is one of the fatal flaws with unrestricted capitalism is the desire to get rich as quickly as possible while putting in the least amount of work possible . it's a practice that plays on the inherent reading is that most people have who wouldn't want to get rich quick, who doesn't see himself or herself as a corporate leader under the right circumstance. he doesn't fantasize about investing in facebook, google, microsoft or amazon on the very 1st day that those companies went public who doesn't wish that he was born in buffalo. but that kind of intellectual laziness, trying to predict the next big thing rather than putting in the work will always come back to bite you. i'm john here. yonkers welcome to the west of lower the . 2 2 2 2 2 2 2 2 2 get rich, quick schemes are common place in the united states with a blind trust in barely regulated capitalism. everybody,

regardless of economic background, education level, age or anything else, believes that they have the ability to become welfare. then in their wildest dreams, if they just choose the right opportunity, we so see that with frequency here in the united states, just look at the scandal surrounding serrato's. the runners this founders claimed that they had revolutionize the way the blood tests were done. and that their new technology could detect diseases earlier than any existing blood tests, without any proof that the technology even existed. the company reached evaluation of tens of billions of dollars, only to collapse. all of the companies founders are now in prison. and even more recent examples include that of crypto currency exchange f t x. and if it's founder sam bagman fried, how great would it be to be a billionaire in your twenties? and if you're not saying bagman fried how great would it be to john to someone like

him and make millions of dollars for an investment of a fraction of that amount. but that's not real life. the kind of strategy will always catch up to you. bill black is an associate professor of economics and law at the university of missouri at kansas city where he teaches white collar crime, public finance, anti trust law and economics, as well as latin american development. he's a former executive director of the institute for fraud prevention. he has taught at the lyndon b johnson school of public affairs at the university of texas at austin as well as at santa clara university. professor black was litigation director at the federal home loan bank board, deputy director of the savings and loan oversight body, the ssl, i see general counsel of the federal home loan bank of san francisco, and senior deputy chief council at the office of thrift supervision. he's the author of a lot of books and his book, the best way to rob a bank is to own one, which was published in 2005 is considered to be

a classic in this genre. professor black, welcome to the show. we're very happy to have you. thank you. it's a, it's an honor to actually meet you. i have to admit that i'm fascinated by the case of sam bagman fried the founder of f t x and the co founder of alameda research a year ago. forms rank to this 31 year old. as the 41st richest american, and the 60th richest person in the world, with a net worth of some $26000000000.00. that's at the age of $31.00. the conventional wisdom was that he had earned every dollar on his own sum called him a genius. and many analysts lauded his abilities in quantitative research. but it turns out that it was all just a fraud. many banking in investment professionals were taken in by sam bank, been freed, who's also known as s b. s. many politicians were taken in by him to. so when did

you realize that something was amiss? what was it that triggered your interest? well, the salary was always too good to be true and the man was incapable of explaining anything in finance. so anything and everything he said demonstrated that it was there was no, there, there. this was a scam. and yes, it's easy, easy. it's not genius, it's a dash of the on that part of these kind of criminals to get the top financial people in the world to stay in your praises. even though you're actually an arrogant, more odd. s b a founded f t x, which was known as the crypto currency derivatives exchange in april, 2019. it began operating a month later, he immediately became a washington darling. he testified before congress about regulating the crypto

currency industry. he attracted investments from long standing and completely legitimate wall street firms can even offer a 6000000000 dollar investment to rely on mosque to help with this purchase of twitter, that investment was declined. a major investment firm called sequoia capital even lauded s b f in a glowing profile, which it later had to take down. so i guess my question is pretty simple. how did he full so many people? or was it their own greed that allowed them to be full? great. so again, it's really easy to fool people in finance. and that's why you see so many of these frauds occur in finance. so let's say burn beta brain made of never invested in anything in the scam period, right. the running upon 16, the sun, really prominent people came to the sea and explained in chapter and verse,

