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--:-- John Bickley: Welcome to Morning Wire, I'm John Bickley, Editor-in-Chief of Daily Wire, and co-host Georgia Howe.
--:-- Georgia Howe: Thanks for joining us, John.
--:-- John Bickley: Today, we're discussing the FTX cryptocurrency scandal. Our culture reporter, Megan Basham, joins us to break down what led to FTX's downfall and the wider impact on the financial markets.
--:-- Megan Basham: Thanks for having me, John.
--:-- John Bickley: Megan, before we dive into the discussion, can you quickly catch us up on where things stand legally? The company is still going through the bankruptcy process, but I read that a class action lawsuit has already been filed. Is that correct?
--:-- Megan Basham: Yep, it sure is. And that's not surprising given that, as you said, an estimated $2 billion are still unaccounted for in that bankruptcy filing. I mean, really, it's just kind of disappeared.
--:-- John Bickley: And it's not only FTX's 30-year-old former CEO, Sam Bankman-Fried, who's been named in this suit. So have some celebrity endorsers like Tom Brady, Gisele Bündchen, Steph Curry, Larry David, Shaquille O'Neal. So really big names.
--:-- Megan Basham: That's right. But the issue that has a lot of financial and legal experts talking is how difficult it's going to be to make a clear case against Sam Bankman-Fried, or SBF, as he's known in the financial world.
--:-- John Bickley: For one thing, FTX is based in the Bahamas, and U.S. securities laws typically only apply to domestic deals. Secondly, cryptocurrency is an almost entirely unregulated market. It's been described as the Wild West, so there's a lot of debate over what laws might even apply here.
--:-- Megan Basham: For one thing, FTX is based in the Bahamas, and U.S. securities laws typically only apply to domestic deals. Secondly, cryptocurrency is an almost entirely unregulated market. It's been described as the Wild West, so there's a lot of debate over what laws might even apply here.
--:-- John Bickley: Here's what financial analyst and head of the wealth management firm, the Bonson Group, David Bonson, told me about that.
--:-- [Audio clip of David Bonson]
--:-- Megan Basham: I don't think there's going to prove to be, in the end, grown-up accounting, grown-up books and records. I'm not even sure what the regulatory venue is going to prove to be because these entities are incorporated in the Bahamas, but then they have some U.S. entities. Some of which are going to be on their balance sheet, others are not. There's self-dealing, you know, where he was trading with other entities he owned, but I think legally it's going to be a mess.
--:-- John Bickley: The biggest point prosecutors and plaintiffs alike are going to have to prove is whether Bankman-Fried knowingly funneled client funds from FTX to a trading firm he also owned that his girlfriend ran, Alameda Research.
--:-- Megan Basham: What we know is that some of these money transfers were actually used to make personal loans to company insiders, including SBF himself. He bought things like at least 15 lavish homes in the Bahamas, including a 600-acre beachfront property for $121 million.
--:-- John Bickley: And, of course, we know that he made a lot of very large political donations, primarily to Democrats.
--:-- Megan Basham: Strive Asset Management founder Vivek Ramaswamy told me that even if prosecutors can prove that he was using client funds for these things, it doesn't mean it will be easy to make a criminal case against him.
--:-- [Audio clip of Vivek Ramaswamy]
--:-- Megan Basham: You know, he makes it sound like well, it wasn't quite that, but it was just that Alameda Research happened to be one of the biggest players on the marketplace, on the crypto exchange that he had set up with FTX, and that a number of customers were using other funds as collateral because that's part of the ways in which the exchange was used. And it was just that Alameda Research had, Alameda had too much of a, too sizable of a position on FTX. And on that view of the world, if he's really successful in pushing that argument, I mean, for the result, it's a distinction without a difference. But for the way the law looks at this, it might actually be a way out for him.
--:-- John Bickley: But I will say that history will teach us that if he does walk away from this situation without bearing some level of personal accountability, possibly criminal accountability, this will not be the first time that such a quasi-fraud, if not outright fraud, were perpetuated where people got to walk away for free.
--:-- Megan Basham: And in fact, we're basically seeing Bankman-Fried out this week, making the case that he did not knowingly misuse those funds.
--:-- John Bickley: Yeah, it's been interesting to see him out on the media circuit. I've been a bit surprised at how sympathetically he's been treated in some cases.
--:-- Megan Basham: Yeah, I think a lot of people are surprised by that.
