The Secret Story of FTX’s Rise and Ruin Part 2

Al Letson: From the Middle for Investigative Reporting and PRX, that is Reveal. I’m Al Letson.   Jonathan Jones: What does FTX stand for?   Sam Bankman-Fri…: Oh, God. Futures trade. The F and the T each from the phrase futures.   Al Letson: That’s FTX founder, Sam Bankman-Fried. In an interview with Reveal’s Jonathan Jones. Sam began the crypto trade in 2019 and watched it flip into an enormous success.   Speaker 4: They name him the JP Morgan of crypto, proper?   Speaker 9: Yeah, the Michael Jordan of crypto, if you’ll.   Al Letson: By 2022, tens of millions of prospects had been buying and selling billions of {dollars} in crypto by way of FTX. However behind the scenes, individuals who labored for Sam had been seeing indicators of hassle.   Jonathan Jones: Did you could have moments the place you felt he performed just a little too unfastened with the principles?   Caroline Papado…: Most likely, yeah. I imply, I believe it was, wow, we’re transferring actually quick.   Al Letson: In November of 2022, phrase obtained out that billions of {dollars} had been lacking. Traders panicked and began pulling out their cash.   Sam Bankman-Fri…: On the seventh, we had $4 billion of internet buyer withdrawals, like 40 instances as a lot as we’d ever seen in a day earlier than.   Al Letson: Inside days, the corporate imploded, triggering legal investigations, international chaos, and prospects all over the world shedding entry to their cash. As Sam’s empire crumbled, his inside circle turned on it and he determined at hand the corporate over to a brand new CEO, John Ray.   Speaker 6: Ray, who’d beforehand oversaw the chapter of Enron mentioned, “By no means in my profession have I seen such a whole failure of company controls.”   Al Letson: FTX’s new CEO declared chapter, launching a authorized course of that may decide the long run of the corporate, how a lot prospects would get again, and whether or not some can be not noted totally. This half of the FTX story has largely gone untold. The highlight has all the time targeted totally on Sam Bankman-Fried, and a lot much less consideration has been paid to what occurred to FTX after Sam’s arrest and to the billions of {dollars} owed to FTX prospects. Beneath chapter, firms have a accountability to their collectors to, in essence, act of their finest curiosity.     However within the case of FTX, some collectors say that didn’t occur, and they accused John Ray, FTX’s new CEO, and Sullivan & Cromwell, the regulation agency working the chapter of making decisions that did the other. In the end, these issues would play out in a chapter court docket. This week, partially two of our investigation into the FTX collapse, we unspool what’s grow to be one of the costliest bankruptcies in historical past.   Maxine Waters: The committee will come to order. This listening to is entitled Investigating the Collapse of FTX, Part I.   Al Letson: Reveal’s Jonathan Jones picks up the story on December thirteenth, 2022, a month after FTX filed for chapter when Congress held its first listening to into the collapse.   Maxine Waters: First, I’d prefer to welcome Mr. John Ray III, who has been appointed CEO of FTX to supervise its chapter.   Jonathan Jones: That’s Consultant Maxine Waters, the Democratic Chair of the Home Monetary Providers Committee. As she begins, Sam Bankman-Fried is nowhere to be discovered. The evening earlier than, he’d been arrested in The Bahamas.   Maxine Waters: He was scheduled to testify underneath oath earlier than this committee at present. Sadly, the timing of his arrest denies the general public the chance to get the solutions they deserve.   Jonathan Jones: The congressional listening to goes on with out Sam. With John Ray alone taking the mic.   John Ray : That is actually old school embezzlement. That is simply taking cash from prospects and utilizing it on your personal goal. Not subtle in any respect.   Jonathan Jones: Ray portrays FTX as a catastrophic failure in management.   John Ray : Over, in lots of respects, ranging from close to zero in phrases of the company infrastructure and record-keeping that one would anticipate in a multi-billion greenback company.   Caroline Papado…: For somebody to return in and say, “You guys had been fully disorganized. You didn’t have any data.” No, we had data. You disagree and you’re allowed your opinion, however the way in which you went about it in such a public body and you didn’t speak with the individuals who used it and why we used it, the half was very insulting.   Jonathan Jones: Caroline Papadopoulos was controller of FTX U.S., working a workforce of accountants when the corporate went down. She was no Sam loyalist. She informed me she solely felt comfy staying on post-collapse as soon as she discovered Sam would not be CEO. However watching the congressional testimony, what she’s listening to from the brand new CEO bothers her.   John Ray : I’ve simply by no means seen an utter lack of record-keeping, completely no inner controls in anyway.   Jonathan Jones: Whenever you hear that, what goes by way of your thoughts?   Caroline Papado…: How dare you? I imply, solely from the standpoint of I’m an ex-auditor. I do know a factor or two about controls, and he had no skill to know what was happening as a result of he had really simply taken over.   Jonathan Jones: Sam had ready an announcement he was going to learn to Congress. It’s leaked and printed in Forbes the day of the listening to. In it, he paints a special image than John Ray. Sam begins with a flippant apology, “I effed up.” He then rapidly turns to blaming others. At one level, he makes a sarcastic jab at charges the regulation agency Sullivan & Cromwell charged FTX saying they’ve “achieved a great job of ensuring they had been wired $4 million.”     He argues that FTX’s new management, John Ray and Sullivan & Cromwell, had rushed the corporate into chapter 11. Sam’s leaked testimony marks the start of a battle over the story of FTX that continues at present. On the one aspect, Sam claiming chapter wasn’t crucial, on the opposite, the FTX property now helmed by John Ray and Sullivan and Cromwell arguing {that a} court-approved chapter was the one option to protect what was left of FTX.     