March 28, 2024. Most people probably don't have
that date circled on their calendar, but in the
timeline of financial history, that was the asteroid
impact. That was the day the gavel finally came
down in a Manhattan courtroom and the sentence
was read out 25 years. And let's not forget the
forfeiture order. Eleven billion dollars. Right.
Eleven billion. It's a number so large it just
it turns into an abstraction. You can't even
visualize eleven billion dollars. Yeah. But you
can visualize a 25 year sentence. That is a quarter
of a century. And what really struck me about
that day wasn't just the finality of it. It was
the absolute the starkness of the contrast. The
contrast between the inmate and the icon. Exactly.
I mean, you just rewind the clock two years before
that. Sam Bankman free at SBF. He wasn't just
some rich guy. No, he was phenomenal. He was
the 41st richest American. He was on the cover
of Forbes, Fortune, you name it. He was sitting
on panels with Bill Clinton and Tony Blair. He
was sold as the white knight of crypto. The one
who is going to bridge this gap between the chaotic
digital frontier and the serious world of Washington
regulation. And then just like that. Snap. He's
standing there in a beige prison jumpsuit, listening
to Judge Cackling completely dismantle his entire
existence. It's the ultimate Icarus story, isn't
it? But I think people get the Icarus metaphor
wrong in this context. How so? Icarus flew too
close to the sun because he was reckless. He
was high on the thrill of it. SBF wasn't just
reckless, as we're going to get into. This was
a calculated, almost mathematical deconstruction
of the rules. Right. Because he truly fundamentally
believed the rules didn't apply to him. That's
the key distinction, isn't it? This wasn't some
kind of accident. And that is what we are unpacking
today. We are doing a proper deep dive into the
rise and the catastrophic fall of SBF and FTX.
And I don't want to just recycle the headlines
everyone saw on Twitter. We have a massive stack
of sources here, biographical records, the raw
court transcripts from United States via Bankman
Freed, the bankruptcy filings, and even the prison
incarceration logs. Honestly, the source material
is darker and weirder than the headlines ever
captured. When you really dig into the mechanics
of the fraud, the specific lines of code they
wrote to steal the money, and the psychological
environment they built around themselves, it's
genuinely terrifying. Our mission today is to
really understand those mechanics. How do you
actually steal $8 billion without the auditors
noticing? What is the psychology of a guy who
plays video games while pitching Sequoia Capital?
And wins. And wins. And then how does that same
brain adapt to, you know, trading fish packets
in a federal penitentiary? It is quite the arc.
So let's start at the very beginning, because
usually when we hear about financial fraudsters,
there's this narrative of the scrappy outsider,
the guy who wanted to break into the club but
wasn't invited. He, you know, he kicked the door
down. Right. That is not Sam Bankman Freed. Not
even close. He was born inside the club. March
5, 1992, Stanford, California. I mean, his parents,
Joseph Bankman and Barbara Freed, are both tenured
professors at Stanford Law School. At Stanford
Law. And we aren't talking about obscure academics
here. They are titans in the fields of tax law
and legal ethics. Which adds a very thick layer
of irony to this whole story. It does, but I
think you have to look at what they taught. His
mother, Barbara Freed, is a prominent consequentialist.
Okay, let's pause there. Consequentialist. For,
you know, for the listener who hasn't touched
a philosophy textbook since college, break that
down for us because I have a feeling this is
the root of the whole problem. It's a huge part
of it. So consequentialism is the ethical theory
that the morality of an action is determined
solely by its consequences. So the ends justify
the means. In a nutshell, yes. If the outcome
is good, the action itself is good. It stands
in direct contrast to, say, deontology which
says there are certain hard rules like do not
lie or do not steal that you must follow regardless
of the outcome so if i lie to you But that lie
ends up saving five people from a burning building.
A consequentialist would say the lie was not
just acceptable, but it was the moral thing to
do. Exactly. Now, imagine growing up in a household
where that is the dinner table conversation.
Yeah. Where rigid rules are viewed as sort of
irrational and everything is just a calculation
of utility. Right. SBF didn't just learn this.
He breathed it. He grew up in a world of. high
-level intellectual debate where you could basically
argue your way out of anything if the math on
your side worked out. It explains so much about
his later defenses in court. Mistakes were made,
but my intentions were good. Precisely. So that's
the home environment. And then you move on to
his education. He goes to the Kennedy USA math
camp. This isn't just summer school. No. This
is for the outliers, the kids who see the matrix.
