As of the time of recording this video, Samuel Bankman Freed's nearly month-long trial has just wrapped up and the jury is likely to reach a verdict in the coming days. We've covered the FTX Saga extensively since the exchange collapsed last November wiping out the life savings of thousands of customers around the world. Some of the facts are uncontroversial. Both the prosecution and the defense agree that billions of dollars of FTX customer funds were siphoned to its sister hedge fund Alam Research The money was squandered and FTX customers were left holding the bag.

The core question is: what did SP SPF know and when did he know it according to the prosecution s SPF masterminded the whole scheme and started stealing customer funds years before the eventual collapse. The defense claims that SPF was oblivious to the multi-billion dollar hole until the very last days. Throughout the trial, we got a deluge of new information, including damning testimony from Spf's Inner Circle as well as electronic records in contemporaneous documentation which had never been shown to the public before. With this, we can take the most comprehensive Deep dive we've ever done into the fall of FTX and the crimes of its founder.

This video is brought to you by Airline Intelligence: a new tool that we develop to track airline ticket prices in real time. We track the average ticket prices of publicly traded US airlines to create price indexes which show comparative ticket pricing. Trends This provides real-time insights into demand strength and the relative performance of each. Airline We use these price indices to create Revenue estimates for each Airline before they report earnings.

You can also stay up toate with quarter Today ticket price changes by Airline updated every week Airline Intelligence is an invaluable tool for airline investors, so go to Differentiated Analytics.com or click the link in the description to check it out today. The core of the defense is that S. SPF is a failed entrepreneur. Founding a company that eventually goes bankrupt is not a crime in and of itself.

His lawyers set the scene by describing him as a math nerd who didn't drink or party. He was in over his head, but he never intended to defraud anyone. To understand the the trial, we have to look at the history of FTX in S. Spf's Inner Circle.

He founded Al Research in 2017 and FTX in 2019. Up until the collapse, he owned more than 50% of FTX and 90% of Alam During all relevant periods, S SPF was the CEO of FTX. His co-founder Gary Wang was a chief technology officer and a man named Nishad Singh was head of engineering. Together, these two men were responsible for the exchange of software.

S SPF was also the CEO of Alam Research into stepped down in October of 2021. When he stepped down, he appointed Sam Truko and Caroline Ellison as co-ceos in August of 2022. Sam Truko stepped down reportedly to enjoy an early retirement. One might draw comparisons with rats and sinking ships.

After this, Caroline Ellison became the sole CEO in his testimony. SPF gave accounts of his relationships with and opinions of each of the members of the Inner Circle He met both Gary Wayang and Sam Drabo during a high school math camp in 2010. Years before he started either company, he trusted both of them. Wang was a brilliant programmer and Truko was a genius Trader who was good with numbers.

He had less favorable things to say about Sing and Ellison Singh was a close friend of Spf's younger brother Gabe Bankman freed SPF said he didn't know Sing well and there were some sharp divides between them. Gabe was not operationally involved in FTX or Alam Why would you hire someone you don't even know to be your head of engineering just because your brother recommends him. especially if you have sharp Ides with him. We'll get into why this claim is relevant shortly.

Caroline Ellison was a colleague of SPF at Jane Street a highfrequency trading firm where he worked before starting. Alam SPF Elaborated on his decision to step down from Alam in October of 2021. He felt comfortable stepping down because Truko and Ellison were competent to do a job together. Specifically, he said quote: they were capable people.

a good team. They were the best that I had. Caroline was a good manager empathetic. She was not a software developer.

She was good at doing research. She had not focused on risk management. Unquote: While he doesn't say so explicitly, he's clearly trying to imply that there was a division of labor. Tabuka was a numbers guy in charge of the overall trading and risk management.

Ellison Dealt with managing Alam's staff. The key claimed that SBF makes is that she did not focus on risk management. SPF Met Ellison while they were both working at Jane Street which is widely considered to be one of the best highfrequency trading firms in the world. It's extremely difficult to get a job there, and risk management is one of the most important function of a high frequency.