As soon as the chapter is underway, tens of 1000’s of prospects start submitting claims, formally registering as collectors in hopes of getting their a refund. Folks like Tareq Morad, a Canadian FTX buyer who had a whole bunch of 1000’s on the trade.   Tareq Morad: FTX wasn’t presupposed to be half of the danger. The danger was the investments you select to spend money on, not the platform you select to spend money on.   Jonathan Jones: As Tareq begins to piece collectively what occurred to his cash, he feels betrayed, principally by Sam Bankman-Fried.   Tareq Morad: Buyer funds are buyer funds. So if I would like it, he has to have the flexibility to return it. They’re not his funds.   Jonathan Jones: And for many FTX prospects, it was unclear when or in the event that they get that cash again, and that’s the place claims consumers are available in. Claims consumers swoop in after an organization goes underneath and supply money to prospects like Tareq who’ve misplaced cash. Generally it’s as little as pennies on the greenback. For patrons, it’s a option to assure they’ll get one thing again. For claims consumers, they’re betting that the chapter will get well greater than they paid, and they’ll make a revenue. Generally an enormous revenue.   Thomas Braziel: They actually are vultures, and I assume I’m one, so I don’t wish to act like I’m holier than thou.   Jonathan Jones: Thomas Braziel is a claims purchaser who focuses on crypto bankruptcies.   Thomas Braziel: It turned a bonanza. The complete docket in FTX with buyer account claims, and so it’s up there with Lehman and Madoff and Enron. There have been billions of {dollars} of claims.   Jonathan Jones: John Ray informed Congress that his job was to get well as many of these billions as attainable.   John Ray : Our overarching goal is to maximise worth for FTX prospects and collectors in order that we are able to mitigate to the best extent attainable the hurt suffered by so many.   Jonathan Jones: However Ray additionally mentioned at that listening to that he was pessimistic about that taking place, and that the majority of FTX’s investments could also be price a fraction of what was paid for them. ThomasBraziel, the crypto claims purchaser, informed us he bumped into John Ray at an trade occasion in New York. He says he floated the concept components of FTX’s, portfolio of startup investments might nonetheless be very priceless.   Thomas Braziel: I mentioned, “John, I believe of this entire enterprise portfolio that might work out to be 100.” He mentioned, “Oh no. All these things’s canine shit, Thomas. Canine shit.”   Jonathan Jones: We had been unable to independently confirm that John Ray ever mentioned these phrases. And once we requested him, the FTX property responded describing Braziel’s characterization of the dialog as patently false. They acknowledged that John Ray has certainly expressed skepticism about some of the corporate’s investments, and that over time he’s been confirmed proper. Many offers, they added, had been made with nearly no due diligence, a degree backed up by a impartial examiner. Braziel says that after talking with Ray, he started to suspect that the chapter workforce would attempt to make it tougher for some prospects to receives a commission.   Thomas Braziel: It’s like an aggressive tactic, like attempt to exclude individuals from the chapter as a result of they don’t do the paperwork proper. Arrange synthetic deadlines, stuff like that.   Jonathan Jones: Some prospects would come to consider that, too, and they filed objections alongside these traces. The FTX property rejects this declare, saying the method adopted routine court-approved procedures. However it wasn’t essentially routine for the overwhelming majority of FTX prospects who had been outdoors america.   Thomas Braziel: Give it some thought, in case you’re a world predator, you could have tax kinds you’ve by no means seen, you’ve obtained every part in English. What in case you’re Finnish? What in case you’re Dutch? What in case you’re Chinese language and it’s not your first language? If you happen to’re not from America and you’re getting all these court docket paperwork that look very official and they’ve all of the federal district of chapter seals and stuff on it, it appears form of scary.   Lidia Lidia: I’m Italian, and as you’ll be able to hear, I’ve this very unique English. So for me, all these authorized language was actually… I couldn’t perceive something.   Jonathan Jones: Lidia Favario was one of these worldwide prospects who now needed to play by unfamiliar guidelines written in overseas legalese.   Lidia Lidia: We didn’t select this authorized system, however our property had been seized, and I discover this, yeah, stunning.   Jonathan Jones: Beneath that system, Lidia was categorized in a single of the underside tiers of prospects. Her declare was price underneath $50,000, however she informed us it was every part she had. She spiraled till she stumbled throughout a group of fellow FTX collectors on-line, on Twitter threads, and then in Telegram chats. These collectors had misplaced tens of millions and they had been rising more and more uneasy about how a lot cash they may get again. In a chapter court docket submitting in mid-January 2023, John Ray referred to the corporate as a dumpster hearth. However from the client perspective, it wasn’t a multitude in any respect.   Arush Sehgal: The dumpster hearth factor is totally fictitious. You may ask any institutional dealer on FTX, they’d a world-class accounting system. Everybody knew precisely their holdings. We knew what we had been owed.   Jonathan Jones: Arush Sehgal was one of these prospects, and he was changing into one of probably the most outspoken critics of the chapter. And extra and extra, some prospects started to concentrate on the regulation agency in line to steer the chapter, Sullivan & Cromwell. The agency had suggested FTX for years earlier than the collapse and performed a central position in its last days. Now, a choose would determine if Sullivan & Cromwell could possibly be the attorneys over overseeing the chapter. To critics, together with a bipartisan group of U.S. senators, this appeared like a possible battle of curiosity.     As half of the approval course of, in December 2022, Sullivan & Cromwell filed disclosure statements laying out its connections to FTX. The subsequent step was an approval listening to in late January 2023.   Juliet Sarkessi…: Thanks, your Honor. For the report, Juliet Sarkessian on behalf of the U.S. Trustee.   