Yeah, the real prodigies. And that nationally
funneled him right into MIT. He graduated in
2014, physics major, math minor. But I think
the most telling part of his MIT experience wasn't
the classroom. It was where he lived. Epsilon
theta. Epsilon theta. Yeah. I've read about this
place. It sounds less like a frat house and more
like a... A social experiment or something. That's
a great way to put it. It was a co -ed group
house and they prided themselves on being very
distinct from the frat bro culture is intensely
intellectual, you know, heavily focused on games,
puzzles, high level debate. But they also had
this culture of what's been called polycule adjacent
living. Very few boundaries, lots of shared intimacy,
sleep piles, that sort of thing. Which effectively
became the blueprint for the FTX corporate housing
later on in the Bahamas. Precisely. He never
really left Epsilon Theta. He just recreated
it in the Bahamas with a billion dollar budget.
He learned that you could blend your work life,
your social life, and your romantic life into
one indistinguishable blob. and that there were
no real boundaries. So he leaves MIT. He has
the math brain. He has this consequentialist
ethical framework. And he lands at Jane Street
Capital. Now, we need to spend some time here
because... Every profile mentions Jane Street,
but they usually just say it's a high -frequency
trading firm. But Jane Street is a very specific
type of beast, isn't it? Well, it is. It's almost
like a cult of rationality. Jane Street is a
proprietary trading firm. That means they trade
their own money, not clients' money. They are
famous, absolutely famous, for their obsession
with one concept, expected value, or EV. EV.
Okay, this is the concept that seems to drive...
everything SBF did. Explain how that mindset
works in practice at a place like Jane Street.
So at Jane Street, they would bet on anything,
literally anything. What's the weather going
to be in an hour? Will this person walk through
that door in the next 60 seconds? They are constantly
calibrating their probability assessments. The
core idea is this. If you offer me a bet where
I have a 51 % chance of winning a dollar and
a 49 % chance of losing a dollar, I should take
that bet every single time. Because over a thousand
flips, the expected value is positive. Even if
the downside of losing is really painful in the
short term. That's the catch. In pure EV theory,
if the math is positive, you take the risk. Jane
Street teaches you to be completely risk neutral.
You don't fear loss, you just fear bad math.
SBF absorbed this completely. There's a now famous
anecdote where he discussed a theoretical coin
flip. Heads, the world becomes twice as good
as it is now. tales, the world is completely
destroyed. And he said he would take that flip.
He said he'd keep flipping it. He'd take the
50 % risk of total annihilation over and over
because the expected value of creating a paradise
world was technically infinite. That is a dangerous
way to operate a civilization. And it turns out,
a terrible way to run a bank. It completely desensitizes
you to catastrophe. If you go bankrupt, you just
say, well, the math was right. I just got unlucky
on the variant. Exactly. And that brings us to
his exit from Jane Street. He leaves in 2017
to start Alameda Research. And this is where
the legend really begins. The kimchi premium.
The kimchi premium. This is the origin story.
It's the started in a garage moment for crypto.
But I feel like people gloss over how hard this
actually was. They just say, oh, Bitcoin was
more expensive in Japan, so he bought low and
sold high. If it was that easy, why wasn't everyone
doing it? That is exactly the right question
to ask. The arbitrage opportunity itself was
obvious. You know, Bitcoin might be trading at
$10 ,000 in the U .S. and $11 ,000 in Japan or
Korea. That's a free 10 % spread. Yeah, free
money. But the friction. The real world friction
was immense. The Japanese and Korean banking
systems are notoriously insular and bureaucratic.
You can't just wire $10 million into a Japanese
bank account as a foreigner without triggering
every single money laundering alarm bell in Tokyo.
So the hard part wasn't the crypto side of it.
It was the fiat currency. It was getting the
dollars and yen moved around. It's always the
fiat. SBF's genius here, and it was a form of
genius. was navigating that bureaucracy. He set
up this incredibly complex web of intermediaries
and local directors to satisfy the Japanese banks.
He essentially built a logistical pipe that allowed
him to move up to $25 million a day out of Japan.
And that's where the boy genius myth crystallized,
right? He wasn't just another coder. He was this
guy who could hack the real world banking system.