Trader So SPF hired a head of engineering who he doesn't know well and doesn't get along with and he appoints a Trader who doesn't focus on risk management to be CEO of his hedge fund. Interesting Personnel Choices: In 2022, the crypto markets didn't do too well With the price of Bitcoin declining More than 70% from its peak. This was a disaster for Alam for two reasons. Firstly, they had large Holdings of various cryptocurrencies which declined substantially in value.

Secondly, they had borrowed billions of dollar from crypto lending platforms including Blockfi Celsius and Genesis As a result of the crypto crash, these lenders were facing liquidity crunches of their own and were calling in their loans to Alam in court. s SPF Acknowledged that even after stepping down as CEO of Alam, he still kept tabs on what was going on and had at least some input on trading. Decisions By June of 2022, he became aware that Alam's net asset value had declined from 40 billion to10 billion as a result of the crypto crash in the early summer of 2022. F met with Ellison and told her to put on Hedges to protect the portfolio if the market keeps declining Ellison failed to sufficiently hedge, ultimately leading to its bankruptcy in November and took FTX down with it.

SPF claims that he was aware of Ellison's failure to adequately hedge. so much so that in the summer he wanted to hire a new co-ceo who is more capable, but Caroline resisted this idea. she wanted to remain the sole CEO keep in mind thatf owned 90% of Alam and was a sole member of its board of directors Ellison owned 0% % of Alam SPF could have fired her at any time according to Spf's testimony. Caroline already lost $30 billion of his money by the summer of 2022 and was unwilling or unable to put on hedges in the way that he wanted.

yet he never fired her SPF elaborates in a substack article that he published in January of 2023. While he was out on bail, he said that in the summer of 2022, Alam finally put on substantial Hedges including short positions on Bitcoin, Ethereum, and the QQQ NASDAQ 100 ETF He claims that these Hedges were not enough. This is again an attempt to shift the blame on Ellison for poor risk management. The problem is, it was literally impossible for Alam to fully hedge.

The problem was the majority of Alam's net asset value was held in Ftt tokens, as well as $2 billion of FTX Equity that they bought back from Binance. The Ftt token is a fake token created by FTX SPF Printed these tokens out of thin air and transferred them to Alam's balance sheet. Alam Used these Ft tokens as collateral to borrow billions more more dollars, which they used in part to buy more Ft tokens on the open market to pump up the price, allowing them to borrow even more money. The coins only had value on paper.

If Alam tried to sell them, the price would collapse. It doesn't matter how much Bitcoin or QQQ you short this will not solve the problem. Spf's complaints about Alam's failure to hedge is a red herring, as Alam's positions were impossible to fully hedge. In his dealbook interview given on December 1st, 2022, SPF said he intentionally was not involved at Alam because of perceived conflicts of interest.

Um, but I I haven't been running Al I haven't been. You know, thinking about its finances I haven't been, you know, making uh, those decisions. Uh, but I why wouldn't you been focused on it? if in fact, that's actually where the profits were? Well, I don't know that, that's where I mean I think Alam had made trading profits over the last years, but FTX had made profits as well. Um FTX had been a you know, profitable growing business.

um and I was that was more than a full-time job I didn't have the bandwidth to run two companies at once I didn't have the you know attention for it. um and and again I I was nervous about a conflictive interest between those two and so was pretty intentional about not being uh, very involved in what was happening at Alam He specifically said he was not thinking about Alam's finances and was not making those decisions. but now the story is completely changed. He admits that he was involved in decision- making at Alam telling Ellison to put on hedges in June of 2022, we know that Ellison complied with his requests and indeed put on Hedges albeit ineffective ones.

Why changed the story in such a material way? Are his lawyers idiots? They aren't They were dealt a horrible hand and tried to play it the best they could. During Spf's pre-arrest media tour, multiple news outlets reported that his lawyers were Furious about him making so many public statements. Now we can see why. throughout 22, Caroline Ellison would communicate with SPF via Google Docs she would write detailed reports about Alam's positions, traits, and even Personnel decisions.

We know that SPF was reading these documents because he communicated with Ellison by writing comments. He was deeply involved, even in the manua of Alam's operations. For example, in May of 2022, Ellison wrote that she was planning to fire an Alam employee named Steven this week. SPF replied with a smiley face, which strongly indicates that they had talked about this before and SPF was supportive of the decision.

