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Off Chain 9/21/23: Persian Rugs
260 Plays1 year ago
In this week's episode of Off Chain, we discuss the absolute insanity of what SBF's parents were handed out directly from FTX and Alameda during it's time operating. Everything from Persian rugs and expensive vases through to $1m+ salaries and multi-million $ properties!
Plus, we look at some of the recent questions from the SEC into Binance US's operations.
Recommended![CBDCs: The [Dark] Future of Money (Part 2 of 2) image](https://media.zencastr.com/cdn-cgi/image/width=112,quality=85/image-files/61fc0461fb20e00040aeb09e/5b9f1396-2a8e-418d-82a0-30fd00969266.jpg)
Transcript
Introduction to Decrypting Crypto Podcast
00:00:12
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's September 21st, 2023, and this is Off Chain, your weekly recap of the biggest stories in the crypto space. I'm Matthew Housebarbie, and as always, I'm here with Austin Knight. How's everything going, Austin? Things are going well, Matt. Interesting week. We've got some cool stuff to talk about.
Sam Bankman-Fried's Trial Significance
00:00:35
Speaker
Surprise related to exchanges.
00:00:40
Speaker
Well, and, you know, we, there's this guy, I'm not sure if you've heard of him. He goes by an acronym and he's about to go on a somewhat significant trial pretty soon.
00:00:54
Speaker
Yes, we're going to have to talk about SPF, but this is a bit of a fun one. I got to be honest. I'm enjoying this story that we're going to dig into. I'll tell you what, Matt, I've got another acronym for you. CZ. How about that? Oh, yeah. Oh, yeah. Well, there's a correlation here between these acronym wielding individuals and maybe controversy drama.
00:01:19
Speaker
So yeah, we've got a few things to dig into. We've obviously got the SPF case that is no doubt going to be plastered on everyone's TVs over the coming weeks. And of course there's going to be like a million spinoff series and Michael Lewis is launching his book before the trial even finishes on October 3rd as he followed SPF very fortuitously around the world over the past, what was it? Two years, something like that.
00:01:49
Speaker
That's going to be interesting, so we'll see how it goes. But let's jump straight into our first story of the day.
FTX Bankruptcy and Family Financial Gains
00:02:00
Speaker
We warned you that we were going to be talking a little bit about SPF, but don't worry. It's a little bit more about SPF's parents this time. And you may or may not be aware of Joseph Bankman and Barbara Fried, the parents of Sam Bankman Fried.
00:02:18
Speaker
They are pretty influential figures in the US political space. And there's been some pretty interesting, let's say, revelations that have came out from the FTX bankruptcy hearings, in particular to just a whole host of, I guess, benefits and payments that they have allegedly
00:02:44
Speaker
taken directly from FTX. And The Verge published a really great kind of deep dive that just highlighted some of the best of the best that they took out. And it's interesting. In some of these, I wasn't super surprised. In others, I mean, it's just completely blatant. And I am actually very surprised that
00:03:08
Speaker
many of these things happened or were put in place in particular because of the high profile nature of SPF's parents. So let's take it from the top. So first off, they were taking or at least attempting to take
00:03:30
Speaker
$1 million plus salaries from FTX. What they were doing to earn this, Austin, I truly have no idea. But that in itself is kind of strange. But then some of the email records that are released are just gold. So there was an email that was released in the bankruptcy hearing from Joseph Bankman. And this was an email that was sent
00:03:56
Speaker
to an internal member of the FTX team, I am guessing from the payroll or kind of finance team from just what was being discussed. And Bankman sends this email and a part of it says, I'm no longer getting paid by Stanford because I'm on leave. So you should have me on salary starting December 1. It seems pretty direct, but I'm guessing something had been discussed.
00:04:24
Speaker
And in a bunch of other follow-up emails, he then complained that he was, quote, supposed to be getting $1 million per year starting in December. So that would be a little bit more than the $80,000 a month gross that he was getting. He then followed up emailing Sam.
00:04:43
Speaker
CCing his mother into the email thread, which is my favorite bit. And he just says, this is all because he was getting only a measly 200K salary for seemingly doing nothing instead of this 1 million salary. He says, gee, Sam, I don't know what to say here. This is the first I've heard of the 200K a year salary, exclamation mark, putting Barbara on this.
