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The fall of crypto


Not too long ago, crypto was being trumpeted as the next big thing.


UNIDENTIFIED REPORTER #1: They are terms we're starting to hear more and more - cryptocurrency, bitcoin and NFTs.

UNIDENTIFIED REPORTER #2: This is Miami, the city that wants to lure tech from Silicon Valley and finance from New York, all by embracing crypto.

GURA: Celebrities were getting in on it, including Kim Kardashian, Matt Damon and Tom Brady.


TOM BRADY: FTX is the safest and easiest way to buy and sell crypto. It's the best way to get in the game.

GURA: Another paid spokesman for that crypto company, FTX, was point guard Steph Curry.


STEPH CURRY: I'm not an expert, and I don't need to be. With FTX, I have everything I need to buy, sell and trade crypto safely.

GURA: At the start of 2022, FTX ran what was one of the largest cryptocurrency exchanges in the world. The company was valued at $32 billion. That was just three years after it was founded by Sam Bankman-Fried, who's better known by his initials, SBF.

ZEKE FAUX: He was the king of crypto, basically.

GURA: Zeke Faux is a former colleague of mine, an investigative reporter for Bloomberg.

FAUX: He'd get called in to Washington to testify before Congress about how he thought the industry should be regulated. Bank CEOs were dying to get his attention because they were hoping that FTX would go public, and it'd be a big deal for them. And venture capitalists would give him as much money as he would take.

GURA: Until the whole thing fell apart. FTX collapsed spectacularly in November 2022. Customers and investors lost billions of dollars, and a month later, Sam Bankman-Fried was arrested. He's accused of orchestrating one of the largest financial frauds in history. I've been covering the run-up to his trial, which will start with jury selection on Tuesday. But since FTX imploded, SBF has maintained his innocence. Here's what he said shortly after his crypto empire crumbled.


SAM BANKMAN-FRIED: I didn't ever try to commit fraud on anyone. I was excited about the prospects of FTX a month ago. I saw it as a thriving, growing business. I was shocked by what happened this month.

GURA: Sam Bankman-Fried goes on trial, along with the entire crypto industry, in a way. FTX made it very easy to buy and sell cryptocurrencies like bitcoin. I remember someone telling me early on that the company ran what was essentially the New York Stock Exchange for crypto. People all over the world used FTX's app to trade digital assets, and they spent billions of actual dollars.

FAUX: What Sam is accused of is allowing his hedge fund to take that money that people sent in and gambling that money away, spending it on this real estate shopping spree in the Bahamas, using it for political donations. There's $8 billion missing, and he's accused of basically embezzling it.

GURA: That's Bloomberg reporter Zeke Faux again, who's written a new book called "Number Go Up: Inside Crypto's Wild Rise And Staggering Fall." Zeke's covered crypto in a really clear-eyed way, and in this book, Sam Bankman-Fried is a central character. I talked to SBF once over Zoom. He was in Washington, meeting with lawmakers and regulators. Zeke interviewed him a couple of times in person, once during FTX's heyday at the company's headquarters in the Bahamas and then again after everything fell apart. We got Zeke into our studios to talk about SBF and crypto, and the first thing I asked him is, what made SBF so appealing to would-be investors, so appealing that they happily gave him hundreds of millions of dollars to grow his company?

FAUX: He had this way of being kind of disrespectful in a way that just made everyone love him more. No matter the occasion, he'd wear khaki shorts, an FTX T-shirt, never combed his hair and he actually played video games during important meetings, which you'd think might be kind of a turnoff. But when Sequoia, the venture capital firm, found out that Sam had been playing League Of Legends while pitching them, their reaction was just like, oh, my God, we love this guy. How do we give him hundreds of millions of more dollars?

GURA: This became, like, a shtick of his. You write about it in the book. He's giving a speech, a major speech to an audience in New York. You're there with him, and you watch this happen. He opens up a video game, and he starts playing.

FAUX: Yeah. I mean, it's just bizarre. Not only is he giving this speech to The Economic Club of New York - like, pretty important group - he is playing video games while he does it. And he knows that I'm sitting there writing a profile of him that I'm going to describe him doing this. And I think he saw that this image as, like, the kind of cool nerd who didn't care about the traditional power brokers and couldn't be bothered to dress up or to even give someone his full attention was working for him. And for a while, it totally did.

GURA: Zeke, it sounds like he was kind of curmudgeonly. You describe him kind of, like, tuning out and playing video games. Yet you also got swept up in the mystique surrounding him. I flew past the bright red flags, you write. What were some of the other red flags, and how did you end up missing them?

FAUX: The biggest one was just that FTX was in the Bahamas. They'd moved there to avoid U.S. regulation. So this guy that we were all hyping as the future of finance was basically running, like, a semi-legal offshore casino for crypto where you could make all sorts of crazy bets on random coins. And for a time there, people were ignoring that and just treating Sam like he was the next Mark Zuckerberg of the financial world. And when he would say things like, oh, I'm going to buy Goldman Sachs, people treated it like it was kind of plausible.

Now, the other big red flag that everyone knew about, which we should have all paid more attention to, was that Sam ran this crypto exchange FTX, but he also ran a hedge fund called Alameda that was one of the biggest traders at the exchange. This is sort of like if the executives of a online poker website also entered its biggest tournaments. There would be a huge temptation for these guys to cheat by looking at the other players' cards. So it was known that Alameda traded on FTX. It was a big conflict of interest that never would have been allowed on Wall Street. And Sam would always say, Alameda plays by the same rules as everyone else on FTX. They're not cheating. They're not granted every - any special privileges. But we've now found out that was totally not true.

