In this special WhoWhatWhy podcast, we talk with Zeke Faux, whose book Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall (Crown Currency, September 2023), unpacks the crypto phenomenon and its disintegration, culminating in Sam Bankman-Fried’s (SBF) conviction for fraud and potential 110-year sentence.
Faux, a Bloomberg investigative reporter who has covered SBF and the crypto craze since the beginning, spent time with SBF in the Bahamas and sat in the courtroom every day of the trial. Faux’s investigation into the $3 trillion crypto delusion offers a sobering look at our financial epoch which is defined by SBF’s rise and fall.
The discussion provides a nuanced narrative of the crypto craze, cautioning against the seductive yet volatile nature of digital currencies. Faux’s account serves as a stark chronicle of a financial mania that captivated — and then capsized — leaving what will be a short-lived legacy of caution in its wake.
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(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)
Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host, Jeff Schechtman. Sadly, there is now a large pantheon of modern-day financial rogues. Names like Kenneth Lay, Elizabeth Holmes, Bernie Madoff, Bernie Ebbers, and Barry Minkow, loom large. They’ve become synonymous with the excesses and deceptions of their errors.
Now a new name joins the infamous roster, Sam Bankman-Fried, also known as SBF. His story is not just one of personal downfall, but a symbol of a zeitgeist that believed perhaps naively that cryptocurrency was the future, that a digital revolution would redefine a very understanding of money. But beneath the veneer of FinTech innovation and the promise of decentralized financial utopia, were there any substantive truths or was it all a mirage? Was the crypto craze any more real than the illusory medical breakthroughs promised by Elizabeth Holmes?
Joining me to unravel this complex web is Bloomberg investigative reporter Zeke Faux. His work doesn’t just chronicle the rise and fall of SBF and the surreal world of cryptocurrency, it’s a journey down the rabbit hole of modern financial mania that has left many questioning the very nature of value and wealth.
As the crypto bubble burst and the world watched the spectacular implosion of SBF’s Empire, my guest, Zeke Faux was there capturing the absurdity and the pathos of a $3 trillion delusion. His book, Number Go Up, is not just the tale of financial folly, it’s a chronicle of our times; a story of greed, hubris, and the search for meaning in a world where the value of everything seems to be determined by the flickering numbers on the screen. It is my pleasure to welcome Zeke Faux here to talk about Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall. Zeke, thanks so much for joining us.
Zeke Faux: Thanks for having me, Jeff.
Jeff: Well, it is a delight to have you. Is the conviction of SBF the end of crypto as well?
Zeke: So, I think that this is a significant moment for crypto. The crypto promoters like to paint SBF as just one bad apple, but to make this case, you have to ignore all the other crypto scams over the last couple of years. Just to cite one high-profile example, another person who I profile in my book is Alex Mashinsky, who ran this big company called Celsius Network. Their peak, they had $20 billion, so actually even more than FTX Sam Bankman-Fried’s company ever did. And he had this pitch that he could pay up to 16 percent interest if you just sent him your crypto. And people treated it like a bank, like a safe place to keep their savings. And it turned out to be a big fraud. And his trial’s coming up in a few months too. Plus, literally almost every coin has crashed.
So I went into crypto thinking that I’m an investigative reporter, I’ve always written about sketchy parts of the world of finance. And I went into crypto thinking, “Look, this all looks pretty dumb.” And what I found was that it was even dumber than I had ever thought. Setting aside the fact that a bunch of the founders were just stealing everybody’s money, it was all a bunch of hype. And each coin that I would look into, each crypto app I’d look into, I’d see that it didn’t live up to the promises of its founders. And it was frankly surreal.
Listening to your intro, it’s kind of hard to imagine that this all really happened. I’m back at my home in Brooklyn now living my normal life. And it’s just funny to imagine that, yes, for a time there were a bunch of kids in The Bahamas trading Dogecoin, a currency that’s based on a joke about a picture of a dog. And that for a time these were some of the richest people in the world. And real legitimate people in the world of finance were saying, “Oh, yes, this might be the future of Wall Street right here.”