--:-- John Bickley: In fact, I caught Michael Brendan Doherty, who's a senior writer at the conservative political journal National Review, quipping, have they already started the Sam Bankman-Fried redemption tour before he stopped robbing people?
--:-- Megan Basham: And to that point, he was invited to speak at the New York Times Deal Book Summit. And what that is, is a symposium of elite business leaders. Critics really felt that it provided him a forum to rehabilitate his image.
--:-- John Bickley: Thanks for having me.
--:-- Megan Basham: And at the end of the day, I was CEO of FTX. And that means whatever happened, whatever it happened, I had a duty. I had a duty to all of our stakeholders, to our customers, our creditors. I had a duty to our employees, to our investors, and to the regulators of the world to do right by them, to make sure the right things happened at the company. And clearly, I didn't do a good job of that. Clearly, I made a lot of mistakes or things I would give anything to be able to do over again. I didn't ever try to commit fraud on anyone else.
--:-- John Bickley: Now, his interview with Good Morning America on Thursday was a little tougher, but a lot of people still feel that too much attention is being paid to Bankman-Fried as a personality and not to the specifics of how this money was lost.
--:-- Megan Basham: I should have been on top of this and I feel really, really bad and regretful that I wasn't. And a lot of people got hurt and that's on me. I think I got a little cocky. I've made more than a little bit.
--:-- John Bickley: You contrast the kid glove treatment that Bankman-Fried received at the New York Times conference to comments from John Ray III, who is the debtor CEO that's been brought in to oversee FTX's bankruptcy.
--:-- Megan Basham: Over a 40-year career, Ray has presided over the biggest financial collapses in recent history, including Enron, and he said he has never seen anything as bad as FTX.
--:-- John Bickley: In fact, he wrote in one FTX filing, and I'm going to quote, never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.
--:-- John Bickley: So yeah, Ramaswamy says the reason so many media outlets and financial reporters might be willing to take it a bit easy on Bankman-Fried is because his conduct hasn't exactly been dissimilar to some standard financial conduct.
--:-- Megan Basham: I think part of this is looking in the mirror and seeing that recognition recognizing that the facts of this case are not that different than what happened with MF Global with a former political figure who was the head of Goldman Sachs, John Corzine involved in that, whereas others recognizing that, wait a minute, if this guy goes down, and in my opinion, it's very clear this guy behaved in ways that were unthinkable and probably downright fraudulent.
--:-- John Bickley: But a lot of other people who were lacking clean hands back in 2008 are saying that, wait a minute, we got to be careful turning him into too bad of a guy because it's not that dissimilar than what happens in the normal financial system, even outside the cryptocurrency world as well.
--:-- Megan Basham: And kind of an intriguing side note on that, Amazon has already ordered an eight-episode series about Sam Bankman-Fried that's going to be directed by the Russo brothers, who you might have heard of for directing those last two Avengers movies.
--:-- John Bickley: So SBF's heading straight to Hollywood here.
--:-- Megan Basham: Has the financial world pinpointed any other key contributing factors that caused this mess?
--:-- John Bickley: Yeah, they have, and it's a pretty big one. Essentially, they say that this is like so many other tech-related scandals in that it centers on this cult of personality and that the social agenda investing practice that we know as ESG, that stands for Environmental, Social, and Governance, is at the center of it.
--:-- Megan Basham: They point to similar scandals with Elizabeth Holmes of Theranos and Adam Neumann of WeWork. In all those cases, these tech leaders said they were driven by altruistic motives or virtue investing. But it seems to have led them to commit fraud.
--:-- John Bickley: And I think that there's a sort of pathology that's really frightening.
--:-- Megan Basham: And the Sam Bankman-Fried was just like next level. Naming an entire new nominally provision of philanthropy. Which in and of itself strikes me as incredibly narcissistic, but um all the while standing over the this type of grift and corruption it's this incredibly kind of hip but hedonistic um aesthetic that they subscribe to but then it's all couched in like saving the world and so there's just sort of a secular phariseeism around it that I I would think at some point we might want to catch on to and say, when Adam Neumann is, you know, making billions of dollars, but telling everybody that he's doing it for the sake of world consciousness, these guys are sort of like cult leaders that are just way more sophisticated than cult leaders.
--:-- John Bickley: That was something that Ramaswamy strongly echoed. He says these Silicon Valley guru types use ESG to pull the wool over investors' eyes.