why this was ponzi scheme, and the lawyers who dominate the fcc when we don't understand financed the type of thing. and everyone saying the price is, why did they sing the prices? because most of them were paid to say the same. the praises and the others were purportedly getting really, really rich from singing the praises. and if anybody told the truth, the whole thing collapsed and you lost all your money. so nobody involved as much of incentive to tell the truth. and that's why was only a couple of whistle blowers that provided that unique benefit and should have led to it being shut down, you know, but decade earlier. but the whistle blowers were ignored. in the case of jam banking free. right. it's nothing. it's a, it's a nothing built on nothing. so the crypto currency is nothing. you know,

it's the old joke about the oakland. when you get there, there's no there, there. and then you create an exchange of this. nothing. now, how do you suppose to make money on this? well, you can only make money if you can create a bubble with them crypto. but here comes to the moronic art in terms of san bakeman. 3, combined with the arrogance. right? so not just think about normal banker, you have to pay interest to get people to give you money, right? it's all deposits. and then you have brick and mortar expenses, running buildings and all them direct types of things. the crypto exchanges are nothing, right? it's. it's just basically a software app. you have virtually no expenses and the skies go, hey, i can be a banker. why just have them exchange, why don't i take the money and invest, and i'll have this mass of advantage over all other bankers. i get my money free,

they have to pay in the way of deposit, and i got no brick and mortar expenses and they got very large, brick and mortar expenses. this is a se, i'll make a ton of money. it's up there more rugs, right? they know nothing about making real low. plus, they're not interested in making real loans because the only non moronic part is, hey, i don't actually have to make money. i just have to claim i'm making money. great. and now this is the modern era where we're seeing these incredibly crude, a sophisticated, broad serrano elizabeth holmes, never produces a product that gets valued at $7000000000.00. and there's a whistle blower. his name is tyler wright schultz, kind of a famous name and i are, you know, national security route. right. and so tyler goes to work and title is actually a biologist with substantial lab experience. and he comes and he tells his

grandfather, who is the, you know, a key board member at toronto's. hey, it's a complete scale that explains to him in detail. and his grandfather, who loves him, chooses to believe, elizabeth holmes, who is a freshman, that's your education, a freshman college, she took a year of college. she was actually in the air and tried to explain scientifically, this device because it was about them getting a device. right, made up, there was never a penny of profit earn and he got $50000000000.00. sandbank went free, had nothing burgers on top of nothing. burgers and went on programs in which he was asked by bloomberg. how does this work? and he explained it was a black box. and then his explanation was a pure ponzi scheme. you're going to hear the bloomberg reporters erupt into

laughter. and by the way, that's the problem with the modern media. they don't erupt into outrage. the describe it as ripped up all these people. it was a little before it goes, wow, i really think of myself is cynical, but boy, you are really over the top describing this ponzi scheme. and again, there ain't nothing there. and he's so incompetent that even though he has free money to invest, that was he just put it in the band guard. he would be a real billionaire to things began falling apart for f t x after only 3 and a half years in business. in november 2020 to finance ceo chang ping, chow tweeted that his firm would sell its holdings of f t t which was f t x is token. this kicked off a twitter storm between chang and s b f. that force the price of not just f t t, but all other crypto currencies down. and within days f t x had a cash prices,

so in response financed announced that it would buy f t x. but the value of the token continued to crash. so finance dropped out and when they dropped out, they criticized f t. x is handling of investors money that lead to something akin to an old fashion run on the back. and within 48 hours, sam beckoning, fried was no longer a billionaire. it turned out that f t x had loaned billions of dollars to alameda to cover its liabilities. and in the end, f t x, alameda, and get this 180 associated entities, all declared bankruptcy. how in the world could something like this happened? was there no oversight, no regulation, and if there was and then why not? okay, so this has existed for centuries. the famous explanation of this earliest and time is boss yet a sort of pro economist in france,

centuries ago, when plunder becomes a way of life for men and society. they create a legal system that authorizes it and a moral code that glorifies it. and so they hired folks in your case they didn't just, you know, work on key politicians. they worked on the side college, the profession, and the law profession. and you got the use of the world doing these for pastors memos that purported that oh it's not really torture unless you cause pain equivalent to the destruction of the human oregon. like what is that? there's just a completely made up. uh yeah, no legal basis, but the, it's the same, right?

