Story of the morning right now: Crypto Exchange FTX On the verge of collapse after Binance backed out of its plans to acquire Sand Bankman Freed's struggling company. according to people familiar with Matter Bank and Free told investors that FDX is facing a shortfall of up to eight billion dollars from withdrawal requests and needs emergency funding. Reports say the SEC is investigating FTX and right now we want to bring in good morning to you. Gary Uh, thank you for joining us. Lots of questions this morning for you. uh about what is happening and so let's just start with what do you know and what are you investigating Andrew As you can imagine and your viewers know that I can't speak about any uh possible investigations, but let's step back and say what's happening here and it's It's really as as old as finance and his Antiquity when you you mix together a bunch of customer money, non-disclosure and leverage borrowing against it and inside, uh, you know these companies trading uh, investors get hurt and I think just looking at what we see in the Press if I can stay with that just Andrew um uh, this story has been going on for uh, many months. Uh, you remember the collapse of Terra Luna and a bunch of crypto lending platforms? Well, it looks like in the last few days this is all interconnected. This is a very, uh, interconnected World in Crypto with a few concentrated players at the middle and one of those concentrator players who had the toxic uh, uh, combinations of lack of disclosure customer money a lot of Leverage meaning borrowing and then trying to invest with that and then borrowing against their own finances. Why it appears that uh, a lot of customers lost money and that's that's where our Uh mission is is about those customers. Well, let's talk about that. Gary Because critics would say look, you have been talking about the need for regulating uh and yet have not. There's been lots of focus we had you on last time. uh, when you went after Kim Kardashian but on a relative basis going after Kim Kardashian Compared to uh, what is now a a massive undoing of FTX Um, incredible Isn't enough. What do you say about that worse, probably downfall of the year I I Think that investors need better protection in this space, but I would say this clearly. this is a field that significantly non-compliant but it is. It's got regulation and those regulations are often very clear and we have multiple paths. and one path is working with those uh, crypto exchanges, crypto lending platforms and to get them properly registered. And why that matters is that so the Public's protect it. But we have another path which is enforcement. We've brought between my predecessor and and the teams. Uh, now at the SEC um, uh, at least a hundred actions in this case and we've been very clear in these various uh uh, enforcement actions and we had a big win even this week on a crypto token called Library where a court clearly said you've been on Fair notice and yes, this is the Securities under the Securities laws In Fairness there are Millions if not billions of dollars that are going to get tied up that potentially will get lost in this situation by in investors. not just retail investors, but pensions that have given money to venture capitalists that have invested in these things. Shouldn't this be more regulated? Yes. Andrew and the laws are clear and and look the runway is running out I mean uh uh, the American Public and and investors around the globe are getting hurt by a field that says they they put a lot of fancy talk around it Andrew and the technology is interesting and I taught it at MIT and I think that it's there is some interest Innovations here but we still need investor protection and so what I would say is come in and talk to us. You've heard that before the runway is getting shorter and the the laws are clear and it's pretty rich for me. when I think about it when I mean look there's also celebrities. You talked about celebrities. They're celebrity CEOs in this space as well. Celebrity Crypto uh uh, Entrepreneur Stephen Curry Kevin O'leary David Ortiz promotions their marketing and the like and it's really important. Our third path is also investor education. Going on a show like this is also to say to the public beware: This is highly speculative. It is regulated but without pre-judging any anyone's circumstance. Largely non-compliant Gary you said people should come in if you will Sam begman freed it appears from your calendar on March 29, 2022 at 4 pm came in and actually met with you along with Brad got katsuyama of IEX someone who has uh draped himself in the flag if you will of of an honorable exchange do you feel like you were Hoodwinked that's a great question I think we've been clear uh uh in these meetings and you can look at my if my calendar's public uh many meetings with folks in this industry. it's very clear in these meetings same matches to the public send message to them uh that non-compliance is not going to work, the Public's going to be hurt. but also we're going to continue on these dual paths not answering the questions were you hoodly the cop on the beat going into court uh, putting the facts and the law in front of uh judges Gary the being the cop on the beat I guess if we were looking at your Mo to date going after somebody like Kim Kardashian because it's a celebrity front because maybe that sends a signal more broadly you just mentioned that there are some celebrity CEOs Here is it fair to think if you're going to continue in that you're going to come down on Brady targeting those celebrities again because it sends a broad message and maybe gets people in line a little more quickly. Well, it's awesome if I could Becky It's about the the platforms or the intermediaries. This is not like the New York, Stock, Exchange or NASDAQ these platforms and there's just a handful of lending platforms and a handful of so-called exchanges which co-mingle It's it's also another toxic combination where they they take people's money, they borrow against it. It's it's not much disclosure and then they trade against their customers. so it's getting and and focusing on those platforms. Building the evidence building the facts