It’s surreal to imagine. And I can’t imagine that it’ll come roaring back. I think that the next crypto guy who comes along pitching some hot new thing, the average person is going to say, “Hey, I kind of remember, wasn’t there another guy who did a crypto thing? Didn’t he steal all the money?” And I think they’re going to be a little more reluctant to jump in.
Jeff: One of the things that’s so remarkable, and you just touched on it, is all the legitimate people on Wall Street that believed in this. Never mind the Sam Bankman-Frieds and the young people that were pushing crypto, the legitimate people that thought this was the real thing.
Zeke: Yes. And I think I’ve learned something about the investment world by investigating this. And when I started hearing about crypto, I started feeling a lot of FOMO, the Fear of Missing Out. I’d hear about my friends who bought into crypto and they made a lot of money. And I was kind of skeptical. I wasn’t sure thinking there was much there, but it’s hard to argue with results. I knew people who bought houses, renovated their kitchen, gone on vacation all funded with their crypto winnings. And I was tempted to buy some myself. Actually, not allowed to because of my job but I could see the appeal.
And I think that for these big Wall Street firms is honestly not so different. They might not actually believe in crypto, but they see other people making a lot of money, and maybe their clients are even calling them and saying, “Hey, Bill funds up 20 percent. He got into some crypto stuff and got a big score. How come you’re only up 10 percent?” And they feel a lot of pressure. They’re like, “All right, it might be silly, but could it keep going up for a couple of years? Maybe I should jump in.” And I think that a surprising amount of this whole boom was just driven by that mentality, both on the part of individual investors, but also some of the biggest names in finance.
Jeff: One of the things that’s particularly remarkable is all the people that bought into Sam Bankman-Fried’s lies in this whole process. Having seen the trial, having watched the way he testified on his own behalf, it’s hard to believe this was the same guy that got people to give him tens of millions of dollars, billions of dollars.
Zeke: Yes. And I think two things; honestly, he was able to turn on his weird sort of charm in the past, when it counted. And we heard at the trial, some of his closest friends, his ex-girlfriend testified that essentially he was a real jerk and that he could be mean, vindictive. He wouldn’t listen. He was a bully. When he used to go speak before Congress or talk to a reporter like me, sure he came off as odd, but he seemed authentic. He seemed kind of skeptical about crypto, and he seemed — honestly, him acting so weird made it seem like he wasn’t hiding something. Obviously, that was not the case.
But I think it also points to something which is that… I was sitting there in The Bahamas for a couple of days with him when things were going great, and no matter how hard you try not to be swayed by this, you do feel like, “Wow, it’s exciting that I’m sitting next to one of the richest people in the world and just this aura of success turns all of his obnoxious quirks into marks of genius.”
We should have been saying, “Hey, this guy barely sleeps. He just passes out on a beanbag next to his chair. He can’t be bothered to dress up for anyone. He’s always playing video games. Doesn’t that seem irresponsible? Couldn’t he maybe make some mistakes or take some big risks because he is not paying enough attention?”
Setting aside the fraud, we should have been a bit skeptical of this. And some people were, but other people such as the venture capital firm, Sequoia, this really happened, they found out that Sam had pitched them, and while he was like giving them a PowerPoint or something about why they should invest in FTX, he was playing League of Legends. And instead of being like, “You know, this guy seems disrespectful. If he can’t even be bothered to pitch us properly, how does he behave when he is meeting with his auditors?” No. They were like, “Wow, this guy, he doesn’t need our money. He doesn’t care. He’s so crazy. Let’s give him another $5 billion.” They loved it.
So, when things were going well, whatever he did, it just seemed like a sign that he was the golden boy of crypto. I think it said something just about the way we regard people who are rich and successful.
Jeff: Did it also say something about the alleged complexity of crypto? That because nobody really understood it, that people at Sequoia didn’t really understand it, that Ken Griffin, who did an onstage event with SBF — that because these people didn’t really understand it, they just thought if they embraced him, that was enough.