Jonathan Jones: The watchdog company that oversees bankruptcies had filed an objection. It wrote that Sullivan & Cromwell’s unique disclosure statements had been wholly inadequate to find out whether or not the agency had conflicts of curiosity and that that alone needs to be sufficient to disclaim their software. Earlier than the listening to, the U.S. Trustee dropped its objections after Sullivan and Cromwell agreed to supply further disclosures, however these new disclosures solely raised new questions, and Juliet Sarkessian appeared within the court docket to elucidate the Trustee’s issues for the report, like why had the unique submitting by Sullivan and Cromwell failed to say that Ryne Miller was a companion on the agency earlier than changing into common counsel for FTX U.S.   Juliet Sarkessi…: The software and the preliminary declaration didn’t point out any reference to Mr. Miller, not to mention that he was the person who truly introduced Sullivan & Cromwell to the eye of the debtors.   Jonathan Jones: Within the U.S. Trustee’s view, if Sullivan & Cromwell had been to run the chapter, they’d doubtlessly be investigating themselves. FTX prospects objected too.   Marshal Hoda: My shoppers, have objected to the appointment of Sullivan & Cromwell because the debtors lead counsel as a result of they’ve grave issues concerning the agency’s lack of transparency in its obligatory disclosures.   Jonathan Jones: Marshal Hoda is an lawyer specializing in crypto restoration who represented a number of FTX prospects.   Marshal Hoda: The chapter system is dependent upon the self-policing conduct of attorneys in making sturdy, well timed disclosures. The failure to get this proper on the outset may end up in rather a lot of ache down the highway.   Jonathan Jones: Sullivan & Cromwell’s lawyer, James Bromley, informed the court docket that they’d supplied paperwork to handle each problem raised by the objectors.   James Bromley: So with that, Your Honor, we have now been in a position to resolve any points that the workplace of the U.S. Trustee had with respect to Sullivan & Cromwell’s disclosures.   Jonathan Jones: Simply hours earlier than the listening to, there had been a shock submitting, a declaration by Dan Friedberg, FTX’s Chief Regulatory Officer. He accused the agency of deceptive the court docket, downplaying its ties to FTX and pushing the corporate into chapter 11, and claimed that different workers inside the corporate additionally had issues, however had been too afraid to talk out. Bromley rapidly dismissed Friedberg’s declaration.   James Bromley: Objection. It was filed late. It was filed… Frankly, it’s just a little weird in case you sit down and learn it, however Your Honor, our view is that it has no place within the court docket. It needs to be stricken from the report, and…   Jonathan Jones: He mentioned the declaration was nothing greater than a diversion tactic on behalf of Sam Bankman-Fried.   James Bromley: So what we have now right here, Your Honor, is a gentleman who ran this firm into the bottom, Mr. Bankman-Fried, sitting in his mother and father’ dwelling in Palo Alto, California with an ankle bracelet on…   Jonathan Jones: And he dismissed the objections in opposition to Sullivan & Cromwell’s appointment as half of a smear marketing campaign.   James Bromley: They’ll’t throw stones at the united statesAttorney’s Workplace, however they’ll throw stones at debtor’s counsel that’s offering data to the prosecutors and the regulators, and that’s precisely what’s occurring.   Jonathan Jones: At one level, Friedberg appeared on the court docket’s Zoom assembly, waving his hand to be known as on. One of the attorneys making arguments pointed him out, and then Choose John Dorsey mentioned…   John Dorsey: So I did see him and I didn’t acknowledge him deliberately as a result of, as I mentioned, he has not filed a movement, he has not joined any movement. He’s merely attempting to be a witness, I suppose, however witnesses usually are not allowed until they’re right here reside.   Jonathan Jones: I requested chapter regulation professor, Jonathan Lipson, how widespread is it for a regulation agency to signify an organization earlier than it’s accused of fraud and then run its chapter after it collapses?   Jonathan Lipson: By no means heard of it. By no means heard of it. I imply, that’s why it’s so outstanding that Sullivan & Cromwell has run the case. And Enron, for instance, the 2 major regulation corporations earlier than chapter, they clearly weren’t going to be counsel to the corporate in its chapter, and as a substitute you’d have impartial attorneys and impartial investigators coming in and determining, effectively, what went improper.   Jonathan Jones: However to different shut observers like claims purchaser, Thomas Braziel, this was simply how issues are inclined to go in chapter court docket.   Thomas Braziel: The joke in chapter is that the battle guidelines are actually, actually unfastened in comparison with different components of the court docket system, so that they routinely enable extra and extra like aggressive battle. I don’t prefer it as a result of the pre-petition guys who did rather a lot of the deal making had been debtors counsel, hell, I imply, how are you going to look into pre-petition exercise? You probably did all of the work. I imply, I discover the entire thing disgusting. How will you presumably query your individual conduct?   Jonathan Jones: In the long run, Choose Dorsey wasn’t swayed.   John Dorsey: With that, as I mentioned, I’m going to overrule the objection and I’ll the order appointing, or excuse me, approving the retention of Sullivan & Cromwell. Are there any questions?   Al Letson: Regardless of objections, the choose declared, there was no proof of any precise battle and put Sullivan & Cromwell in cost of the chapter. However it wouldn’t be lengthy earlier than the chapter workforce decided that may elevate new issues about whether or not they had been appearing within the buyer’s finest curiosity. That’s subsequent on Reveal.   Al Letson: From the Middle for Investigative Reporting in PRX, that is Revealed. I’m Al Letson. In January 2023, Sullivan and Cromwell working alongside John Ray and his workforce started making ready to dump components of the outdated firm. In late April, they determined to dump the small U.S.