It validated his entire worldview. He proved
he could solve a problem that stumped the rest
of the market. And he made an absolute fortune
doing it. This gave him the capital and, more
importantly, the confidence to launch FTX in
2019. But before we get to FTX, we have to talk
about the motivation he presented to the world.
Because SPF wasn't buying Ferraris. He was driving
a Toyota Corolla. He was famous for sleeping
on beanbags. He claimed this was all for a philosophy
called effective altruism. Yay. earning to give.
We touched on his utilitarian upbringing, but
EA takes it a step further. It's not just about
doing good. It's about optimizing good, right?
Right. It's about maximizing your impact. The
classic example is, you know, if you work at
a soup kitchen, you help maybe 50 people a day.
That's nice. Feels good. But if you become a
billionaire trader and donate that money to,
say, mosquito net distribution in Africa, you
could save 50 ,000 lives. So therefore, the most
moral imperative is to get as rich as humanly
possible. Exactly. But there's a darker, more
extreme side to EA that SBF fully subscribed
to called long -termism. Okay, this is crucial.
This is crucial. Long -termism posits that the
lives of the trillions of humans who will potentially
live in the future, thousands, even millions
of years from now, are just as valuable, if not
more valuable, than the people alive today. So
your priority shouldn't be fixing poverty now
or curing cancer now. No. It should be preventing
a future AI apocalypse or a meteor strike that
could wipe out the entire future of the human
species. And this creates a terrifying moral
license. Because if your stated goal is to save
a trillion future humans from a rogue AI, then
stealing from a million current humans is, what,
a rounding error? It's a justifiable sacrifice
in that framework. Exactly. If you truly believe
you are the Messiah for the future of the species,
then standard everyday ethics like don't commit
wire fraud look like petty, irrational hurdles.
Wow. SBF viewed himself as a soldier fighting
for the future, which allowed him to rationalize
the crimes of the present. So with that mindset
that he is basically the protagonist of reality.
He builds FTX and he builds it incredibly fast.
Unbelievably fast. Founded in 2019. And by September
2021, he's moving the whole operation from Hong
Kong to the Bahamas. And it wasn't just one company.
No, it was over 130 affiliated companies by the
end. A complete labyrinth designed to be confusing.
And he needed to sell this labyrinth to investors.
Which brings us to the image. The cargo shorts,
the wild, unkempt hair. For a long time, people
just thought, oh, he's just too busy and brilliant
to care about his appearance. But that wasn't
true, was it? No, not at all. Caroline Ellison,
his ex -girlfriend and the CEO of Alameda, testified
in court that the look was completely calculated.
SBF realized early on back at James Street that
if he looked a little crazy, people thought he
was smarter. So it's a costume. It was absolutely
a costume. He believed he got better bonuses
at Jane Street when his hair was at its messiest.
It's the Einstein effect, right? If you look
like you don't know how to use a comb, you must
be too busy contemplating the unified field theory
to be bothered. And Silicon Valley eats that
up. They don't want a guy in a Brooks Brothers
suit. That looks like old finance. They want
a disruptor. The most famous example, of course,
is the pitch to Sequoia Capital. Oh, God, the
League of Legends pitch is legendary. He is on
a Zoom call. pitching one of the most prestigious,
powerful venture capital firms on the planet
for hundreds of millions of dollars. And during
the call, he is audibly playing the video game
League of Legends. You can hear the mouse clicking.
And the craziest part is not that he did it,
but that it worked. It worked like a charm. Sequoia
wrote this glowing profile on him, which they
have since scrubbed from the Internet, where
they gushed about it. They said things like,
we're talking to a future trillionaire. It was
a power move. Yeah. It signaled, I don't need
your money. I'm barely paying attention to you.
And you're still going to write me a $200 million
check. It establishes dominance. And it allowed
him to expand his web of influence so aggressively.
They weren't just buying up crypto assets. They
were trying to buy legitimacy. That's the perfect
word for it. They bought a 7 .6 % stake in Robinhood.
Why Robinhood? That was strategic. Robinhood
is the bridge to the mainstream retail stock
trading world. If FTX could merge with or acquire
Robinhood, they become this all -in -one financial
super app. And then there was the whole episode
with Elon Musk and the Twitter purchase. Yeah,
SBS advisor texted Musk's team saying Sam was
good for up to $5 billion to help take Twitter
private. Musk, to his credit, seemed pretty skeptical.