Zeke: Yes, and like I was saying before, I feel like if you invest in FTX when it’s worth $10 billion, what you’re betting might really just be that someone else will come along and invest in FTX and say it’s worth $20 billion. You might not really be betting on the long-term success of FTX, you’re just thinking about what’s the next guy going to do. That’s definitely how a lot of crypto works. You’re like, “I don’t really get this coin, but it sounds cool to me and I think that I’m in early enough, other people are going to jump in and the price is going to go up.” That’s where the title of the book comes from, Number Go Up.
I heard a Bitcoin person explain this with a straight face and somebody asked like, “Why would the price of Bitcoin go up?” He said, “Well, number go up technology, the price goes up and that makes people excited and more people buy, and then the price goes up more and people get even more excited and then the price goes up more.”
I’m thinking to myself this sounds like some pyramid scheme, not a piece of technology. But for a couple years there, the logic of the financial world totally broke down and Number Go Up thinking really took over.
Jeff: It really was the greater fool theory. The classic greater fool theory, kind of like, as you say, a Ponzi scheme.
Zeke: I definitely think so. It is a challenge as an investigative reporter because you really want to get to the truth. And let’s say you tell me, “Hey, Zeke, yes, I’ve got this new coin, it’s practically magical, it’s helping people in Cameroon track their crops and earn higher returns for them and plus you can invest in it and we’re going to earn 8 percent interest guaranteed.”
For me to go investigate all of those claims, I would have to go to Cameroon, I’d have to speak to your employees and convince them to tell me the truth about your investments. I did that for some of these coins in the book, but I couldn’t do it for all of them. It was a lot easier for you to just sit there and make up this story than it is for anyone to check it out.
These crypto guys were just making up the craziest stories and instead of checking it out, people were just like, “All right, that sounds good, that sounds like a story that other people might buy into let me get some of that new coin.”
Jeff: How much of it was a reflection of the financial times that we were living through? There was just so much money awash in the system. Money was so cheap that it gave all of this a different kind of patina.
Zeke: Yes, I do think it was a zero-interest rate phenomenon. Early in my career, I was very bored by interest rates. It was a big part of my job was writing about interest rates. I’ve now realized that they’re very important because when interest rates are zero, if you go to a venture capitalist and you say, “Hey, I’ve got this idea, it’s not really generating any money now, but I think it could make a lot of money in the future,” that seems appealing. People are desperate to find anything to invest in that’ll make them any money.
Now, with benchmark interest rates around 5 percent, when you pitch someone an investment, they might say, “Well, if I lock my money up in US treasuries for a few years, I could earn a pretty good return. What are you going to do for me?” These super speculative investments don’t sound so appealing. That goes all the way through from the venture capital to the pitch of Alex Mashinsky at Celsius where he was amassing this $20 billion mostly by telling people, “I’ll pay you a decent interest rate on your savings.”
Now you don’t need to go to some weird crypto bank to earn interest on your savings. You can get it at — if not your regular bank at least I’m getting 4 percent on my Apple savings account right now. Crypto’s got to beat that if they want to get me to switch.
Jeff: Talk a little bit about why this trial went so quickly. Normally a federal government case, a federal case, could take years to get to court. This happened so quickly. What happened?
Zeke: When FTX collapsed, a lot of people said, “Sam won’t be prosecuted, he’ll get away with it because he gave so much money to politicians.” Exactly the opposite happened. They made an example out of him. Damien Williams, the US attorney for New York, gave a press conference after the conviction right outside the court.
It’s a big deal when the boss comes to the trial and he was there for several days of it. He acknowledged what you said. He said, “This is a lightning-speed prosecution.” He said, “That was not a coincidence, it was a choice. We want to send a message to all the scammers that no matter how connected you are, no matter how important you think you are, how big and complicated your scam was, we’re going to get you.” He said, “We got handcuffs for all of you.”
I think Sam, he flew too close to the sun. And his high profile in Washington actually made everyone eager to distance themselves from him. And it made the US go after him even faster to avoid the appearance that he was getting some sort of special treatment.
Jeff: Was there ever the perception, and you’ve covered this, literally from the beginning, was there ever the perception that he would get away with it, that he would be found not guilty?
