Jul 31, 2023

Sam Bankman-Fried continues to be in the spotlight ahead of his upcoming criminal trial, as the DOJ aims to send the disgraced FTX founder to jail ahead of his court date, on allegations that he has repeatedly tried to influence witness testimony.

Video transcript

Obviously we talked about at the beginning of the show, a lot of recent regulatory topics there. We're seeing a lot of move with the SEC here. What is your general uh viewpoint from the SEC? Finance and coin based on what's going on between those two entities and then the SEC itself. So the bin the Binance case and the coin based case are two very different kinds of cases. So let's just be clear about that, that one is much more salacious than the other one being the Binance case. And that's laid out fairly well. In the SEC complaint, the coin base case is meant to be, I think uh a walkthrough of crypto assets, what we see in the latest development from financial times uh is, and I'm just really going to quote Ryan Armstrong here is that they had said delist everything, but they weren't willing to prove that everything else was actually a security. So as a business model, what should Coinbase have done there? It doesn't audit to the general public either. So that's another challenge is that if the SEC is asking coin based to delist everything but Bitcoin but not giving the general public even notice of what it is that is so concerning about any particular asset that's a very tough stance to maintain. Um It's a very tough narrative posture for the sec. So not sure what the end game is going to be here uh For the SEC. I'm as curious as you are to see what happens next. I've got a question for you. I gotta take it. Z I gotta take it. Um So since you do focus on helping Web three and crypto companies um shape strategies around the current regulatory landscapes, it's got to be very, very complex. How do you think that this is going to translate over into NFTS or digital collectables? Because let's face it, those depending on how those are built, depending what type of smart contracts, utility. Um Anything that they're doing, they can, they're very, I guess ambiguous right now. I think you're absolutely right. I think that one of the challenges in terms of a narrative for the general population when it comes to NFTS is still a, an almost misunderstanding of what it is and the utility that it provides. And so I think anything that web three companies can do in articulating the diversity of the technology, what are the diversity of the use cases, the diversity of the utility, the diversity of the population using it that's really going to help put some meat, some flesh on the bones. So for the general public to understand it more past the crypto token here, crypto token there. What do those mean? I mean, what's your view? I mean, I know that like, obviously the jury is still out on this, right? But what's your view on whether or not the recent sort of sec crackdown is a direct response to the FTX implosion or if some of this stuff was uh in the works, uh significantly before last November. I'm just kind of curious as to whether or not you see it as again, a response or something that uh Gary's SEC has been uh building up for some time. I'm gonna give you the typical lawyer response, which is, it's a little of both, right? Like, um it's a little of both and you can see it actually in the way that the complaint was filed. Um The, it, you know, if you look at the coin based complaint, it seems a little rushed in terms of the analysis of every particular coin. However, CC did file the ripple case back in December of 2020 under Clayton, right? So this has been brewing in the SEC. Staff's mind for a long time. The timing was probably a little more rushed than maybe staff would be comfortable with, but it doesn't mean that this wasn't in some fashion. We're not exactly sure what fashion this might have developed independent of the FTX collapse. Ok. Cool. So I want to get to this idea of enforcement, fatigue. I mean, you also must be in a really interesting position with a lot of these clients, right? Because there's just a lot of competing contradictory schizophrenic even information out there in the marketplace that must be really hard for someone uh like you to advise on. So I just wanted to get a sense for like what is the current state of play with people that you are talking to? Are they pressing ahead? Are they, are they saying we are so back we are making this happen or is there still trepidation, caution a freeze on the plans that may run afoul of current regulations. So I think that one of the helpful things about crypto winter is that it did narrow the field and narrow the ambitions of a lot of these startups, right? So they, they had to really crystallize what it was that they were seeking to launch in that in this period by doing that. I think it afforded them some discipline in thinking, ok, these enforcement proceedings that are happening right now, how much does this affect the more narrow scope of business I had? And I think that right now the most impactful thing that these companies can do is to again, and I said this earlier create a bespoke narrative. What is it that sets them apart different? And that allows for a much more diverse view of the industry to come to the forefront, to the general population. All right, we gotta talk about FTX. Now, there's a new development with FTX every single day. One of the latest is these diary entries that Sam Baman freed allegedly leaked to the New York Times. Now we have the prosecution saying he should just be in jail until October. What's the likelihood that he is going to be sitting in a prison awaiting trial? Man? This, this story is like a never ending pile of poop, right? Like we just, you think that you've like tied it up and then it just keeps on exploding. Um So in this situation, you've seen some of the transcripts from the court themselves and the court is already months ago, was already reluctant to grant and continue SPFS bail because they're concerned that the government was being a little too near with some of the restrictions. And in the latest order from the judge, you even saw the judge kind of strike out some of the language where it indicated that the, that the government had drafted, right, that it indicated like these kinds of ex parte conversations that could happen which might impact the trial and the judge is like, no, which might impact trial, forget about everything he says is a problem. He's not allowed to talk. This gag order is going to be all encompassing. So this judge has had enough of sp fa reminder is that this bail that he has at $250 million that is a huge amount of money. It's 25 times more than what Bernie Madoff had as bail at $10 million. Uh The government has said how it's probably record breaking. So I don't think that there's gonna be any patience on the court side. It's worth remembering though. I think about why their bail was even granted in the first place and why the government allowed for it in the first place. Right back, back when he was SPF was being extradited. The extradition proceedings happened very quickly. And part of that was probably because the negotiations were like, look, the government will not oppose a, a bail request. Uh So, you know, if you act like a responsible individual and don't muck things up for the judicial system, we'll let you have bail $250 million but you can get out tough nuts there. Ok. One last question for you. We've been seeing a few uh notes about the FTX bankruptcy group going forward and trying to claw back funds. What is the possibility of going back and clawing funds from sports teams from possible donors from different foundations? Well, we've already seen that um John Jay had already requested that don't the campaign donors um have a way of giving back funds, which I think narratively made a lot of sense. What are the chances that they'll get these funds back? It's, it's really unclear. I think that what we do see though is how far reaching the FTX bankruptcy proceedings are right now. And what I mean is that they just had their second report come out. They are now going against personally the entire executive team at FTX, including Carolyn Ellison, who's now in the news again for the diary leaks. So I think that we're not sure exactly how far it will go, but I think that they are going, they're trying their hardest to pursue every single avenue and there is not any door that they will not knock down uh for the creditors. I mean, I gotta ask you as an informed observer and this has been a saga that has been uh you know, stretching out for what seems like ever. Now, what is your favorite detail in this whole thing that still you cannot, you can just not believe how rich it is. Well, if you had to point to one, what would it be? Um There's so many. All right. So yes, there are a lot. I will, I think that this pulled on a lot of threads. It was actually the order of restrictions on SPFS parents phones. Um You guys may remember that this came out sometime in the spring but, you know SPF had already done the whole VPN pro like you trying to circumvent communications and talking to some former FTX US officials. And so they, they restricted him but restricted him because they just don't even trust his parents guardian of their own phones. And so his parents now have restrictions and these are, you know, Stanford Law Professor Stanford is a top three law school. It is. I think that that's one of those bonkers things that's got to also just be so painful as a parent to have to live through a worthy candidate so much or leave it there. I mean, thank you for joining us to talk policy and FTX.

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