00:05:10
Speaker
That's the great moment. It's like, right. I'm bringing your mother into this conversation, Simon. We're going to sort this out. You are not behaving very well. I want my million dollars and not my measly pennies on the 200K that I'm getting. It's just unbelievable. And there's a whole whole load of expense reports. So, uh, Bangom was clearly treated. This is less surprising to me. He got like, quote,
00:05:38
Speaker
$1,200 per night hotels for himself and plane tickets and tickets to the Formula One Grand Prix in France, which he called in an email a free trip to France for a student at Stanford Law School who then later became outside counsel to FTX. This one is like one where I think it sounds like
00:06:05
Speaker
bad on paper, but I think when you realize, you know, FTX were one of the biggest sponsors in F1. In Formula One, yeah. I assume that this is talking about Monaco and not like France, but I'll let that slide. Exactly. You know, we're operating on country, so they're not principalities.
00:06:26
Speaker
I don't want to get into some type of political war here. Yeah, Bankman does not observe principalities clearly. He's a French maximalist and he will have none of this Monaco nonsense. That was a quote from a follow-up email. No, I'm going to jump in.
00:06:45
Speaker
Yeah, so I think they'll obviously have a ton of tickets. It wouldn't be unusual in fairness, especially in the peak of the bull market, that they would give out a bunch of these tickets.
00:06:57
Speaker
then getting comped hotels, well, yeah. I mean, if he is getting a salary, he's technically an employee and would be eligible for expensed kind of hotel rooms, 1200 bucks a night, not exactly your standard hotel room, but in the world of crypto peak bull market, let's just say it doesn't surprise me in the slightest to be completely honest. Now, what does surprise me?
00:07:26
Speaker
what absolutely surprises me. And I think of everything.
Controversial Financial Transfers and Ethics
00:07:30
Speaker
This is the piece that I am kind of shocked that this happened just because surely, bankmen and Barbara Fried, they must have been thinking,
00:07:44
Speaker
This is a bit risky, and this might not look good if this gets out. Well, the bankruptcy docs show that SBS parents received, first of all, $10 million in just funds originating from Alameda Limited, which is, of course, the now disgraced trading firm that operated as part of FTX, or, well, wasn't supposed to operate as part of FTX, but you know the story.
00:08:11
Speaker
as well as a $16.4 million property in the Bahamas paid for with funds ultimately provided by FTX trading. This is crazy to me. I'm not sure how, surely they would have to explain that at some point, even if this was kind of legit. It's a weird one for me for this to be coming through FTX. And then Bankman then later emailed Ryan Salam saying,
00:08:41
Speaker
we're hoping you can all come to celebrate the house you helped us buy slash move into it's just like there's there's no there's no hiding any of this this is just like yeah this is great great and there's a nice little sweetener for the house they also got and i quote this is from the bankruptcy hearing at least eight vases
00:09:01
Speaker
five rugs and one of which was a Persian hand knotted rug costing more than $2,500. Is that not enough Austin? Don't worry. Don't worry about it. They got a measly $90,000 just for a few expenses including cleaning and landscaping. That's just, you know, $90,000 for that.
00:09:25
Speaker
What do you think of that? That's the one that gets me actually. They would just have this property paid through the company and it's like, how is that being accounted for? Yeah, I mean, this is blatant. It's hard to explain a lot of this. And I think that's why they're having such a hard time. And as we've found previously, there was no real accounting department at FTX. There wasn't very much of a compliance
00:09:51
Speaker
organization. So it doesn't totally surprise me because I think that we knew that things like this would be going on. And we also found out over the weeks and months after FTX collapsed that there wasn't really much of an effort to obscure or hide it. So if it's egregious and it's not being obscured, this is the type of stuff that you're going to be faced with.
00:10:15
Speaker
I mean, wow, to actually see it in writing about these $10 million in funds, $16.5 million in property, Persian rugs for $2,500. It's one. Also, I do want to correct myself here. So there actually was a French Grand Prix in 2022.
00:10:35
Speaker
And believe it or not, the first French Grand Prix was in 1906. It just disappeared for decades at a time. And it's not happening in 2023, so I completely forgot about it. Our F1 fans, our big cohort of F1 fans are going to be furious with you on this, Austin.
00:10:52
Speaker
You really stepped in one there, I'm afraid. So this isn't where this stops, by the way. So Bankman also managed to funnel $5.5 million worth of donations to Stanford University that I quote, did not benefit the FDX group and instead amounted to naked self-dealing by Bankman who sought to curry favor with and enrich his employer the FDX group's expense.
00:11:22
Speaker
It now, apparently, seems, which you brought to my attention earlier, Austin, is that they are deciding to give this money back, which is kind of hilarious. I mean, it took them long enough. Yeah. They were like,
00:11:38
Speaker
Are they going to find out? Oh, someone's published it. We adamantly, definitely did not want this money. We're going to give it back. We were always planning to. Don't worry, everybody. Yeah. What a good group, Stanford RA.
00:11:56
Speaker
$37 or $38 billion in its endowment, literally almost $40 billion in the bank, I think. And they're like, man, that $5.5 million from FTX. I really want to hang on to that. Have you seen the yield on Treasury bills right now, Austin? This could be thrown straight into the Treasury. And I think of that juicy, what, 5.5% yield. That's what it's there for.
