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Reading Time: 7 minutesSam Bankman-Fried’s Weird Interview With George Stephanopoulos Is Back to Haunt Him, After his companies blew up, Sam Bankman-Fried explained himself to George Stephanopoulos. The interview is back to haunt him., Sam Bankman-Fried’s weird Good Morning Amer
This is part of MediaDownloader’s daily coverage of the intricacies and intrigues of the Sam Bankman-Fried trial, from the consequential to the absurd. Sign up for the MediaDownloaderst to get our latest updates on the trial and the state of the tech industry—and the rest of the day’s top stories—and support our work when you join MediaDownloader Plus.
Sam Bankman-Fried may be paying for that monthslong media tour he embarked upon late last year following the collapse of his crypto exchange FTX—you know, when he kept doing interviews, posting Twitter threads, and explaining himself on Substack before and after he was arrested on fraud and other charges, having been accused of misappropriating billions of dollars belonging to FTX customers.
For starters, throughout the proceedings of United States v. Samuel Bankman-Fried, the prosecution has frequently displayed SBF’s notorious, since-deleted tweets from the November week it all fell down: ‘FTX is fine. Assets are fine,’ and ‘we don’t invest client assets (even in Treasuries).’ Those assets were not fine, and FTX allegedly did invest clients’ assets after funneling them through its sister hedge fund, Alameda Research, for SBF to apparently splurge ’em wherever he wanted. But on Thursday, when former FTX general counsel Can Sun testified on the stand, still another damning artifact of that era made an appearance: Bankman-Fried’s late-2022 interview from the Bahamas with anchor George Stephanopoulos, aired on Good Morning America.
To understand the significance, let’s cover what Sun did, and what he told the jury on Thursday. Sun joined FTX International in August 2021, where he weighed in on everything from licensing to fundraising to cross-company agreements. Such a wide berth naturally encompassed the state of FTX’s fat pot of customer deposits—although, Sun claimed, he hadn’t a clue for the longest time about what FTX was really doing with that cash. He said he ‘never approved’ any of FTX’s automatic fiat transfers to Alameda and that, whenever he discussed FTX’s customer accounts with SBF, the CEO promised they were ‘safeguarded’ and ‘segregated’ from FTX’s proprietary funds (referring to the capital used for day-to-day operations, such as payroll). Sun’s naïvety was compounded by SBF’s relentless public messaging: The public face of FTX said the same thing to his Twitter followers, to members of Congress, and to regulators: that customer assets were ‘safeguarded’ and separate. And, because Sun didn’t himself have access to FTX’s wallets or balance sheets, he’d taken it on faith that money was flowing as it should have been—something he likewise told government regulators and FTX customers whenever he dealt with their inquiries.
It wasn’t just that SBF said one thing and did another, Sun explained, but that the CEO literally rode that disparity to the bank. Bankman-Fried, he said, played a close role shaping FTX’s individual ‘Key Principles’ guidelines for both regulators and investors; the guidelines for investors noted that the business ‘segregates customer assets from its own assets across our platforms.’ According to both Sun and the Securities and Exchange Commission’s civil suit against Bankman-Fried, FTX not only published those principles on its website but specifically provided them to investors happy to unload millions upon the young firm, not least for its diligently stated security measures. The three words SBF repeated over and over, to Sun and to others, were safeguarded, segregated, and protected; because of this, Sun testified, he had no reason to believe the customer funds were actually being commingled with the proprietary assets.
More important, though, was the fact that Can Sun helped to complete the writing of FTX’s terms of service. The company already had such terms when Sun joined in mid-2021, but they were only ’80 to 90 percent completed,’ Sun said—so he assisted by finishing and signing off on the whole thing. The additions needed to be made, he explained, because FTX was seeking a license in the Bahamas, and the C-suite wished to assure the island nation it was obeying local regulations. Sun started on this task right when he joined the company, and Bankman-Fried approved and published the updates by May 2022.
What did these terms of service, past and present, say about customer assets? The government’s attorneys showed some pages from the terms of service to the jury, highlighting a provision regarding users’ assets. ‘Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading,’ the rules read in part. ‘None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading. … You control the Digital Assets held in your account.’
Look, I’m not a lawyer, but all that reads pretty clearly to me. The prosecution also addressed the spot and margin trading section as it applied to users who did opt in to that program—that is, to having some of their deposits cover for other customers in a pinch. That section spelled out how ‘under certain market conditions, it may become difficult or impossible to liquidate a position. … In such an event, our backstop liquidity provider’—all but calling out Alameda Research by name—’may come into play, but there is no assurance or guarantee’ that a humble spot trader might not lose it all.