Ision When SPF was giving his pre-arrest media tour, he did not know that the government would gain access to contemporaneous documents which prove his deep involvement at Alam. Perhaps he forgot about them or thought that they had been deleted. Either way, he thought he could lie without getting caught. In light of this evidence, he had no choice but to change the story even though this severely undermines his credibility.

Now he's trying to blame everything on Ellison's incompetence. His defense team talks at length about Ellison supposedly ignoring Spf's instructions to adequately. Hedge We've already talked about why this is not and cannot be true, but even if it was, it's a red herring. Owning a hedge fund that goes bankrupt is not a crime.

Failing to hedge is not a crime. Stealing customer funds is wire fraud. The core of the issue is that Alama borrowed 13 billion from FTX customers. What happened to the money after it was borrowed is largely irrelevant to the core allegations of the wire fraud in his pre-arrest media tour.

SPF Tried to claim that this was due to a margin lending facility. FTX was allowed to lend out the collateral posted by customers who opted into the margin trading program. There are a couple of problems with this. Firstly, there was an Auto Liquidation feature which liquidates a borrower's position if their net balance on the exchange Falls below a certain threshold, this threshold is above zero.

Alam's net balance was in the negative billions of dollars and had been for many months before the collapse. Why was Alam not liquidated? Secondly, the amount of money that Alam borrowed was far in excess of the collateral posted by all FDX customers with margin trading enabled. Thus, Alam borrowed billions millions of dollars from spot FTX customers whose assets had no legal basis to be lent out SPF needs to convince the jury that these two things happened with neither his consent nor knowledge. First, let's look at the non- liquidation angle.

FDX Was founded in 2019 and started to grow very quickly. almost right off the bat. This created a situation where their servers and other Computing infrastructure couldn't keep up with a massive volume of Trades FTX had something called a risk engine. This was a computer program that monitored all the margin accounts on the exchange and liquidated any account that fell below their collateral requirements.

According to SPF. In 2019, the exchange was growing so fast that the risk engine couldn't keep up with a demand and started glitching. This created situations where it would erroneously liquidate positions of accounts even when they had sufficient collateral. SPF says he discussed this issue with Gary Wang and NAD Sing.

He told them to solve the issue. He believed that Gary and NAD had solved the issue, although he never asked them for specifics. As it turns out, they inserted a feature in the risk engine called allow Negative. Any account of the allow negative feature would not be liquidated even if its net balance was negative.

The allow negative feature was only given to Alam research's account. According to SPF, he had no idea about this. He never reviewed the code himself. That's why he was blindsided when he eventually found out that Alam had a negative net position of billions of dollars right before the collapse.

The problem is that both Nishad and Gary tell a very different story. They say that SP SPF instructed them to make the code at first, the allow negative function was capped out a few million. At this point, it seemed reasonable. FTX was generating millions of dollars of Revenue per month from Trading commissions.

even if Alam defaulted on its margin positions, FTX could cover the shortfall with its own corporate cash without needing to touch customer funds over the next few years. s SPF directed Alam to make billions of dollars of Illiquid Venture Investments He also borrowed billions of dollars from Alama to fund his lavish real estate purchases, political donations, brand endorsement deals, and illiquid. Investments Outside of Alama, This included a $500 million investment in Robin Hood shares made by a Shell company called Emergent Fidelity which was controlled by SPF. He now admits that he purchased the Robin Hood shares in a separate Shell company to conceal the fact that the money ultimately came from Alam.

As SPF was emptying Alam's coffers, its liquidity position became tight according to Gary and NAD SPF repeatedly instructed them to increase the credit limit on the allow negative feature, allowing Alam to withdraw more and more customer funds. By the summer of 2022, they had increased the limit to $65 billion. This was greater than all of Ftxs customer deposits. Thus, Alam effectively had cart Blan to take all customer assets.

Earlier in the video, Remember how SPF characterized Nishad as someone he didn't know well and didn't get along with? Nishad was the one who actually wrote the allow negative code. SPF is implicitly trying to create a narrative that Nishad was a bad guy who was allowing Alam to borrow unlimited money. SPF himself was in the dark. it was happening behind his back.