00:12:23
Speaker
Well, Barbara, SPF's mother, also, I quote, knowingly aided and abetted, bankman freeds, sings, and potentially other FTX insiders, breaches of fiduciary duties in connection with these offenses, including Singh's $1 million contribution to MTG, which is Mind the Gap, which is the political group that Barbara Freed owns, in April 2021, originating from, you guessed it,
00:12:52
Speaker
Alameda. So, you know, I don't think any of this comes as a surprise. What I would say here is Austin that I think for both of our parents, they need some expectation setting around gifts. Oh, my God. To be getting them. I think SPF has beaten us to the birthday gift kind of competition, I would say. So that's unfortunate for our parents.
00:13:20
Speaker
I'm already purchasing F1 tickets to Monaco for next year, Matt. I'm upping my game. Was that just another slight on the French Grand Prix? You know what? I'm just doubling down on this. I'm not even bothering with buying tickets to the French Grand Prix. That piece of shit Grand Prix that I just think shouldn't exist.
00:13:40
Speaker
I am a Monaco maximalist, and that's where I'm going. Well, that's good, Austin, because I was going to buy that $55 million yacht, and I can sell that right into Monaco, me, you, Dauquan, and maybe we can get some of the old FDX group back, and we can have a real party. It'll be great. We'll get Joseph back. I only can post Persian rugs. Oh, man. Put that rug right there on the back of that boat, and hey, if the train continues, maybe CZ can join us over there.
00:14:07
Speaker
Oh yes, well on the beautiful note of CZ, why don't we jump into the next story of the day.
SEC Scrutiny on Binance US Operations
00:14:17
Speaker
Binance US has been answering questions about some mysterious money movements as part of its SEC lawsuit. So you may recall back in June, the SEC hit Binance US with a sizable lawsuit. Remember, Binance and Binance US are legally two separate entities. You have the international Binance
00:14:39
Speaker
That's the huge exchange, the largest exchange in the world. And then Binance US has its sort of US-based arm that is structured differently so that they can do business in the US. Well, the SEC is going after Binance US. They hit them with that lawsuit in June. And some court documents were unsealed recently.
00:14:59
Speaker
that showed that the Binance US legal team was filing responses to questions about some odd financial maneuvers. And this includes loans to Binance from CZ. In fact, in one instance, CZ, who is the famous CEO of Binance,
00:15:17
Speaker
but actually wasn't the CEO of Binance US at the time, made a $250 million loan to BAM management, and then $183 million was transferred from BAM trading
00:15:33
Speaker
to Paxos, which is the issuer of Binance USD. So BAM trading and management, they operate Binance US. That's why that matters, that CZ is making a $250 million loan to them. And then Paxos, that's a FinTech company that partnered with Binance in 2019 to launch BUSD or Binance USD, which is their stable coin. And it was the 28th biggest digital asset by market cap.
00:16:01
Speaker
Yeah, I think they were the guys, I think Paxos are also the ones that PayPal work with actually. Yeah. Yeah, which I don't know if you saw a map, but it turns out adoption on that has, has been low amidst the whole slump in the, the, you know, the market, which includes stable coins. Their, yeah, their numbers were not looking good, but it is coming out on Venmo. So I did see that actually, that it was coming out on Venmo, which I thought was kind of interesting.
00:16:30
Speaker
Yeah, definitely making it more accessible. But anyway, yeah, so Paxos has moved on from BUSD to PYUSD, but that's because they stopped minting BUSD in February after the SEC hit them with a Wells notice. So I think they kind of saw the writing on the wall here. Nevertheless, I mean, this is kind of odd, right? A loan coming from an individual CZ
00:16:53
Speaker
to BAM, the company that's managing and operating Binance US, and then $183 million being transferred by them to Paxos, the
00:17:05
Speaker
the company that is behind the BUSD stablecoin. That's just a lot of odd money funneling. So the Binance US legal team replied to this and they claimed that BAM management issued a $250 million convertible note to CZ in December. And then CZ, quote, funded the purchase of this note with BUSD.
00:17:29
Speaker
183 million of which were sent to Paxos, which was the issuer of BUSD, to convert the BUSD into USD. And then they added, quote, these funds were then transferred to BAM trading in January of 2023. That doesn't really make me feel any better, but I guess that that's their explanation for it.