--:-- Megan Basham: This is the game. I mean, this is the woke industrial complex at its finest, is you create this smokescreen of virtue. And the problem with signaling your virtue is at some point it becomes more important than being virtuous itself.
--:-- John Bickley: If it was just hypocrisy, I wouldn't even bother talking about it. There's so much hypocrisy in the world. This is an essential part of the act itself. That is the point here. It would not have worked. He would not have been able to deflect accountability for this long if it were not for the fact that the public saw him as one of the good guys.
--:-- Megan Basham: And to prove just how unbalanced applying political measurements to investing can be, FTX actually had a higher ESG score than ExxonMobil, even though FTX only had three board members. And according to Forbes magazine, they never had a meeting.
--:-- John Bickley: Speaking of these tech CEOs being activists, You mentioned that Bankman-Fried spent a lot of client money on political donations And we talked before about the fact that he was the second-largest donor to Democrats in the midterm elections How are those political leaders addressing the situation?
--:-- Megan Basham: Well, a few like New York Senator Kirsten Gillibrand and Dick Durbin of Illinois are making it known that they're giving away the political donations that they received from him. But beyond that, what they're mostly calling for is new regulations on crypto. But ironically, that's something that Bankman-Fried himself was lobbying for before this fiasco.
--:-- John Bickley: And Ramaswamy thinks it could do more harm than good.
--:-- Megan Basham: I think that's an over-inclusive reaction. It's a low-resolution reaction. And the irony is that it may actually be what SBF himself was calling for. I mean, part of the reason he was able to get away with this was that he cultivated this do-good smokescreen, the good guy who was calling for so-called responsible regulation of the industry.
--:-- John Bickley: Well, guess what? Whenever a captain of industry, and he was one for a short time, is calling for regulation of their own industry and their own companies, they're usually using that to obtain a competitive advantage.
--:-- Megan Basham: And there are some ways in which decentralized exchanges could have actually prevented the kind of fraud that he perpetuated.
--:-- John Bickley: Now, decentralized exchanges have issues of their own, but they wouldn't have had the theft of customer funds issue by a human being that a centralized exchange has.
--:-- Megan Basham: My own view is different. I think that whatever regulatory regime exists, whether it's smaller, whether it's bigger, whether it's more tailored, whether it's not, it needs to be applied even-handedly to all kinds of securities, be they stocks, be they collateralized loans, be they bonds, be they cash, be it gold, or be it crypto.
--:-- John Bickley: Now, if general financial regulations are applied to cryptocurrency, what that could do, though, is take a lot of interest out of it for crypto enthusiasts. We know they tend to be somewhat libertarian-minded, and for them, a lot of the appeal is that the market doesn't have the kind of government oversight other financial sectors do.
--:-- Megan Basham: On the other hand, this meltdown has the whole world questioning the viability of crypto in general.
--:-- John Bickley: Bonson says essentially those who want crypto to survive as a credible market are going to have to decide if they want digital assets to grow up and become part of the formal trading world.
--:-- Megan Basham: You can't lend money out from a bank or a broker dealer that you don't have. And crypto is able to because the regulators have not gotten around to deciding what they want it to be.
--:-- John Bickley: And so it's a weird thing I'm about to say. This is a general rule. I favor deregulation. But I think this whole space will go extinct if they don't decide to invite some form of regulation. Because there just simply can't be any confidence in the space when some 29-year-old, you know, I mean, this guy is just a complete tool, brought down billions and billions of dollars.
--:-- John Bickley: Now, do people worry about that happening at Morgan Stanley? Well, it can't happen. The regulation, you know, there's a certain institutional credibility when people have stocks and bonds at a brokerage firm, that if someone wants to go get their stocks and bonds, they're actually there. But crypto wasn't limited by that.
--:-- Megan Basham: Well, many more layers to peel back on this story as the ramifications continue to be filled.
--:-- John Bickley: Thanks, Megan.
--:-- Megan Basham: Yeah, anytime.
--:-- John Bickley: That was Daily Wire culture reporter Megan Basham, and this has been a Sunday edition of Morning Wire. From all of us here at Morning Wire, we hope you're enjoying the show.
--:-- Georgia Howe: Did you know that if you subscribe to Daily Wire Plus, you can get access to all Daily Wire has to offer? That means news, commentary, documentaries, movies, and so much more. Become a subscriber today. Download the Daily Wire Plus app and take us with you wherever you go.
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--:-- John Bickley: Thanks for listening to Morning Wire.