Zeke: There’s always been these conspiracy theorists who said that, among them Elon Musk, but to me, I didn’t think the outcome was ever in doubt even before his top lieutenants all flipped and agreed to testify against him. The evidence seemed overwhelming. Sam, he argued that he just hadn’t been paying attention, he’d lost track of what was happening at FTX. And back last November, I flew down there, I spent the day with him talking about this just before the cops showed up. He told me all these excuses and they sounded totally implausible.
At one point he told me that he just lost $8 billion. I said to him, “You seriously misplaced $8 billion?” He said, “Misaccounted.” And with a big smile, that was like he’d come up with a great excuse. But I never bought it because he was obsessed with money. He was very smart. His whole mission in life was to make as much money as possible. So the idea that he would just pay no attention to what was happening with his billions it seemed implausible.
Then his friends all came out and said, “It wasn’t true. He was paying attention. He told us to do fraud.” Even though they had deleted all their text messages, the prosecution pulled out Google Docs and they had evidence that Sam had looked at these Google Docs and these Google docs showed them preparing to trick some lenders. There was even evidence like that for at least some of the fraud.
Jeff: Talk a little bit about his parents because they’re certainly not part of the whole broader discussion of the economy and crypto, but they did seem to play a large role in this story.
Zeke: He came from an intellectual family. His parents were both professors at Stanford and not just like your average professors; his dad was an expert on tax law who went and got a PhD in psychology as an adult and became a practicing psychologist, I think. His mom wrote books about philosophy. As a child, he was raised to be a utilitarian. This philosophy really powered him.
What it meant to him was that every action should be judged by what would do the greatest good for the greatest number of people. Which sounds like, all right, pretty mainstream fine, I like that, but can quickly take you to some weird places. Like if I reached into your pocket and I took a hundred bucks and I gave it to someone sleeping on the subway, that might be net positive for the world, right?
Sam, I think took this philosophy to an extreme and he at different points in this climb to the top of the crypto world, he was faced with choices where he could have let’s say they lost some money on a bad trade, he was like, “Should I cover this up and then I can keep making money, and eventually I’m going to give it away so it’s good for the world? Or should I admit that I lost the money and throw in the towel?”
He could justify dishonesty by saying, “Hey, if I admit to failure, that’ll be the end of the story and I’ll never get to do these great things for the world.” But because he saw himself as like a hero, a utilitarian hero, he could justify doing almost anything. It’s like the ultimate ends justify the means.
So I am intrigued by how he was affected by this philosophy that he learned as a child. And now the parents also were more involved than that. His father, it came out at the trial… We’d know that the father had advised him on tax matters. He’s an expert on that, but he was also a member of several group chats with company executives, the contents of which have been erased. I still like to know just how much he was involved. And they received a really valuable beach house as a gift from Sam as well as a big cash gift. They were there for all of the trial. And truly it was pretty sad to see them watching the government build this overwhelming case against their son, one that will likely put him in jail for decades.
Jeff: And will the government continue with other charges against him, do you think?
Zeke: So he still has these other charges pending about campaign finance violations and also paying a massive bribe to Chinese officials. Little aside, I mentioned the Google Docs. One of them was a balance sheet and there was a line in the balance sheet that was like “The Thing” $150 million. “The Thing” was a big bribe to some guy in China. One of my favorite things at Google Docs ever.
So technically he’s supposed to go on trial for all those charges, I think, in March, but I imagine the government will not pursue that because he is going to get such a big sentence from the first trial that it’s not necessary.
Jeff: The one thing that we can be sure of is that somewhere down the road there’ll be another one of these Sam Bankman-Frieds, there’ll be another fraud that will reflect the times that we live in.
Zeke: For sure. I don’t know what guise it’ll come in because Elizabeth Holmes, she discredited the black turtleneck and deep voice. Sam Bankman-Fried has ruined the curly-hair and short-no-pants-ever strategy for future founders. But yes, someone’s going to come along and disarm us with some sort of amazing story and run some sort of giant fraud. And I hope that next time I’m right there and I catch them.
Jeff: Zeke Faux, his book is Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall. Zeke, I thank you so much for spending time with us today on the WhoWhatWhy podcast.
Zeke: Thank you, Jeff.
Jeff: Thank you. And thank you for listening and joining us here on the WhoWhatWhy podcast. I hope you join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman.
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