00:17:50
Speaker
Yeah, I saw the SEC kind of talking around like the fact that it's just becoming incredibly difficult to verify whether Binance and BUSD were fully collateralized at all times. And I think that's kind of where this is all stemming from. And we're kind of just getting
00:18:16
Speaker
fragments of this, of course, like everyone's seen by now, the mass exodus of all the executives in the Binance US kind of team. I actually saw that they hired a former SEC enforcement official into their legal team a couple of months ago now as well for Binance US. And they're pulling out of most markets, Binance US, that is.
00:18:45
Speaker
Yeah, it's a strange time. It's hard to really get underneath it as well. Yeah. And I think that one of the more notable parts of this whole thing, and something that has definitely been in the news cycle lately, is the SEC's interest in kefu, sefu, safu, sefu.
00:19:06
Speaker
I don't know how to pronounce it. It's C-E-F-F-U, which is the institutional crypto custodian and partner of Binance. They're like an institutional custody service, right? Like they ultimately are a
00:19:23
Speaker
A company that is focused all on managing and custodianing cryptocurrency for large institutions. Yes, exactly. And the reason that the SEC is interested in CAFU is that they have been, the SEC believes that they have been acting as a conduit between Binance US and Binance Holdings, which is the sort of main Binance international exchange, and that they have been used to shift US customer funds out of the US.
00:19:53
Speaker
So that would be a huge deal. CZ, unsurprisingly, has had some strong things to say about this on X. You may have caught one tweet from him recently where he said, quote, For the record, Binance US does not use and have never used Kefu or Binance Custody. You can't just make this stuff up.
00:20:18
Speaker
Yeah, I noticed something a little weird when, yeah, he's in fairness that is typical of CZ, which is hard to get a read on things that the defacto is to deny, right? Yes. I was kind of looking into this because I was looking at Kefu Safu. I actually am not super familiar with them, but I saw there was like a blog post that
00:20:40
Speaker
had an announcement where it was like Binance Custody is now Kefu. And I went to click into it and it was like, it was now deleted. And then I went into like Wayback Machine and it was there. And I was like, this is kind of weird. I mean, it doesn't really tell me anything else here, but I wonder if there's a bit of like distancing happening, but it's unsure. But clearly the key piece in all of this is around like, you know, was there
00:21:06
Speaker
commingling of funds in the sense of these ring-fenced custody between Binance and Binance US, two very different entities in the way that both are regulated and the way that they are required to operate.
00:21:19
Speaker
Yeah, I mean, that's, I think that is an interesting tell that you're onto there, Matt. And actually some other SEC documents were unsealed yesterday that showed that Binance US quote, licensed custody software and support services from
00:21:36
Speaker
Kefu. So that seems to pretty directly contradict CZ's denial of the SEC's claims here. So I mean, you're right. This is definitely the playbook for CZ. I think that if you're following his Twitter feed, you're basically getting like
00:21:59
Speaker
finance propaganda from the top, if you will. And part of the playbook is at any time that an accusation is to made to sort of like scream into the abyss, denying it wholeheartedly. And, you know, a lot of the time it turns out that actually it was true. And this is looking like it could potentially be another one of those cases. I don't know. We'll have to see as the SEC continues to push on this what comes out of it. But you will recall
00:22:26
Speaker
Back in February, Reuters broke a story that Binance US had moved $400 million to Merritt Peak Limited, which was a trading firm that was managed by CZ. And the way that Reuters figured this out is that they looked at bank records.
00:22:46
Speaker
and internal company messages. And I recall CZ pushing back really hard on this and denying it at the time. But you know, this is the point here is this is not exactly like unprecedented behavior, this sort of odd movement of funds from, you know, entities within Binance and Binance US.
00:23:05
Speaker
And I think that's kind of the whole thing where it's like we really won't know and we may never know like what's happened behind the scenes. I think the thing that just gets everyone a bit worried and clearly gets the SEC very interested is just this web of
00:23:21
Speaker
entities that are transferring large sums of funds between one another overseas in many situations, all being owned by CZ or Binance or a subsidiary of. It's very confusing. I think that's what makes everyone
00:23:39
Speaker
very very nervous ourselves included but I'm sure there's going to be a lot that's going to come out obviously the ongoing investigations with the SEC and likely more regulatory bodies as well and I'm sure we're going to have some inside information coming out can you trust it can you not trust it we will we will soon see but
00:24:03
Speaker
I'm sure we'll find out pretty soon.
Episode Conclusion with Humor
00:24:05
Speaker
So with that, we'll wrap things up. We're keeping a relatively short episode this week. And Austin, I'm just gonna go call my guy who's gonna look for some bankruptcy sales for Persian rugs. I got a huge gaping hole in this living room that needs to be filled. So I'll hook you up. I hear they've got some nice vases as well if you're in the market for them.
00:24:30
Speaker
Ah yes, exactly what I need in my life. Alright man, I'll see you next week. Talk to you then.
00:24:57
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.