But is this narrative believable SPF was the largest beneficiary of Alam's loans by far. He admits that he directed Alam's Venture Investments which were largely enabled by the allow negative feature. Nishad and some other FTX Executives also borrowed substantial amounts of money from Alam, but this was mostly to make political campaign contributions under their own names, all under the direction of S. SPF The next issue is the fact that Alam was able to borrow billions of dollars of funds from customers who had not opted into margin.

Trading These Funds should have been segregated and never should have been lent out to anyone. In the previous video, we talked about how FTX directed its customers to transfer money into a bank account owned by Alam and then to a bank owned by a shell company called North Dimension. Now we have more details. This is a screenshot from an FTX Dcom customer from Singapore on October 28th, 2021, he or she initiated a $1,100 deposit based on instructions received from FTX The instructions set to wire the funds to a Silvergate bank account owned by a company called North Dimension Inc Sure enough, that same day, $11,100 appeared on their FTX dashboard.

So what is North Dimension in 2020? North Dimension was registered as a subsidiary of Alam Research. At this time, SPF was still CEO of Alam in December of 2020 North Dimension Applied for a bank account at Silvergate S. SPF Personally signed the application and it was approved. North Dimension had a website called North Dimension.

Org The website gives zero information about who owns it, who its employees are, or who its customers are. It describes itself as a financial services company that provides fund management, liquidity, and payment processing services. In the realm of cryptocurrencies, An FTX depositor who looked at the website would probably assume it's a Payment Processing Company that manages client deposits on behalf of FTX. They would have no way of knowing that the company was a subsidiary of Alam Research created by SBF.

The money never arrived to FDX the cash balance on the customer's FTX account was a lot. they didn't own $1,100 held by FTX. They instead held an unsecured claim of $1,100 that FTX may or may not be able to honor. The prosecution showed the jury the north Dimension Bank application withf signature.

He did not dispute that he signed the document he says they he assumed the money sent to North Dimension would have been recorded on some type of internal Ledger as a payable to FTX He claims to have no idea how the money at North Dimension was used Alam indeed maintained an internal account called Fiat Fx.com which kept track of the money deposited into North dimension. In June of 2022, Nishad talked to Adam Yida, a software engineer at FTX who also lived in the same Bahamas Penthouse as Spf's Inner Circle Nishad asked Adam to fix a glitch in the code for the Fiat Fx.com account Adam fixed the code and saw that Alam owed FTX $8 billion. He was shocked by how large the number was and that cash was not in the North Dimension bank account as it should have been A a few days later Adam Yadia was playing paddle ball withf at a tennis court at their luxury Bahamas compound. He asked SPF what was going on with the missing $8 billion SPF responded quote: we were bulletproof.

Last year we are not bulletproof this year unquote Adam asked him how long it would take to become bulletproof again He replied quote 6 months to 3 years unquote The only way to interpret this is that SPF knew as early as June of 2022 that Alam was spending the money from the north Dimension bank account Because they had spent the money, they didn't have the cash on hand to pay back the customer funds. That's why they were no longer bulletproof SPF Claims that he first found out about the $8 billion hole in the north Dimension bank account in June of 2022. When Adam Yida fixed the glitch in the code, the prosecutors asked: did you fire anyone for spending $8 billion of customer deposits SPF responds I don't believe So did your employees tell you that the bug had to do with the Fiat Fx.com account SPF responds I overheard it I was busy and it was distracting. The prosecutor responds: your supervises ask you to stop asking questions SPF responds yes and I agreed with them I did not follow up The prosecutor asks you heard him testify that he told you Alam still owed $8 billion The prosecutor is referring to the conversation he had with Adam Yadida in the summer of 2022 at the paddleball court SPF attempts to beat around the bush.

The judge reprimands him and basically tells him he has to give a straight answer. SPF Finally says yes He told me SPF is not denying that he knew about the $8 billion of missing customer funds as early as June of 2022. He's just saying that he thought his underlings would take care of it and didn't want to distract them by asking too many questions, so he never looked into it. He never made any efforts to find out who made the decision to spend the $8 billion.

I Think it's pretty obvious why he made no efforts to investigate the issue. He already knew exactly who was responsible as he was the one spending the money in addition to defrauding over 1 million customers. The government also alleges that SPF defrauded institutional lenders including Genesis Capital and Blockfi. One issue is the Ftt token: Alam had billions of dollars of Ftt tokens on its balance sheet.