often takes time. I'll just use one example which was uh is is public So I can say this but in Terra Luna that that legal entity uh, we filed uh uh served a subpoena in September of last year we actually opened the investigation earlier. that's all public. that's why I can say it and that was challenged in court at the district court at the Appellate Court all the way to assert petition at the Supreme Court that took a year So defendants also have uh, appropriately, an ability to go into court I Think the better path is, come in, work with us, get registered. We can use some exemptive authority to mold some of these uh registrations, but we're going to continue on. These three. pass investor education uh, trying to get the the the intermediaries registered properly to protect the public and also uh, being the cop on the beat. Yeah, so that does. That's the long answer for yes you are going to be targeting them I think um, something else that just feels wrong to me I Don't know if it's illegal, but watching how this stuff plays out in the headlines where you see this deal We've Got A Deal a letter of intent. Maybe this deal is going to go through. We're looking at it. You see huge moves and all the underlying issues underneath it. As a result. CZ With Finance saying this first, now you've got Justin Tron saying he's putting together a solution without any details on it TRX momentarily surged four thousand percent on FTX After that happened, There are all of these issues that are out there and it moves things in huge ways. and there's real money that's at play here and real investors who are potentially getting defrauded on this stuff. Is it illegal when you look into this? I Couldn't agree with you more. It's um, there's ten thousand plus tokens and there's as many as a thousand coming on every a month to quarter and so many of them have very thin trading and the purported values. and I say purported values might be only on very few trades and then others are sitting with large uh, buckets of these tokens and we, you know saw this happen with the Terra Luna tokens. uh, earlier this year and there was a token in the middle of this as well. What was its value where there are only a few holders of it? What was making those values? Native token in our Securities laws. If you come to a merger agreement, even a letter of intent, there has to be full and fair and truthful disclosure. Let me ask you another question: Gary Which actually relates to tether and stable Coins Teller's now, uh, under a buck losing Its pay crazy and you're a former Sdt. Your predecessor, Uh, Jake Clayton has called for regulation on stable coins. Um, I raised the question because here we are again. don't we need to know Uh, whether whether a bank deposit is actually bank deposit or whether it's a money market at this point? Look, uh, I I've said this for some time. Uh, the so-called purported stable coins. Uh, if they're not that stable, or if they pay a yield, a reward, an interest directly or indirectly, those are, uh, indications that the public is anticipating profits and that these, uh, uh, could be Securities under the Securities laws. Um, but I think that the public has seen that these are very much like a money market funds and as you say, they sometimes don't trade at par and we don't have the proper disclosure again behind what stands behind those claims. But Gary What do you say to the critics who say this is happening on your watch? You are the cop on the beat you've tried to claim a jurisdiction for this. Arena As there's been, as you know, a battle between the SEC and the Cftc over who's in charge for part of it. I I think that it and I I was honored to chair the commodity. Futures Trading Commission Uh I I I I Think very highly. Uh, there's there's part of this Market non-security crypto tokens I think it's small in number of tokens. it might be significant in in size of market cap. So I think there's work for uh, both of us Market Regulators as well as other Regulators around any money laundering and sanctions I mean this field, uh up, right really needs to come into compliance. Uh, um, and in terms of our efforts of the CIA sec. I Can't be prouder of the the staff of the SEC but we too have limited resources. We have a hundred trillion dollar Capital Market to oversee and that 100 trillion dollar Capital markets the stock market Bond markets treasuries and the like. That's an important responsibility and we don't want to undermine that. But what's the relatively new market? But what's the public supposed to think when we have a company that was worth literally 32 billion dollars with some of the biggest Venture Capital firms out there? by the way, supported by Pension funds in large part teachers, firemen, and the like. Investing in a company that, by the way, didn't have a CFO look I Think it's pretty clear Andrew and we're gonna do what Congress and the American public expect. We're going to be clear in our voice about the risk, the speculative risk, and what is appears to be largely non-compliant actors. We're going to continue to be uh, working with the industry to try to get them properly registered, but also that cop on the beat. These things take time and you would want them to take time so that we build the facts out. But I would say the runway is getting shorter If you're a crypto investor today, how much confidence should you have in the system? That's a good question. I would say to the American public, uh, be careful, beware uh there's still a lot of non-compliance and when you give somebody your token and they go down, you're gonna just stand in line at a bankruptcy court and they may be taking your token and doing all sorts of things without proper disclosure. Now if it's one-to-one backed and there's really good disclosure and you're protect against fraud manipulation, that's all we're saying. That's what the Securities laws are. There is a path forward to these uh, intermediaries. But but for for Americans who have money on an exchange like a coinbase which is which basically is publicly traded company also under your jurisdiction or a binance, the two biggest ones at this point that are remaining should they feel confident