-regulated trade known as Ledger X. For critics, this ended up elevating issues about whether or not Sullivan and Cromwell needs to be run into chapter 11. Revealed’s Jonathan Jones explains.   Jonathan Jones: To know why Ledger X issues, we have now to return in time. FTX acquired Ledger X roughly a yr earlier than the chapter, and whereas Ledger X was small, it was licensed by the Commodity Futures Buying and selling Fee, the company that regulates U.S. monetary markets. For Sam, this was a breakthrough, a option to achieve a foothold in america by way of Ledger X, FTX might now supply Crypto Futures, its core enterprise, to U.S. prospects. And to get it achieved, he employed some of Wall Avenue’s strongest attorneys.   Jonathan Lipson: Whenever you suppose of old-line, highly effective regulation corporations, the platonic type is Sullivan and Cromwell. And actually, Sullivan Cromwell is the regulation agency that helped FTX make the acquisition.   Jonathan Jones: That’s Jonathan Lipson, the chapter regulation professor who studied the collapse, and Sullivan and Cromwell’s position within the firm.   Jonathan Lipson: After FTX acquires Ledger X, they had been appearing as regulatory counsel to FTX. They had been making ready and presenting to the federal government, the Commodity Futures Buying and selling Fee, specifically, what seems to have been an important software to permit FTX to do sure issues.   Jonathan Jones: That meant answering questions on FTX’s ties to Alameda analysis. Sam’s buying and selling agency Alameda wasn’t simply buying and selling crypto and making investments. It had additionally acted as a form of inner financial institution for FTX, dealing with buyer deposits and withdrawals, and even paying some of the corporate’s payments to make that attainable. FTX programmers wrote traces of code permitting Alameda to entry FTX funds.   Dan Chapsky: Technically talking, the decrease certain on that was like $65 billion, however that’s simply an arbitrarily giant quantity. Mainly simply signifies that they’ll withdraw infinite quantities.   Jonathan Jones: That’s Dan Chapsky, who was Head of Knowledge Science at FTX. He says Alameda might take that cash with out placing up the collateral to ensure they may pay it again taken collectively.   Dan Chapsky: I believe most individuals confer with it because the “again door”.   Jonathan Jones: Dan says he first heard concerning the problem in early 2022 from a workforce of workers at Ledger X who had been in cost of figuring out danger.     Would you say they’d a extra sturdy danger administration workforce than even FTX did at the moment?   Dan Chapsky: I’d say they’d a extra sturdy danger administration workforce than any trade on the time.   Jonathan Jones: One of the members from that workforce introduced up the traces of code to Dan. He says he informed them it sounded unhealthy, and instructed they elevate it with somebody larger. Based on the Wall Avenue Journal Ledger, ex-employees had raised issues and flagged the backdoor code in a written message, writing, quote, “Simply wish to level out that there are presently a number of locations within the code base the place Alameda will get particular therapy in a method or one other.” Ledger X’s chief danger officer replied, “Yeah, we must always clear up this kind of stuff.” The danger officer then tried to take the difficulty to her boss, and right here’s the place issues get murky, in keeping with Jonathan Lipson.   Jonathan Lipson: We do not know if the truth is what she reported was correct. We do not know what the response was. We do know she was fired.   Jonathan Jones: Whereas all of this was taking place Sullivan and Cromwell was serving to FTX with its U.S. enlargement, and that concerned rather a lot of again and forth with regulators.   Jonathan Lipson: And in that course of, it seems that anyone from the CFTC asks FTX, “Properly, are you able to inform us just a little bit concerning the relationship between Bankman-Fried and all of the opposite firms within the FTX complicated?” And the assertion that goes again, and I’m paraphrasing, however the assertion that goes again to the CFTC is “There isn’t any connection. There aren’t any particular privileges.”   Jonathan Jones: However there have been particular privileges, those that gave Alameda entry to buyer funds and type the idea of the fraud fees. Courtroom filings later revealed emails have been despatched to regulators with inaccurate data.   Jonathan Lipson: That was the underlying falsehood that, I believe, drove all of this. Whether or not Sullivan and Cromwell themselves affirmatively made that assertion, it’s simply not clear, however it’s fairly clear that that assertion was improper.   Jonathan Jones: Courtroom paperwork don’t present who despatched these emails, and it’s unclear if Sullivan and Cromwell wrote them and even knew about them. The FTX property employed an outdoor agency to evaluate these questions, which discovered no proof Sullivan and Cromwell knew the statements to regulators had been false. Nonetheless, this kind of regulatory work was precisely what Sullivan and Cromwell was introduced on by FTX to do. To Lipson, the uncertainty over what Sullivan and Cromwell knew – or didn’t – raises an enormous query. Might the identical attorneys who labored for FTX earlier than the collapse be trusted to research it afterwards? Or, to paraphrase an FTX buyer of their official objection to Sullivan and Cromwell’s appointment:   Jonathan Lipson: If you happen to’re anxious concerning the foxes working that henhouse, this case is an issue.   Jonathan Jones: Quick-forward to April 2023. 5 months after the collapse, Sullivan and Cromwell is lead counsel within the chapter, and the restructuring workforce decides to dump LedgerX. For Lipson and different critics, this was an enormous deal as a result of promoting off Ledger X meant that the court docket would not have entry to the corporate’s paperwork, paperwork that might doubtlessly present solutions about who knew concerning the again door, and what they did about it. Neither Sullivan and Cromwell nor the FTX property responded to our questions concerning the preservation of data, however the property famous that LedgerX was offered at a public public sale authorised by the collectors committee and the court docket.     