He asked his advisor, does he actually have $5
billion in liquid cash? And the answer, as we
now know, was a definitive no. Not even close.
And then the wildest one of all, the island of
Nauru. This brings us right back to that survivalist,
long -termist paranoia. This was a real project.
They actually looked into buying Nauru, a sovereign
island nation in Micronesia. To do what with
it? The plan was to build a bunker. sort of doomsday
shelter for the effect of altruists to survive
a global catastrophe and repopulate the earth
with rational utilitarian thinkers. It sounds
like a James Bond villain plot. I will buy a
sovereign nation to restart civilization in my
own image. It just shows how detached from reality
they had all become. Well, you have billions
of dollars, even if it's just monopoly money
on a spreadsheet. And absolutely no one in your
life is telling you no. Your wildest fantasies
start to look like legitimate business plans.
Okay, so we have the motive, the image, and the
sprawling empire. Now we need to look under the
hood. We need to talk about the fraud itself,
because this wasn't just, oops, we lost some
money in a bad trade. This was structural theft
from day one. This is section three, the mechanics
of the fraud, and it all centers on the relationship
between FTX, the exchange, And Alameda Research,
the hedge fund. And just to be clear for the
listener, normally an exchange and a trading
firm are supposed to be like church and state.
They should be completely separate. Absolutely.
100 % separate. If you deposit money into an
exchange like Coinbase or Kraken, that money
is supposed to sit there. It's your money. The
exchange makes its profit on transaction fees.
They should never, ever be gambling with your
deposits. But Alameda was gambling. And they
were gambling with FTX customer money. On a massive
scale. So how did they physically get the money
from point A to point B? Because as I understand
it, there were two main ways, two big buckets
of fraud. Two main buckets is right. The first
was what you could call the fiat processing loophole.
In the early days of FTX, traditional banks were
still very wary of crypto. They wouldn't give
FTX a corporate bank account. Right. It would
seem it's too risky. But Alameda Research, being
a trading firm. already had established bank
accounts. So SBF came up with a solution. He
told customers, if you want to fund your account
on the FTX exchange, just wire your US dollars
to this bank account here. And that bank account
was owned by Alameda Research. Exactly. So you,
the customer, think you're funding your FTX trading
account, but you're actually wiring your life
savings directly to a completely separate high
-risk hedge fund. Wow. And for years, SBF claimed
in public that that money was just sitting there.
segregated and safe. But in reality, Alameda
was spending it on risky trades, venture investments,
political donations, everything. We are talking
about $8 billion of customer deposits that never
even touched FTX's own corporate structure. It
went straight to the casino. That's the first
bucket. But the second mechanism is even more
damning because it involved deliberately tampering
with the platform's software itself. The code
tweak. This is the smoking gun. This is what
you can't explain away as an accident. Gary Wang,
the CTO and co -founder of Guy SBF, had known
since MathCamp testified under oath that SBF
ordered him to add a special feature to FTX's
code just for Alameda. OK, now you've looked
at the technical details of this. What exactly
did this line of code do? So every crypto exchange
has something called the liquidation engine,
an automated piece of software. If you borrow
money to make a trade leverage and your position
drops below a certain value, the engine automatically
sells your assets to pay back the loan. It's
a safety feature. It protects the exchange from
going bankrupt if traders lose too much. It's
a critical safety feature. It's ruthless and
it happens in milliseconds. It protects the entire
system. Unless you're Alameda. Unless you're
Alameda. Gary Wang added a flag in the database.
Literally a single line of code. A Boolean setting.
Allow negative. For Alameda and only for Alameda,
this setting was switched to true. The liquidation
engine was turned off for them. So they could
borrow infinite money, lose it all, go billions
and billions of dollars into debt to the exchange,
and the system would just never stop them. Exactly.
It was an essentially unlimited line of credit,
backed by their own customers' funds. At one
point, Alameda had a negative balance of $65
billion on the FTX exchange. The code was hardwired
to look the other way. That's not negligence.
That's not I lost track of the spreadsheets,
which was his defense. That is a deliberate,
premeditated engineering decision to bypass the
most fundamental safety protocol on the entire
platform. And that's why the I didn't know defense
completely fell apart at trial. You don't accidentally
write a specific code exemption for your own
personal hedge fund. It's impossible. But they
had to hide this massive $65 billion hole. And
to do that, they needed to buy protection. They
needed friends in high places. Which brings us
to the political machine they built. SBF wasn't
just donating out of the kindness of his heart.