that they can get their money out of those those firms I I I'm not going to speak to any one platform, but I would say that you, you have uh, rescued these. The rules and the laws are clear, but do not assume that these firms are complying with the the Uh roles and the laws that the New York Stock Exchange or the biggest uh brokerage apps uh are complying with. So a couple of things to touch on there. Obviously right now Crypto is just going insane like we're down to 16.5 overnight. it almost got below 16. East 1200 ftt. Now somehow back up. We're going to be talking about this uh Justin Sun thing and how he's trying to step in. Crazy crazy things are happening right now. Binance has released its Reserve wallet addresses and revealed a reserve of close to 69 billion in the form of Bitcoin ether and other coins. So right here, this entire story is a story of inherently too much leverage, people being greedy people taking advantage of their clients of their investors and you're going to see that perfectly with FTX and what just come out from Reuters But this is how things should be done. 69 billion The Exchange said it will share its proof of funds in the coming weeks. So they're saying hey, this is how everyone should be doing it. We have the money: 475 000 Bitcoin 4.8 million Ether 17.6 billion Usdt, 601 million Usdc uh 21.7 billion of its own stable coin. Crazy crazy stuff. but this is how it should be. This is them stepping up saying no like we're actually protected. Unlike Fdx2, a little bit was shrouding it in mystery. and then it turns out a lot of their assets were inherently Ftt. Which then brings us to this right here. This is the development overnight of how the Alameda FTX Sam Bakeman Freeze situation got so bad this: May in June Bankman Freed's training firm Alameda Research suffered a series of losses from deals according to three people familiar with the operations. So this is All Surrounded around Voyager which remember Voyager went down because of Celsius and 3C going down with Terra Luna These included a 500 million loan agreement with failed crypto lender Voyager Digital Voyager Filed the bankruptcy protection the following month with Ftx's U.S arm paying 1.4 billion for its assets in September auction Reuters Could not determine the full extent of losses Alameda suffered, but most likely pretty substantial. seeking to prop up Alameda It was so bad Alameda was going down which held almost 15 billion assets but remember just under six of it was Ftt, its own token, its own fake Funny Money Bakeman Free transferred at least 4 billion FTX funds secured by assets including Ftt and shares in trading platform Robin Hood Alameda had disclosed 7.6 shares in Robin Hood that may So right here. that top sentence of the second paragraph Bateman Free transferred at least 4 billion in FTX funds. so it appears as if he took clients funds from FTX transferred it over to Alameda to keep it going and he's like yeah, yeah, we're completely fine and then he backed it with his own money that he made out of The Ether That sounds crazy illegal, crazy illegal. a portion of these FTX funds were customer deposits. To the people said though, Reuters could not determine their value. Bankman Freed did not tell other FTX Executives about the move to proper Balamita, adding he was afraid that it could leak all of a sudden. if you're not telling your Executives what's going on, that's not a good look on. November 2nd, however, a report by News Outlet Coindesk detailed a leaked balance sheet that allegedly showed that much of Alameda's 14.6 billion NASA's were held in Ftt. Alameda CEO Caroline Ellison tweeted that the balance sheet was merely for a subset of our corporate entities with over 10 billion of assets not reflected else and did not return requests for comment. So there's this like seemingly younger girl who's like a whiz kid that was, apparently, uh, very important in the world of Alameda and she tweeted that out we could go to her Twitter and everything, but she said we had a whole nother billion and as of now, that appears to be a complete and utter lie that failed to douse growing speculation over what Almeda's Financial Health really was. So Almeda blew up at the same time as 3ac. but SPF bailed them out with customer funds secured by FDT and Hood Equity This is insane it. Like it really is insane. This might be the dumbest question on Earth but where are the on-chain records of these transfers? There was the one corresponding to this one, which was a massive amount. Four billion of FDT being transferred to FTX from Alameda Heads up, rotating a few FTX wallets today, mostly non-circulating. We do this periodically. might be a few more coming won't have any effect. So he once again just kind of lied to the public saying hey, yeah, yeah, it's normal So once again, it's all trash fact. Obviously, it's tracked. You can see it. That's what the beauty of a ledger, but it's just shrouded in lies. It's looking highly probable that uh Tabasco knew what was happening and got out with the money while he could. Yeah, if the timeline is accurate, he basically quit just after. So I guess he said nah, fuck this and left surprised. He kept tweeting about buying boats and stuff. If true, so is Tabasco Brett or is that the Alameda because there was two people who stepped down the Alameda co-ceo He stepped down in August though, and this appears to have happened in September and then Brett who is the president of FDX he stepped down in September Uh, does anyone know? Do any of you know is the the name Tabasco is that for Brett Harrison or whatever the fuck his name was uh from FTX A lot of the community did factual DD and Binance probably saw immediately and hit the brakes on the deal. Well, that's pretty much as soon as the balance sheet of Alameda was released in early. November. Uh, like basically on Sun Day I Believe That's when it all came undone. The fact that when people realize a majority of the assets or a high percentage of the assets were being backed by their own token backed by nothing like their token was just their token. They just made it like it wasn't backed by USD or BTC or anything like that. Uh, it's just getting crazy.