Because the chapter unfolded, Sullivan and Cromwell’s prior work for FTX continued to attract scrutiny, and the U.S. Trustee, the watchdog meant to guard the general public curiosity, continued to push for extra oversight. That’s when Jonathan Lipson went from being an observer of the FTX chapter to a participant.   Jonathan Lipson: I obtained concerned within the case as a result of I agreed to jot down an amicus transient to assist america Trustee’s effort to get an examiner within the enchantment.   Jonathan Jones: An examiner is an impartial investigator appointed by the court docket to verify a chapter is dealt with pretty. To Lipson, who studied the use of examiners in different main circumstances, FTX was precisely the type of case that known as for one. The chapter court docket had rejected a request for an examiner and the difficulty was taken up in appeals court docket.   Jonathan Lipson: In all of my research, I’ve by no means seen a free fall chapter this spectacular, precipitated by allegations of such critical misconduct, that didn’t even have an impartial investigation to ask a really impartial examiner or trustee. Enron, Worldcom, Lehman Brothers, New Century, Refco all had them, which signifies that if the chapter court docket’s determination is affirmed at present, it will be a primary.   Jonathan Jones: After which one of the judges pressed James Bromley, a Sullivan and Cromwell lawyer, to elucidate why the case didn’t want an impartial examiner.   Choose: To Professor Lipson’s level that in each different main chapter there’s been an examiner, this might be the primary one which hasn’t had one.   James Bromley: Your Honor, this-   Choose: Is he improper?   James Bromley: Sure, he’s improper.   Choose: Cite me one.   James Bromley: As a result of right here’s the scenario. He’s improper with the context and how he frames it.   Choose: Which one? Give me the identify of a chapter.   James Bromley: This one.   Jonathan Jones: In a twist, Bromley didn’t dispute that FTX can be the primary chapter involving widespread fraud with out an impartial examiner. He simply argued that it was nice; the corporate already had oversight from the collectors and the courts. The appeals court docket didn’t purchase it. They dominated that the regulation required an impartial examiner.     When the examiner’s report was finally launched, it concluded the court docket didn’t make a mistake in approving Sullivan and Cromwell as chapter counsel. The examiner mentioned he’d seen no proof Sullivan and Cromwell knew of or ignored the fraud. However Jonathan Lipson was essential of the report. He says the examiner was appointed late, had restricted time, and on key points, relied an excessive amount of on the work of the property’s outdoors counsel.   Jonathan Lipson: It’s very, very restricted in scope, basically, I believe as to if Sullivan Cromwell was concerned in a number of different issues.   Jonathan Jones: In the meantime, Lipson says on the similar time, Sullivan and Cromwell was steering the chapter. It was additionally cooperating with the prosecutors, constructing the case in opposition to Sam Bankman-Fried.   Jonathan Lipson: It takes a very long time to place collectively a legal prosecution usually, proper? It takes years to do this. Within the FTX case, I believe we definitely, we being me and another tutorial pals, fear an ideal deal that Sullivan Cromwell, in impact, was appearing as the federal government’s backup attorneys within the prosecution of Bankman-Fried.   Jonathan Jones: The FTX property flatly rejected that characterization as false and with out benefit. The impartial examiner additionally checked out this problem and discovered that Sullivan and Cromwell’s ongoing cooperation with prosecutors was at John Ray’s route. At an early chapter listening to, Andrew Diederich, a companion at Sullivan and Cromwell made clear that cooperating with prosecutors was a prime precedence, regardless of the monetary price to collectors.   Andrew Diederic…: Within the first months, the board decided that spending property sources to cooperate with governmental investigations was in one of the best curiosity of our debtors. This was costly given the extent of these authorities investigations and the sheer quantity of them, however it has confirmed to be the fitting name.   Jonathan Lipson: One of the companions at Sullivan and Cromwell, Jim Bromley says, tens of tens of millions of {dollars} of assist to prosecutors.   Jonathan Jones: That’s loopy. Who’s paying for that? Collectors are paying for that.   Jonathan Lipson: Sullivan Cromwell isn’t doing it without spending a dime. They’re billing $2,100 an hour to do this work, however it’s {dollars} that may in any other case go to collectors.   Jonathan Jones: In different phrases, each greenback going to Sullivan and Cromwell’s authorized charges was popping out of the identical pot of cash that may be used to pay again FTX prospects. Nearly a yr after the collapse, the person on the heart of all of it lastly confronted prosecutors in court docket. In October 2023, Sam Bankman-Fried went to trial.   Damian Williams: Kevin Smith. You bought it, Sam.   Speaker 11: Sam, how are you going to plead this morning?   Speaker 8: Come on guys.   Jonathan Jones: The media was throughout it.   Speaker 12: We’re masking this story. Disgraced FTX founder Sam Bankman-Fried, took the stand at present in his legal fraud.   Speaker 13: He appears like a multitude. Okay? And I’m not saying this in a imply approach, however it virtually is like Pig Pen from Peanuts with this simply haze round him. And in these…   Jonathan Jones: The once-media darling had grow to be Public Enemy Quantity One.   Carly P. Reilly: I imply, look, the protection was wildly outgunned. I imply, the protection’s case felt so unhealthy, like form of surprisingly unhealthy.   Jonathan Jones: Carly P. Reilly is an impartial podcaster and journalist. She attended the trial and posted each day updates.   Carly P. Reilly: The prosecutor who spoke for the prosecution in opening statements, his story was quite simple. Mainly, “Sam took cash from FTX and spent it like his personal private piggy financial institution on no matter he needed. He spent billions of {dollars} of buyer cash,” and that was the story.   Paul Peltier: White collar crime boils down to 3 issues, mendacity, dishonest, and deceit. It’s actually how did they lie? How did they cheat? How did they deceive individuals and cheat them out of their cash? That’s it.   