GURA: So Sam Bankman-Fried is a guy who is kind of a schlubby dresser, but he's moving in this circle of stars and celebrities and world leaders. He has a conference in the Bahamas. President Clinton is there. He makes an ad with Larry David. Steph Curry is involved in this whole enterprise, so is Tom Brady. What was his relationship like with celebrity and the celebrity status that the success of this company kind of bestowed on him?

FAUX: So Sam always acted like he was above it all. He didn't care about celebrities. But he seemed to be really excited whenever he got to spend time with them. And I think that he saw that having an ad with Tom Brady or being pictured with former President Bill Clinton gave him this air of legitimacy, and everyone was looking for someone in the crypto world who could be sort of the trustworthy figure. And even if it doesn't directly make sense, having these celebrities around him, I think, did give Sam an air of trustworthiness.

GURA: There's a tendency to talk about the big fish in this world. Sam Bankman-Fried was once a billionaire. So were all of the people who surrounded him in the executive ranks at his companies. But a lot of regular folks lost money here, and we don't talk about them a lot. When you look at what happened to FTX, how big an impact did that have on people who aren't billionaires and don't have penthouses in the Bahamas, who took a gamble on this new asset, based, perhaps, on an ad that they saw during the Super Bowl?

FAUX: I spoke with lots of people who got sucked in by that kind of marketing - maybe started small, but then ended up sending hundreds of thousands of dollars of their savings to one of these crypto apps. And for them, the collapse had a real impact. I talked to people who were now unable to buy homes that they've been saving for or would have to seek new lines of work. Yeah, it was not all, like, fun and silliness. People lost real money, and their lives were changed by, you know, the collapse of these platforms like FTX and of all the coins that went along with it.

GURA: You know, Zeke, I think you and I would both agree this is going to be a pivotal signal moment in the story of crypto. You've spent years covering cryptocurrency. Do you see this as the end of a chapter, or do you think that we are approaching the end of the story of crypto?

FAUX: So in my time researching crypto, I spent two years trying to essentially answer the question of, what is this all good for? Why are all these coins going up and up? And what I found is that there's not much there. And the one thing that it was good for was gambling. And now, with the collapse of FTX, Sam Bankman-Fried has discredited even that use. So I just can't imagine that after all this, we're going to see the crypto bubble inflate again.


GURA: That was Zeke Faux. He's an investigative reporter for Bloomberg. I also talked with Sheelah Kolhatkar. She's a staff writer for The New Yorker who got something no other reporter has been able to get, and that's an opportunity to talk with Sam Bankman-Fried's parents, on the record, about SBF's arrest, what the last 10, 11 months have been like and also about their resolve as their son's case goes to trial.

SHEELAH KOLHATKAR: I'm a parent myself. I certainly felt for the terrible anguish that they must be experiencing. I know there's controversy about them and whether they had a role in what happened at the company. Leaving all that aside, just on a purely human level, as parents, they are, you know, destroyed by this. I think they revered Sam and had certainly convinced themselves that he could not do anything wrong.

One of the most startling moments I had while I was reporting the New Yorker piece is when I asked Sam's mother, Barbara Fried, who's a renowned legal scholar - I said to her, well, listen, there must have been a moment when this indictment was filed when, you know, you read the charges, and you had to go to him and ask him, you know, Sam, did you do any of these things? And she said, no, she never even had to ask. She knew he would never do the things the government was accusing him of doing. And I found that to be truly remarkable because the fact that she was so sure from the outset, did not even need to confront him and let him convince her that he hadn't, you know, committed these transgressions, I thought, was very telling just about the level of devotion she has to her son.

GURA: With that level of devotion and what sounds like the wall that she's put up, has she - did she tell you that she's entertained what the consequences of this might be? Sam Bankman-Fried living at home with them for seven, eight months - more recently, has been in jail. There is the prospect here that he spends the rest of his life in prison.

KOLHATKAR: I had the impression that, you know, that a guilty verdict would really destroy her. I did notice, towards the end of my reporting this story, that she did start to talk a little bit about the appeal and certain arguments that might, you know, be important for an appeal. So that did - you know, that did give me a hint that both she and Joe, Sam's dad, are starting to prepare themselves for the possibility that this - you know, this will not go as they had hoped.

GURA: For people who haven't invested in crypto, haven't dabbled in this world, don't know Sam Bankman-Fried, don't know what FTX is, why is this story, why is this alleged fraud so important and such a big deal?

KOLHATKAR: This is an old story, to some extent. This is a story about, you know, an ostensible genius who happened to be very young, lauded by the press, you know, worshipped by Silicon Valley, who was allowed to go out and behave in, ultimately, a reckless way with other people's money while people turned and looked the other way. And, you know, lo and behold, things were not as they seemed. Something was seriously wrong, and it resulted in a, you know, terrible amount of pain and destruction and financial losses.

And this arc, this narrative arc, is something we see over and over again, particularly in sort of hot, new tech companies where you often have these young men who are just empowered to go out and behave recklessly while they try and grow their companies. And then, of course, we figure out afterwards that they were cutting corners or fraud occurred, and, you know, there's all sorts of pain and recrimination. And you don't have to care about crypto to care about the outcome and the question of whether justice is served in this case.

GURA: That was Sheelah Kolhatkar, a staff writer for The New Yorker. We reached out to a spokesman for Sam Bankman-Fried, and he declined our request for comment.

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