Caroline Ellison Testified that Alam received many of these tokens from FTX which created them out of thin air. The purpose of the tokens was to make their balance sheet look stronger because they are marked as being worth billions of dollars. Ellison Testified that she viewed this as deceptive because if they ever tried to sell the tokens, they would tank the price and only get a tiny fraction of the stated value. But regardless, she recognized them as assets on the balance sheets that they sent to lenders.

On December 5th, 2022, SPF Gave an almost 2hour interview on the Blocks YouTube channel. The host specifically asked him about Ftt. so so there was some information. You know that I like as a large shareholder, would you know, request what information was uh, made available to you I The information I Remember being made available to me primarily were those two things were you know, highlevel aggregate balance sheets and uh, and and you know P&l graphs over time.

So you saw the balance sheet being heavily concentrated in Ftt and that didn't raise any red flags I'm not sure that I even saw it broken out by token like I think High LEL means like you know assets and liabilities and like retained income and things like that. So SPF had no idea what coins Alam owned. Is this true? Forbes keeps track of the 400 richest people in the US each year in the Forbes 400 list. In 2021, 29-year-old S.

SPF was the youngest person on this list with a net worth of $22.5 billion according to Forbes Most billionaires prefer to remain private and don't like talking about their wealth. Forbes has to do significant investigative work to come up with a net worth estimate. SPF was different. He proactively reached out to Forbes offering information he wanted to be on the list.

He went so far as to send them a Google Sheets listing the major assets that he owned. Nothing says effective altruism like bragging about your net worth in this Google Sheets Dated September 2021 SP SPF Listed four major assets which made up the bulk of his net worth. These included the cryptocurrencies Solana Ftt and Serum and then his Equity stake in FTX SPF did not directly own the three cryptos. they were instead owned by Alam andf owns 90% of Alam.

We know this because Sam included a row called Alam Funds Under Management which exactly equals the value of the three cryptos added up. So in September of 2021 SPF knew that Alam owned 168 million tokens of unlocked Ftt, which had a market value of $8.2 billion. To be fair, this was from September of 2021 Sam stepped down as CEO of Alam research one month later in October Maybe after he stepped down, he stopped keeping track of Alam's Holdings Wrong. In August of 2022, he sent Forbes an updated Google sheet.

By this point, Alam owned even more Ftt tokens at 176 million, but the price of Ftt had declined so this was only worth $4.6 billion. These communications with Forbes tell us two things: Firstly, he was blatantly lying in his pre-arrest mediat tour. He knew exactly what coins Alam owned and secondly, if you look at the Google Sheets he only includes the value of Alam's large crypto. Holdings He doesn't include any of Alam's IL liquid Venture Investments Why would you not include these? Maybe because he knew that these large illiquid Investments put Alama in a tenuous liquidity position and he didn't want to disclose this.

He also doesn't include any of Alam's liabilities. This is because the value of the liquid crypto assets was far less than the value of the liabilities. The bottom line is: he gave Forbes extremely misleading data, making it look like Almea only had liquid assets and no liabilities. he wanted to be on the Forbes 400.

So bad that he was willing to deceive them by sending misleading data Lying to Forbes is not a crime, but it's yet another data point exposing his true character. Now let's go back to May of 2022. Caroluna blew up in three arrows Capital went bankrupt. This was a major disaster for a number of crypto lenders who lent money to 3ac, including Genesis Capital Genesis Now found itself in a precarious financial position.

They wanted to reassess their other loans, including billions of dollars of loans they made to Alam research. So they asked Alam for a balance sheet. Caroline prepared the balance sheet, but it didn't look good. It showed billions of dollars of so-called FTX borrows.

That's the money they siphon from FTX customers. It also showed billions of dollars of related party loans to SPF and other senior. Executives Neither of these entries looked good. Before sending the balance sheet to Genesis, she sent it to SPF for approval.

SPF told her to make alternative balance sheets that didn't look as bad. So Caroline created Google Sheets with eight different tabs. Each tab had a different version of the balance sheet, some some of which excluded the liabilities to FTX customers and the related party loans. SPF chose version 7 to send to Genesis Version 7 excluded the FTX borrows and related party loans.

