiders at Alameda. They said they had this backdoor system to where they could see you, Joe, deposit a bitcoin on FTX, they could grab that bitcoin and start trading with it immediately. Even though they were never supposed to be able to touch your money. Obviously, that was the whole point. It's like, you deposit with us, we're not going to do anything with your money. It's your money. It's almost like a bank. Like you deposit with a bank, your bank isn't supposed to go ahead and take your money and go start trading with it, unless obviously we have FDIC insurance, stuff like that. But they didn't have that. They just take your money, go trade with it, and that's where the disaster started.

I really enjoyed you catching him on Twitter spaces. I really enjoyed that I listened to that whole thing because before that, you have this guy who's this wiz kid who you listen to him talk. He has an answer for everything. He's so articulate, he's so knowledgeable. Like, I listened to previous interviews before he got busted. And then when you have him on, there's a lot of. I wasn't aware. I'm not sure. I'm not aware of that. I don't know. There was all this hemming and hawn and a lot of ums and Oz, and you just kept on him. It was amazing that he, first of all, it was amazing that he felt like he could do something like that. Like, why would he publicly communicate?

This is why it's so interesting to me to look at fraud. This is why it fascinates me as well as I think it's an important thing to expose. But I'm interested in the characters who perpetuate fraud because they're such interesting psychological case studies. Sam Bankman fried, you could probably write a whole book about the fact that this guy, he got away with lying so long and perpetuating this image of himself as this generous billionaire. He's sort of the next Warren Buffett, that when everything goes wrong, he thinks he can reestablish control because he's so smart, he is such a good liar, that he's like, I can just lie my way out of it. So I think that's why he ultimately talked. His idea was, if I lied my way into it, I can sort of lie my way out of it. And this is what he did prior to this. I'd interviewed him twice before, and I had kind of gotten hamstrung with the, like, he's just so good at dodging stuff.

Did you interview him before the scandal?

No, not before the scandal.

So it's like, as it was going.

Down, as it was going down, he goes on all these Twitter spaces. He's doing interviews with everybody. I ask him, and he doesn't want to talk to me, but he's going on these Twitter spaces. So I was tracking when he'd go on a Twitter space, and I would contact the people ahead of time and said, hey, at the end, when you're ready for this thing to go down, because I know as soon as I get on, it's going to end pretty quickly after I said, let me on. Let me ask him some real hard questions, because all these guys are, you know, we appreciate your transparency kind of kissing up a little bit. But I was just like, somebody has to ask him some real questions. So I had two prior little Twitter space interactions with him, and he kept getting away with the fact that he blamed all the wrongdoing of FTX on Alameda research. And he said, I don't control Alameda research. Even though he was the owner, he's no longer the CEO. As of 2020, he hands it to this girl he actually had a relationship with, Caroline Ellison, right? And she supposedly controlled it. He said, she did everything. I don't have access to the book. Like, I basically knew nothing. So anytime you'd call him out on an issue, you'd say, where's the money? He goes, well, I don't know. It's gone. It's Alameda research. Ask Alameda. So by the third interview, I'd