As SBF’s lawyers might say, fair enough. (Here’s a good explanation from Timothy B. Lee in MediaDownloader on how margin trading on a crypto exchange should work.) Still, Sun made sure to clarify, there was no change in FTX’s terms for customer deposits before and after Sun’s intervention. In other words, the promised conditions for FTX’s non-margin traders remained what it was—a legally established guarantee not to go blowing your customer accounts on, say, a private firm run by a guy who could introduce SBF to countless celebrities. Anyway, much like with the ‘Key Principles,’ SBF personally sent the Sun-updated terms of service to important players, including Elise Knaus, legal operations manager at the asset management firm Sculptor Capital Management. Deputy general counsel Adrian Guye had at one point done the same with another document displayed to the jury titled ‘Safeguarding of Assets & Digital Token Management Policy,’ which Sun had approved and which—you’ll never guess—promised that the exchange’s Bahamian subsidiary, FTX Digital Markets, would ‘appropriately account for the difference between its own assets and its customers’ assets.’ It would also ensure that ‘all third-party providers will be aware that customer assets do not represent assets of’ FTX Digital Markets. Oops!
Even Can Sun himself, he claimed, was kept in the dark about how FTX really used its money, both proprietary and not. He testified that he only learned of Alameda’s North Dimension account (without learning details of its FTX connection) in spring 2022, and that he only realized that Alameda had privileged access to FTX by August 2022, because of its exemption from the automated liquidation procedures previously described in the trial by Adam Yedidia. That last revelation left Sun ‘shocked,’ he stated, and he proposed that Alameda’s ‘no-liquidation mechanism’—which, remember, allowed it to essential hoover up unlimited money from FTX—instead become a ‘delayed-liquidation mechanism’ that would be disclosed to investors/regulators/customers as a function of Alameda’s market-making role. Ultimately, however, the idea was never implemented. (And it wasn’t until a later conversation with Nishad Singh that Sun came to understand how the no-liquidation policy was intended as a means for Alameda to tap essentially unlimited money from FTX. At first, Sun had been shocked that any FTX customer had advantages over another, which also went against all of SBF’s public statements.)
The liquidation shock was nothing compared with what he felt on Nov. 7, 2022, Sun said. On that date, he was ‘asked to join a call’ with Apollo Capital, requesting an investment from the firm in order ‘to help solve a liquidity problem that FTX had for customer withdrawals.’ Apollo asked for financials, so Sun requested the relevant documents from FTX execs—and the sheet he received ‘showed that FTX was short $7 billion to satisfy customer withdrawals.’ Sun then interrogated Nishad Singh and SBF about what the heck was going on; the former ‘looked like his soul had been plugged away from him,’ Sun said. SBF only responded after sending the spreadsheet anyway, after which Apollo requested a ‘legal justification’ for the $7 billion hole and Alameda’s role. Sun and Bankman-Fried went on a walk to discuss the matter, during which Sun told his boss that while ‘there were theoretical arguments’ SBF could employ to explain this freewheeling accounting, ‘none of them was supported by the facts,’ because ‘there was no legal justification for the funds being missing and taken by Alameda.’ Despite that, Sun did expound on some of those ‘theoretical arguments,’ telling the jury he brought up a ‘dormancy fee’ levied on long-absent customers as well as the internal borrow-lending network enabled for the margin traders—neither of which was too convincing. SBF acknowledged all of this during the walk, Sun said, with hasty, clipped interjections of ‘yup, yup.’
Now that we’ve likewise walked through all this, let’s get back to that Good Morning America interview, which was played to the courtroom. Holding a physical copy of the relevant documents in his hands, host George Stephanopoulos grilled SBF: ‘As you know, the FTX terms of service tell the people who signed up, ‘None of the Digital Assets in your Account are the Property of, or may be loaned to, FTX Trading.’ But you’re saying that happened.’
‘My understanding is that a few things happened,’ SBF responded after pausing to reach deep into his memory. ‘The first is there is a margin-trading facility on FTX by which users can lend out funds, by which other users borrow funds, and so there are explicit cases where there is borrow-lending.’ Hey, the whole room appeared to be thinking, that’s one of the bad arguments Can Sun handed to him!
Stephanopoulos then asked, ‘If Alameda is borrowing the money that belongs to FTX depositors, that’s a bright red line, isn’t it?’ ‘There are a lot of cases where that’s actually explicitly part of the programs and that are happening at the very beginning,’ SBF replied. ‘But not here,’ Stephanopoulos cut in. ‘It says that the digital assets may not be loaned to FTX Trading.’
‘There existed a borrow-lending facility on FTX,’ Sam Bankman-Fried insisted. ‘And I think that’s probably covered, I don’t remember exactly where, but somewhere in the terms of service.’ Stephanopoulos: ‘But they’d have to approve of that. They’re saying they didn’t approve of it here—they’re saying you approved of it.’
After the clip ended, Assistant U.S. Attorney Danielle Sassoon turned back to Can Sun: ‘Was the borrow-lend facility a potential justification that you had discussed with the defendant on Nov. 7, 2022?’
‘Yes,’ said Sun.
‘And what had you said to the defendant about that?’
‘It was not supported by the facts.’
‘And what was his response?’
‘He acknowledged it.’
Sassoon then looked to Judge Lewis Kaplan. ‘No further questions, Your Honor.’
Ref: slate
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