Jonathan Jones: Paul Peltier spent virtually three many years within the Division of Justice, and for years led its legal fraud part prosecuting main monetary crimes. He wasn’t the prosecutor who tried Sam Bankman-Fried, however from the surface, right here’s how we noticed what occurred.   Paul Peltier: We had been doing stuff with the cash, and we weren’t telling individuals we had been doing what we had been doing with the cash, and it was creating danger, and we informed them the other. That’s against the law, that’s fraud.   Jonathan Jones: Peltier says white collar trials virtually by no means transfer this quick. However he famous prosecutors’ shut cooperation with Sullivan and Cromwell.   Paul Peltier: This was just a little bit straightforward, and I say that with all due deference to how tough these circumstances are, however it looks as if Sullivan and Cromwell, and I’m going to name it, silver-plattered it just a little bit with the prosecutor’s workplace, and then they successfully had been in a position to get a witness pretty rapidly that gave them the keys to the dominion.   Jonathan Jones: Almost all of Sam’s inside circle turned to authorities witnesses. The most devastating testimony got here from Caroline Ellison, his on-and-off girlfriend and head of Alameda Analysis.   Andrew Diederic…: They’d his girlfriend, and she was a co-conspirator, and the prosecutors fantastically lined it up. Actually, this was their questioning. “What did you do?” “I labored for Alameda.” “Who did you’re employed there with?” “Sam Bankman-Fried.” “Did you commit against the law with him? “Sure, I did.” “Who did you commit against the law with?” “Sam Bankman-Fried.”   Jonathan Jones: Right here’s how Carly described it.   Carly P. Reilly: At each flip, Caroline made it very clear that every part she did was on the behest of Sam. It virtually turned a joke. I imply, if I had a flask in there, it will be a consuming recreation, proper? And every part was like, “Properly, at Sam’s route.” “Properly, Sam informed me…”   Jonathan Jones: Caroline wasn’t the prosecutor’s solely star witness. Because the trial turned in opposition to him, Sam testified in his personal protection, in opposition to the recommendation of his attorneys. It didn’t go effectively.   Carly P. Reilly: He did all this whereas seeming extremely semantic and pedantic for certain, but in addition like an asshole. I believe one individual mentioned to me, “What the jury had previous to Sam taking the stand was a stick determine model of him, this legal CEO. And now Sam has mainly gotten on the stand and breathed a life into that stick determine and made that individual actual.”   Jonathan Jones: After simply 4 hours of deliberation, the jury discovered Sam responsible on all counts.   Damian Williams: Sam Bankman-Fried perpetrated one of the largest monetary frauds in American historical past, a multi-billion greenback scheme designed to make him the king of crypto.   Jonathan Jones: That’s Damian Williams, the U.S. Lawyer within the Southern District of New York, addressing the cameras instantly after the decision.   Damian Williams: The cryptocurrency trade is perhaps new. The gamers like Sam Bankman-Fried is perhaps new, however this type of fraud, this type of corruption is as outdated as time, and we have now no persistence for it.   Jonathan Jones: Paul Peltier says that lack of persistence was a far cry from how the DOJ dealt with the final main monetary scandal, the 2008 banking and mortgage collapse. Again then, he felt his fingers had been tied.   Paul Peltier: The individuals above us weren’t empowering the Division of Justice to deliver these circumstances. The fraud part misplaced 70% of its prosecutors throughout this time interval, principally out of frustration.   Jonathan Jones: Peltier and Lipson consider that in that historic context, Sam Bankman-Fried was an interesting, excessive profile goal.   Jonathan Lipson: The prosecutors come out of the monetary disaster of 2008, actually not going after anyone individually. They don’t know perp walks, proper? So Bankman-Fried is simply this extremely engaging candidate to prosecute and the truth that Sullivan Cromwell has mainly delivered him on a platter, and all of the sources to do it actually quick and actually laborious? I imply, what prosecutor wouldn’t take that?   Al Letson: 5 months after his conviction, Sam Bankman-Fried would return to the court docket for sentencing. However first, FTX prospects had been invited to talk and many had been upset, not simply at Sam, however on the chapter itself.   Speaker 16: And it’s a lie that the brand new administration is planning to pay us again 100% of our cash.   Al Letson: A buyer motion challenges the story informed in court docket. Subsequent, on Revealed.   Al Letson: From the Middle for Investigative Reporting and PRX, that is Reveal. I’m Al Letson.     As Sam Bankman-Fried sentencing approached the Division of Justice invited victims to jot down affect statements concerning the hurt he’d brought on. Greater than 100 individuals wrote in, they described financial savings worn out, livelihoods destroyed, and households uprooted, all as a result of of FTX’s collapse and fraud. And in an unusual transfer, John Ray FTX’s new CEO, filed his personal sufferer affect assertion. Ray informed the choose he was writing on behalf of FTX victims to right false claims by Sam Bankman-Fried that the hurt was zero, the cash was there all alongside, and FTX was solvent on the time of chapter. Ray argued prospects had been nonetheless struggling consequently of Sam Bankman-Fried and that no matter individuals get again was solely attainable as a result of of his workforce’s efforts to dig by way of the wreckage. Ray spoke about FTX victims on Freakonomics Radio.   John Ray: I imply, there’s individuals, they’ve obtained youngsters, they’ve obtained to place them by way of faculty, they’ve obtained a home that will have a mortgage. If you happen to had been a buyer and you could have cash hung up, you wish to get it again as rapidly as attainable.   Al Letson: Lidia, the Italian artist dwelling in London, had already written a sufferer affect assertion, however then she learn Ray’s letter. Reveals Jonathan Jones picks up the story from there.   