it's just absolutely obscene. and then you've got a cottage under jury uh, industry of psychologists that want to torture. right. they gonna call it non torture, but they're going to market themselves as we will train you on these enhanced interrogation methods. right. and that's the case of sam bakeman fried. you got all these clowns saying, oh, this is new, this is innovative and you go, well, what is this? so for example, the most famous of the crypto currencies. do you see big coined, you know, can you go and use big coined to buy your sandwich? well, you, course not, you can't because it's a 100000 times more expensive. you for them to do a single transaction like that, then it is for visa to do it. and by the way,

that happens to show up the way up the pollution. perfect. massive use of electrical generation. so these are con stories, but then they get to, you know, if you're going to live, right? and you've seen this, these abuses that we've talked about, whether they're in finance, whether they're in torturing people, etc. they are all based on the necessity of why and they got to give some people, not everybody, some people believe those lies and it is easy to hire in athens politicians. the are firms. this is what's different when the c e. o is the truck decision, create this vast predatory network any can use the funds of the firm to rip off the firm. thank you. bill. we're speaking with bill black, a lot,

professor and banking whistleblower about the scandal that f t x. the crypto currency trading house that was very recently the darling of wall street and official washington only to implode under the weight of its own apparent corruption . stay tune. when we come back we'll talk about what to expect in the trial of f t x founder sam, bagman free. 2 2 the the the

the media has basically been totally on the side of a button and the administration where they say that, well, if i should take 2 crane and they're going to take the baltic, states that they're going to take all the, all of which is ridiculous and this is what the american public is hearing report, and i think has spelled out very clearly why russia intervened. and a lot of it makes perfect sense. the

the welcome back to the whistle blowers. i'm john kerry onto we're speaking with professor bill black about the scandal at the crypto currency trading house f t x. good to have you with this bill? bill sam, thank been freed, was arrested in the bahamas on december 12th 2022. the day before he was scheduled to testify on capitol hill and he was extradited to the united states. he was charged with wire fraud conspiracy to commit wire fraud securities fraud. conspiracy to commit securities, fraud, and money laundering. he currently faces up to 115 years in prison. to make matters worse for s b f, his fiance and his best friend who had both been executives at f t x have agreed to testify against him at trial. you've had

a lot of experience in these kinds of criminal prosecutions. how does this play out? does this be a have any reason at all to be optimistic? no. and that's why, oh, it's not just to, i'm, i think, at this point at least by of all the entire senior leadership, other than sam, bank winfrey has pled guilty to multiple felonies and they had them dead to rights really be the surprising thing is that they were expedited because they're where they were doing business was chosen because the country is normally very unwilling to expedite. s b s got themself in even more trouble in early 2023. when he was charged with 4 additional criminal charges, focused on what the justice department called more than $300.00 illegal political donations. can you explain that to us who received these donations and where the

donations ever returned? so this was very common in the savings and lo debacle. as i explained, this is what these control frauds do when they create their predatory networks. if they're from the private sector, they're going to make sure that they have a public sector component that's going to demand things be done. right. uh and, and you've seen this in your own like where the justice department said no, we should not prosecute them. and then the obama administration comes in and people have been lobbied and such, and boom, pretty well. prosecution gets created again. and by the way, in the savings alone debacle, as i said, we had over 1700 convictions of these a late. how many in the great financial crisis which use the same fraud mechanism? 0. well, that doesn't happen accidentally. we created this occurred criminal referral system