Not even slightly. He was trying to buy the referee.
He was pushing very hard for a specific bill
in Congress, the Digital Commodities Consumer
Protection Act. And what would that have done?
It would have given the CFTC the Commodity Futures
Trading Commission, primary oversight over the
crypto industry. And why did he want the CFTC
instead of, say, the SEC? Because the CFTC is
generally seen as a smaller agency, perhaps a
little more manageable than the much larger and
more aggressive SEC. He was trying to handpick
his own regulator. And to do that, he needed
to buy influence on both sides of the aisle.
The numbers here are just staggering. In the
2022 midterm elections, he was the second largest
individual donor to the Democrats, dropping nearly
$40 million. And that's just what the public
saw. That was the on -the -book stuff. But later,
after the collapse, SBS admitted in an interview
that he gave just as much, if not more, to Republicans.
But he did it through dark money channels. Exactly.
He used 501c4 organizations and other political
vehicles where donor names aren't disclosed to
the public. He explicitly told a reporter that
he did this because he knew the media is super
liberal and he didn't want the bad PR that would
come from being a Republican mega donor. So he
was hedging his political bets just like it was
a financial trade. A perfect hedge. If Democrats
win, he has a seat at the table. If Republicans
win, he calls in the dark money favors he's owed.
It's cynical perfection. And then you have the
raw nepotism, his brother, Gabriel Bankman Freed.
Gabriel ran a lobbying group called Guarding
Against Pandemics, a very noble sounding cause.
Sounds great. They received $35 million from
SBF and Alameda. And look, maybe they had some
good intentions, but a lawsuit filed by the bankruptcy
estate later alleged they did nothing to prevent
pandemics. It looked for all the world like a
slush fund to employ family and buy influence
in D .C. under the guise of altruism. And the
parents. This is where it gets really uncomfortable.
The bankruptcy estate sued them. to recover $32
million in cash and real estate that was given
to them by FTX. They were gifted a $16 million
home in the Bahamas. Wait, a $16 million vacation
home for two law professors? Not bad work if
you can get it. They denied knowing about the
fraud, of course. Right. It just shows how the
customer money was leaking out of the company
in every conceivable direction. Real estate,
politics, family handouts, you name it. Speaking
of real estate, we have to talk about the penthouse.
The now infamous Orchid Penthouse. The $40 million
dorm room. This was the headquarters. SBF, Caroline
Ellison, Gary Wang, Nishad Singh, the whole inner
circle lived there together in this massive five
-bedroom luxury apartment. This goes right back
to the Epsilon Theta days at MIT. It's exactly
that. They were running a multi -billion dollar
global conglomerate, but they were living like
college students in a group house, sleeping with
each other, breaking up, having intense drama,
all while eating vegan food delivered by private
chefs and, according to testimony, popping stimulant
medication to stay awake for days on end. It
creates a complete echo chamber. If everyone
you work with is also your roommate and in some
cases your romantic partner, there is no outside
voice. There is no one to say, hey, maybe we
shouldn't steal $8 billion from our customer.
It was a hermetically sealed bubble of delusion
floating on an ocean of stolen money. Until the
bubble popped. Yeah. Section 5. The Collapse.
November 2022. It is hard to overstate how fast
this happened. It felt like watching the Soviet
Union collapse in a single weekend. It all started
with a leak. CoinDesk, a crypto news site, got
its hands on a copy of Alameda's balance sheet.
When people who understood finance actually looked
at it, they gasped. Why? What was so shocking
on it? Well, it was full of FTT. FTT was the
digital token that FTX had just invented themselves.
They literally printed it out of thin air. Alameda's
balance sheet was showing billions of dollars
in assets, but most of it was this magical internet
money that only had value because FTX and SBF
said it did. It's completely circular logic.
I am rich because I own a billion dollars of
bankman bucks, which are valuable because I,
a rich person, say they are. Exactly. And the
market realized in an instant that if FTX ever
got into trouble, those FTT tokens would be worth
zero. The emperor had no clothes. And then came
the tweet. The tweet that killed an empire from
Changpeng Zhao, CZ, the CEO of Binance. SPF's
arch rival. Yeah. CZ saw the Coindesk report
and tweeted that Binance, which held a lot of
FTT from an earlier deal, was going to sell all
of his holdings due to recent revelations. And
that was the signal. That was the fire alarm
in a crowded theater. Everyone ran for the exits
at once. A classic bank run. Numbers were insane.