Jonathan Jones: Lidia had misplaced her life financial savings within the collapse. For greater than a yr she’d been obsessively studying court docket filings, media protection, telegram threads, and Twitter arguments. In her first affect letter, Lidia targeted squarely on Sam Bankman-Fried.   Lidia: I misplaced my cash as a result of Sam Bankman-Fried and his clique of pals had been attempting to play Gods and turned the brand new gatekeepers of a brand new world and a brand new financial system. To take action, they stole the cash, the hopes and the goals of a whole bunch of thousand human beings from over the world.   Jonathan Jones: However by the point she learn John Ray’s letter, she was rising more and more outraged on the workforce now working the chapter.   Lidia: Once I learn the assertion of Joe Ray and I used to be whoa, whoa, whoa, whoa, whoa, right here there’s something improper.   Jonathan Jones: Now she was having second ideas about what she’d written.   Lidia: Once I learn his I used to be livid, so livid. I felt so unhealthy about what I wrote about Sam and I simply thought, effectively, it’s true, the trial just isn’t about Sullivan & Cromwell and John Ray, however I really feel it’s not okay in that affect assertion, I’m simply not saying something about John Ray. I don’t know, I felt that was not okay. So I despatched a second affect assertion.     Expensive Honorable Choose Kaplan, I’m a conceptual-   Jonathan Jones: Lidia’s second letter, nonetheless expressed anguish at what she known as the greed of Sam in his inside circle however then-   Lidia: Sadly, the brand new administration doesn’t seem like so completely different. Moderately it seems to make use of and abuse FTX shoppers and their property for their very own private advantages.   Jonathan Jones: Lidia says she was upset concerning the charges Sullivan & Cromwell had been charging and that the brand new FTX management was making selections about her cash that she didn’t agree with and she wasn’t alone. Lidia had grow to be half of a cohort of prospects who had been decided to name consideration, not simply to Sam Bankman-Fried, however to the chapter left in his wake.     Creditor activist, Sunil Kavuri wrote a sufferer affect assertion too, saying that chapter had compounded the hurt slightly than making issues proper. One buyer questioned whether or not Sullivan & Cromwell could possibly be trusted given their work for FTX earlier than the collapse. One other mentioned they’ve been trapped in a relentless state of anxiousness and despair for the reason that chapter proceedings started. However the listening to wasn’t concerning the chapter, it was about Sam Bankman-Fried. Prosecutors informed the choose that no matter victims may get again later, Sam had already stolen billions from prospects all around the world, Choose Kaplan agreed and sentenced Sam to 25 years.     After his sentencing, Sam Bankman-Fried pale from public view. The media moved on, however the chapter continued and quickly a brand new battle was heating up over whether or not reviving FTX might assist make prospects entire. Nearly from the start of the chapter, some collectors have been pushing for John Ray and his workforce to restart the trade with out Sam as a form of FTX 2.0. And John Ray in his interview on Freakonomics Radio, mentioned that his workforce was critically wanting into it.   John Ray: We’re wanting very strongly at restarting the trade, there was some capabilities to the trade that folks appreciated there was definitely a necessity for competitors inside the sector. However look, if there’s a life for it, the market will decide that.   Jonathan Jones: When Ray put the trade up on the market, the market responded. Based on court docket data, there have been greater than 75 potential bidders, outstanding collectors like Arush Sehgal even obtained concerned.   Arush Sehgal: It could’ve been the one trade the place the purchasers owned the trade and due to this fact have a choice to commerce there.   Jonathan Jones: However then Andrew Dietderich from Sullivan & Cromwell informed the court docket they couldn’t discover a single viable supply.   Andrew Dietderi…: The prices and dangers of making a viable trade from what Mr. Bankman-Fried left within the dumpster had been just too excessive.   Arush Sehgal: They put out this assertion within the listening to, oh, there have been no consumers that had been prepared to tackle FTX or one thing like that. So I screen-shotted it and despatched it to the pinnacle of our bid and I used to be like, “What is that this?” He goes, “Information to me.”   Jonathan Jones: Some collectors noticed FTX 2.0 as a missed alternative to present them a stake within the firm and to get again the crypto they’d misplaced entry to.   Arush Sehgal: It was full nonsense, we might have pushed billions in restoration.   Jonathan Jones: With the concept of restarting FTX useless, the property pivoted to a wind down plan. After practically two years of twists, turns, courtroom battles and prospects ready for his or her cash the top was lastly in sight. In October 2024, it was time for the chapter workforce to current their reimbursement plan for last court docket approval. At that listening to, Sullivan & Cromwell attorneys shared that greater than 95% of collectors voted to again it. Solely sure teams of collectors had been allowed to vote although, and rather a lot of the voting energy got here from massive corporations which have purchased individuals’s claims. The chapter workforce introduced that FTX collectors can be paid again in full, they’d additionally get curiosity. However the actuality was much more sophisticated and controversial. Collectors can be paid again in money, not crypto, with claims pegged to the worth of crypto on November eleventh, 2022, the date of the chapter. However that’s precisely when the crypto market had tanked, partially as a result of of the collapse of FTX.     Again then, a single Bitcoin was the place one thing like $17,000. However by the point of the approval listening to for the plan, Bitcoin had bounced again to roughly $60,000. At this time, it’s virtually double that. However underneath the deal, the proprietor of a Bitcoin can be paid again in full with $17,000. Not surprisingly, many FTX prospects weren’t completely happy, together with Lidia who made her case on the approval listening to.   