In the words of the prosecutor: SPF chose the version of the balance sheet that excluded the crimey fraud stuff. There were electronic records showing that SPF was sent the Google sheet. He claimed that he only saw one version of the balance sheet. He gave it a cursory glance and approved it.

He didn't notice that there were eight tabs. Unfortunately for Sam Google records metadata on Google Sheets The metadata showed that his Google account viewed every single one of the eight tabs. On November 6th, 20122 the House of Cards finally came crashing down when Binance CEO CZ tweeted that his firm would liquidate its entire Holdings of Ftt. Remember that according to SPF, he didn't even know that Alam owned large amounts of Ftt and if everything was above board, the price of Ftt would have no impact on FTX solvency or ability to honor customer withdrawals.

Yet, on that very same day, just hours after the CZ tweet, SPF was talking to Caroline Ellison helping to devise a PR narrative to support the Ftt price Caroline suggested that she could send out a tweet saying that they would buy the Ftt from Binance for $22 per coin. This tweet had two purposes. Firstly, it would portray Alam as having significant liquidity to the extent that they had the cash on hand to buy Binance's ftt. Holdings Secondly, it showed that Alam still had confidence in Ft's value.

They believed that this would have a favor impact on Market sentiment. Of course, it was all a lie. Alam did not have the liquidity to buy Binance's Ft. Holdings Butf was fine with it because he believed that Binance wouldn't take them up on the offer.

The offer to buy the coins for $22 was a bluff. After receiving Sam's approval, Caroline posted the Tweet she confidently predicted that the price of Ftt would increase As a result. She was wrong. The price continued to freefall.

Spf's next message is very telling. He said quote guessing it makes sense as speed up freeing. Capital Seeing significant withdrawals unquote, he knew that FTX didn't have the cash on hand to honor customer withdrawals Alam meated need to fire sell its illiquid Venture Investments and other assets as soon as possible in an attempt to free up cash. yet the very next day.

November 7th 2022 SPF puts out a tweet saying FTX is fine, assets are fine. He knew that FTX was not fine. He knew that the assets were not fine at least since June of 2022 and probably as early as 2020. SPF knew that customer funds were being siphoned to Alam he was the one spending the money.

This tweet was his last Stitch effort to deceive customers. Shortly thereafter, SPF started his media Tour On Christmas day December 25th, 2022 SPF wrote a diary entry which confirms what we all suspected his media tour was a carefully calculated PR stunt. It was all a lie designed to deceive the public. He literally wrote a section on his diary entry called notes on PR which memorializes misleading talking points.

The version of the diary entry released by the government is heavily redacted, but we can still get some key insights in his media tour. He repeatedly said that he wasn't concerned with personal consumption and was only focused on trying to help customers. Yet in his personal diary he wrote quote: should I try calling up the broker hood is with and see if they'll just give me the shares without thinking about it. unquote hood is the ticker symbol of Robin Hood He bought $500 million worth of Robin Hood with stolen customer money.

He was worried that these shares could be seized by the bankrupt Courp, so was thinking about trying to cash them out before this could happen even as the walls were crashing down SPF cared about one person SBF He wanted those Robin Hood chairs for himself God forbid that they be seized by the bankruptcy court and be used to compensate his victims. The final piece of the puzzle is the motive: Why didf risk spending the rest of his life in prison to commit one of the largest financial frauds in US history? What did he get in return? Here, we have to delve into the realm of speculation. We know that SPF Loved talking to the media. He wanted to paint himself in as positive of a light as possible.

He wanted people to like him before FTX Sam was a nobody. He wasn't particularly good-looking or socially. Adept He attended math camps in high school. He wanted to shoot Tik Tok videos with Tom Brady He wanted to take selfies with Katy Perry at the Super Bowl The only way he could get a seat at the table with these celebrities was to pay them and a lot FTX spent $1.13 billion on Celebrity endorsements and sponsorships.

The only way he could get his hands on this kind of money was to steal it, so he did. As of the time of recording this video, the jury has not yet reached a verdict, but the evidence is so overwhelming that a conviction appears all but inevitable. He will have decades to reflect on whether his 15 minutes of fame was worth the price. All right guys, that wraps it up for this video.

What do you think about SPF What do you think is a fair sentence for his crimes? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.