Six billion dollars in withdrawal requests in
just 72 hours. And because Alameda had stolen
all the liquid. cash, FTX couldn't pay. The vault
was empty. SBF tried to bluff his way through
it. He sent out that tweet. FTX is fine. Assets
are fine. That tweet is going to go down in history
as one of the most expensive and blatant lies
ever told. He knew they weren't fine. Behind
the scenes, he was frantically calling investors,
calling the Saudis, calling anyone he could think
of for a bailout. But the hole was just too deep
to fill. November 11th, 2022. He files for Chapter
11 bankruptcy. SBF resigns. And the handcuffs
come out. And the trial was a complete spectacle.
United States v. Bankman freed. The defense strategy
from the start was to paint him as this sort
of unlucky math nerd. I'm just a physicist. I
don't understand accounting. I got overwhelmed.
Right. I was trying to save the world. The market
crashed. Mistakes were made. But there was no
intent to defraud anyone. But the prosecution
didn't just have documents and spreadsheets.
They had the roommates. This must have been just
surreal for him, watching his ex -girlfriend,
Caroline Ellison, walk to the witness stand to
testify against him. Her testimony was the absolute
nail in the coffin. She was composed. She was
credible. She was incredibly detailed. She told
the jury about the seven spreadsheets. The seven
spreadsheets? What was that? When Alameda's lenders
started getting nervous and asked to see their
balance sheet, the real one looked terrible.
It showed the massive hole. So SBF directed her
and the team to prepare seven different alternative
versions of the balance sheet, each one hiding
the loans and the risk in a different way. Oh,
my God. And then he looked at all seven options
and personally picked alternative seven to send
to the lenders. That one act completely destroys
the argument of I made a mistake. You don't accidentally
create seven different fake balance sheets. SBF
ended up taking the stand himself. Which is something
defense lawyers almost always tell their clients
never to do. It was a Hail Mary pass, and he
fumbled it spectacularly. He thought he could
outsmart the prosecutor. He thought he could
talk his way out of it with philosophical arguments,
just like he talked his way into Sequoia's wallet.
But a courtroom is not a VC pitch meeting. No.
In a court, facts matter. He said, I don't recall.
or some version of that, over 140 times. He came
across as evasive, slippery, and arrogant. The
jury absolutely hated him. And the verdict came
back, guilty on all seven counts. Swiftly and
unanimously. So now we enter the final chapter
of this saga, the aftermath. The boy king who
wanted to buy the island of Nauru is now an inmate
in a federal prison. And the details of his life
behind bars are, well, they are a deep dive in
and of themselves. It's a fascinating study and
adaptation. First, he was held at MDC Brooklyn,
the Metropolitan Detention Center. It's a notoriously
rough place. Ghislaine Maxwell was held there,
for instance. And he had the immediate dietary
issues. Right. He's a committed vegan. His lawyers
were in court almost immediately, complaining
that he was being forced to survive on bread,
water, and peanut butter because the prison wasn't
providing him with adequate vegan meals. They
argued he couldn't prepare for his trial because
he was wasting away. But then he adapted to the
internal prison economy. The mackerel. The mack.
This is my favorite detail of the whole story
because it connects so perfectly back to the
kimchi premium arbitrage. How so? In federal
prison, you can't use cash. The currency used
to be cigarettes. But now those are banned in
most facilities. So the stable currency, the
accepted medium of exchange, is the pouch of
mackerel fish fillets from the commissary. It
has utility. It's non -perishable. It has a standard
agreed upon value. It's a commodity currency.
Exactly. And so SBF, the vegan who doesn't even
eat fish, started acquiring and trading macks.
There's a credible report that he paid a fellow
inmate four packets of mackerel to give him a
haircut before his trial. It's the same skill
set. It's arbitrage. identifying a market inefficiency.
I have a surplus of fish. You have a surplus
of barbering skill. And he's executing the trade.
He's running a localized version of Alameda research
inside the cell block. It proves that his brain
is just hardwired this way. It doesn't turn off.
He is a transactional creature, whether it's
a global crypto markets or prison barter. He
is always, always calculating the expected value.