Lidia: Thanks a lot, Your Honor, for giving me the possibility to talk.     There was John Ray, there have been attorneys of Sullivan & Cromwell that I knew they had been them as a result of I researched and I used to be fuming, I used to be livid as a result of these individuals, they had been enjoying round with our lives with our cash.   Jonathan Jones: She needed her a refund as crypto, not money. She had calculated that if her claims had been paid again in {dollars} pegged to November, 2022, she’d lose two thirds of what she’d initially put in and fully miss out on crypto’s rebound.   Lidia: Beneath this plan, my contractual rights and my possession rights have been trampled. My property rights have been disregarded.   Jonathan Jones: Regardless of listening to objections from Lidia and different collectors, Choose Dorsey went forward and authorised the reimbursement plan. He known as it a mannequin case for methods to take care of a really complicated Chapter 11 chapter, setting off worries that it might set a precedent for paying again victims of future crypto bankruptcies.     Three months later in January 2025, the primary repayments to FTX prospects had been scheduled to exit. The day earlier than I occurred to be on a name with Sam Bankman-Fried.     I’m questioning the way you’re feeling understanding that this marks this starting of this try and repay the individuals who misplaced cash.   Sam Bankman-Fri…: It’s actually irritating mainly. I’m very glad that it’s beginning, however it’s laborious to consider it with out fascinated about the deficiencies within the course of. It’s been over two years now, there’s no motive for this to have taken two years.   Jonathan Jones: In Might of this yr, Tareq Mourad from Canada lastly obtained his first money cost and he says he can reside with what he obtained.   Tareq Mourad: Simply getting your a refund is great, and it’s a great feeling and I’m very completely happy about it.   Jonathan Jones: However he is aware of it didn’t come low-cost.   Tareq Mourad: I do know they had been speaking about charges going in direction of the billion greenback mark, which is absurd. But when that’s actually what it took and we obtained our a refund, I assume that’s what it took.   Jonathan Jones: The course of of repaying prospects did include a staggering price ticket. By early 2025, skilled and authorized charges within the FTX chapter had been nearing a billion {dollars}, making it one of the costliest in US historical past. Sullivan & Cromwell alone billed about $232 million with companions charging as much as $2,375 an hour. And John Ray, he requested a $38 million bonus on prime of his $3 million wage, it was later diminished to $30 million. All of it court docket authorised and paid for with FTX funds. John Ray was requested concerning the exorbitant prices on Freakonomics Radio.   John Ray: Crime could be very costly, rather a lot of individuals get harm and it’s very costly to repair it, proper? However alternatively, we’re type of investing in a restoration in case you take a look at it from that perspective.   Jonathan Jones: In an announcement to Reveal the FTX property mentioned it has, “Managed its Chapter 11 case in a clear public course of that was supervised by the US Chapter Courtroom, reviewed by an impartial examiner and had the total assist of the official collectors’ committee. They mentioned they’re proud of the integrity and affect of their work.” However even with billions recovered, some prospects might nonetheless be not noted of the reimbursement plan altogether. Roughly $500 million in claims from individuals in nations like China, Ukraine, and Morocco are being withheld. After the FTX restoration workforce cited native laws that might bar payouts.     To regulation Professor Jonathan Lipson, FTX is a cautionary story concerning the energy that attorneys have to border management and revenue from a crypto disaster and chapter.   Jonathan Lipson: So why ought to Joe Public care? I believe Joe Public ought to care as a result of there are about 1,000,000 Joe Publics who had accounts at FTX, and the top of the day, they’re not getting again practically what they may have gotten again if the case had been dealt with otherwise. So I believe there’s going to be a cloud over the case in all probability ceaselessly.   Jonathan Jones: As for Sam Bankman-Fried, even now from jail he’s nonetheless lobbying by way of his mother and father for a presidential pardon. And he’s appealed to overturn his conviction with a listening to set for November.     In case your enchantment is profitable and you’re launched, would you anticipate going again into the crypto world?   Sam Bankman-Fri…: I’d look into it. I haven’t been in a position to comply with it as intently as I’ve needed clearly over the previous couple of years, however I nonetheless suppose it’s an extremely excessive upside space. One which could possibly be [inaudible 00:13:15] forth or one which could possibly be actually worthwhile to be in. It’s an space the place there’s rather a lot of progress potential, so I believe I’d give a tentative like, yeah, I’d look into it.   Al Letson: To learn a companion story concerning the collapse of FTX and the aftermath, and to see unique paperwork associated to the case go to Revealnews.org. Our story was reported by Jonathan Jones with further reporting by Artist Teriscus. The lead producer was Sophie Bridges, she had assist from David Ritcher. Taki Telonidis edited the present with further enhancing from Daniel Schulman. Archival analysis by Julia Haney. Sarah Szilagyi is our fact-checker. Victoria Baranetsky is our common counsel. Our manufacturing supervisor is the good Zulema Cobb. Rating and sound designed by the dynamic duo, Jay Breezy, Mr. Jim Briggs and Fernando my man, Arruda. They’d assist from Claire C Be aware, Mullen. Our govt producer is Brett Myers. Our theme music is by Camerado-Lightning.     Assist for Reveal is supplied by the Reva and David Logan Basis, the John D. and Catherine T. MacArthur Basis, the Jonathan Logan Household Basis, the Robert Wooden Johnson Basis, the Park Basis, the Schmidt Household Basis, and the Hellman Basis. Assist for Reveal can be supplied by you, our listeners. We’re a co-production of the Middle for Investigative Reporting and PRX. I’m Al Letson, and keep in mind, there may be all the time extra to the story.