. and they live in, they did it, we talk to the top that the i person in this area. he believes that in the entire great financial crisis, the entire one from all the federal banking, regulatory agencies, there were 6 criminal referrals. just our little agency dealing with savings and loans made over 30000 criminal referrals. so why is it super valuable to have politicians in your pocket? because they don't want to go to prison. you know, so you know, we had the dating by famously, the 5 us senators and to speak, or the house that was all about political contributions. and it was, and there's a key thing for people to understand. whenever your politics are, it is both parties that this is done to. right. so there was some

publicity about sam back meant free, gave overwhelmingly the democrats. yeah, it's true, but is confederates gave overwhelming liter above a certain make sure that everybody got a taste and show, remember i emphasize that there in the shadow financial sector? well folks that the c c and the commodity futures trading commission, have many folks have been pushing to get some regulation. but 2 things are happening. uh, 3 things are happening. one, they're making the same basement for each of the world are using these political contributions to make sure that the leadership of the cc includes many people who are their central tasks they feel is protecting the crypto crowd. right?

so that's the regulator component. and also their hope is to prevent the prosecute shots by getting iris hostile. so for example, the fcc of the house. this one is the partisan, the house republicans for 30 years waged a war to make sure the fcc doesn't have enough resources to deal with modern up in technology type stuff. so they go after them in that regard. but the, the 3rd thing is the judiciary. and there's been a lot of emphasis on the, the trump a point he's there shouldn't be. but the biggest thing is in many ways i understand why emotion is an incredibly important issue. but for every abortion decision, there are 20 decisions on business and almost all of them go in the same direction

to make it much, much, much more difficult to can that 2 groups of people in america ceo's and prominent politicians on corruption charges. and this is corrupting our ability, even our willingness, even our understanding because if there is no regulator, the facts don't come out and all you get is this modern stuff for the business shows that are yahoo ish. i don't, i'm not trying to pick on yahoo. but you know that that's the is the kind of the phrase, right? yeah. who is the big business people? wonderful. they must be doing isn't. and yet more trouble followed same sam bank than freed. he was finally jailed on august 11th because he was attempting to tamper with witnesses repeatedly contacting people who are likely to testify against him, even after being warned about doing so by the judge. so now he sits in

a terrible prison in brooklyn, new york awaiting trial, which is scheduled to begin on october. second, this is all very news were the stuff. and we know that sam bagman fried is not the only crooked money man out there. so why is it so and usual, why is it so rare for a billionaire money person to be prosecuted? why don't we see more price occasions like this? this is really important selection bias. don't assume that the be the number of these folks you see prosecuted, represent the universe of the people doing this down, right? the people that do it through more sophisticated beings, accounting. last by top tier audit firms and by the credit rating agencies. so in look, great financial crisis, the toxic waste in jargon cdls that

shouldn't have gotten even a single c rating, which means basically you're bankrupt every single time, i don't mean almost every single time every single time. got a triple a rate, which is a top rate credit rating in the world of evelyn to 0 risk of default. right? it pays and in sophisticated folks are still using those tactics and we don't see them at all. only release the dynamic regulators working with the best f b i. agents and prosecutors can deal with those folks and it, and it needs to come as a presidential emphasis. eventually, none of those things are happening, as you can see. and it's all the politicians which and then it's not all, but it's,

you know, hundreds of them have taken this money from the thieves. are they going to be eager to hold your and in a savings alone debacle. henry b gonzalez who held the key hearings they tried, even though he had seen yardi, they being the democrats in this case to prevent him from becoming chairman of the agency because they knew he might actually investigate the fraud and the bear. so thanks so much for being with us bill. we appreciate you taking the time indian entrepreneur shift not or ask rhetorically, what happens to a private company that comes out with a quarterly report and an annual report. it gives transparency. it talks a basic issues of governance and transactions with related parties. that's the opposite of what happened did f t x and the comparison brings us back to the basics . truth,

honesty and transparency always try and sometimes it takes time. sometimes investors lose their money, but the truth always comes out. just ask them bank vent free. thanks for joining us for another episode of the whistle blowers. i'm john to reaku and we'll see you next time. 2 2 2 2 2 2 the look forward to talking to you all that technology should work for people. a robot must obey the orders given by human beings except we're so shorter is that conflict with the 1st law show alignment of the patient. we should be very careful about our personal intelligence. the point obviously, is to create a trust rather than to the job mean with the artificial intelligence we have summoning the theme in

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