And his cellmates. I mean, the writers of this
reality show are just working overtime. As of
late 2024, reports came out that he was being
housed in a dormitory -style unit with none other
than Sean Combs. Diddy. You can't be serious.
Diddy and SBF. Just picture that conversation.
The crypto nerd who thinks in probabilities and
the hip hop mogul who built an empire on image
sitting there on their bunks trading Macs for
commissary snacks. Both of them having fallen
from these massive heights, both facing serious
federal time. It's a bizarre and powerful leveling
mechanism. There really is. But SBF couldn't
just stay quiet and do his time. He tried one
more leverage play. The Tyker Carlson interview.
This was in March of 2025. It was completely
unsanctioned. He somehow got a message out or
arranged a phone call. The details are still
murky. But he did an interview with Tucker Carlson,
basically making a pitch for a pardon from Donald
Trump. What was his argument? He went right back
to the dark money argument he made before. He
basically said, hey, remember, I secretly donated
to Republicans, too. I'm not who you think I
am. I'm a victim of the liberal media and the
woke mob. Let me out. And how did that work out
for him? It worked in the sense that he got a
lot of attention. But. The prison warden didn't
appreciate it. He got thrown in solitary confinement
for a while and then transferred clear across
the country to FCI Terminal Island in Los Angeles.
So he's in L .A. now. But here is the final and
maybe the most confusing twist for the listener.
The money. We spent this whole hour talking about
how we lost $8 billion of customer money. But
recent reports from the bankruptcy estate say
the customers might get all their money back.
How is that even possible? This is what some
people are calling the anthropic miracle. Back
during the wild spending street days, SBF invested
about $500 million of customer money into an
AI startup called Mpropic. The company that makes
the Claude AI model. Yes. And as we all know,
AI completely exploded in value after FTX collapsed.
That $500 million stake became worth billions
and billions of dollars. The bankruptcy estate,
which is being led by John J. Ray III, the same
guy who cleaned up the Enron disaster, sold that
stake at a huge profit. Wow. And that, combined
with clawing back political donations and other
assets, means they now have enough cash to potentially
pay customers back over 100 % of their claim
value. in dollar terms. So does that mean no
crime was committed? Is the defense no harm,
no foul? Absolutely not. And this is a very dangerous
misconception. If I steal your car, drive it
to Las Vegas, put your entire life savings on
red at the roulette wheel and happen to win,
I still stole your car and I still illegally
gambled with your money. Right. The fact that
the gamble paid off after I was arrested doesn't
retroactively authorize the initial theft. The
crime was the risk. The crime was taking the
choice away from the customer without their consent.
Precisely. The customers didn't sign up to be
angel investors in a speculative AI startup.
They thought their money was sitting in a digital
vault, safe and sound. SBF gambled it. He just
happened to get very, very lucky on one of his
bets after he was already in handcuffs. It's
a hell of a story. From a physics lab at MIT
to a penthouse in the Bahamas to a prison yard
in L .A., when you look at this entire arc, What
is the one thing that sticks with you the most?
What is the core lesson here? For me, it goes
right back to that expected value philosophy
we talked about at the beginning. We live in
a world, especially in tech and finance, that
worships disruption. We love the people who break
the rules. The mantra is move fast and break
things. But sometimes the things you break are
federal laws and people's entire life savings.
SBF is the ultimate logical product of a system
that says, if you are smart enough. and your
stated goal is big and noble enough, you don't
have to follow the same speed limit as everyone
else. He truly thought he was the protagonist
of the universe. He thought ethics were, and
this is a direct quote from him, a dumb game
we woke Westerners play. That quote just haunts
me. It should. Because he wasn't alone in that
thinking. There are plenty of other founders
and visionaries out there right now who believe
the same thing. They think they are saving the
world so they can cut a few corners today. SPF
just took that logic to its absolute catastrophic
limit. It's a powerful reminder that if someone
tells you they are going to save humanity, you
should probably check to see if they are holding
onto your wallet while they say it. And check
if they have a backdoor written into the code.
Always check the code. And maybe check the market
price of mackerel while you're at it. Always
check the fish arbitrage. That is going to do
it for this deep dive. A tragedy, a farce, and
a very potent warning all wrapped up in one.
We'll catch you on the next one. Stay curious.
And stay skeptical. See ya.