Former FTX chief charged with fraud

This is an audio transcript of the FT News Briefing podcast episode: ‘Former FTX chief charged with fraud’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, December 14th, and this is your FT News Briefing.

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US officials have accused Sam Bankman-Fried of engineering one of the biggest financial frauds in American history. A softer US inflation report is unlikely to deter the Federal Reserve from its course today. And US scientists have achieved a breakthrough that the US energy secretary calls . . . 

Jennifer Granholm
One of the most impressive scientific feats of the 21st century.

Marc Filippino
Our energy correspondent Tom Wilson will give us his take on this latest effort to harness the limitless power of nuclear fusion. I’m Marc Filippino. And here’s the news you need to start your day.

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The Federal Reserve meets today to make its next decision on interest rates. This comes after new inflation data out yesterday showed another slowdown in the pace of consumer price increases. November CPI rose 7.1 per cent. The FT’s Colby Smith says that’s unlikely to sway Fed officials.

Colby Smith
So regardless of, of where inflation came in at yesterday, the Fed is very committed to raising interest rates by half a percentage point, which would mark, you know, a slowdown in the pace at which it is tightening monetary policy. Now, where the inflation report could have an impact is in intensifying the debate among Fed officials about the trajectory of the economy growing, going forward. And in turn, inflation, which is an ongoing discussion they’re having when they are trying to determine how much more to squeeze the economy next year.

Marc Filippino
Colby, what does this latest CPI number tell us about the economy?

Colby Smith
So I think it’s an important data point in that for those who think that inflation is starting to roll over in a, in a more significant way, it definitely gives some credence to that view. We saw declines across a broad range of sectors, even in that core metric, which strips out volatile items like food and energy. But on the flip side, what we’ve heard from chair Powell, as well as, you know, other officials and economists, is that we can’t read too much into a single month or two of data. It’s important to see a substantive trend over time that suggests inflation is slowing, but this is certainly a good start.

Marc Filippino
Colby Smith is the FT’s US economics editor.

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US officials have charged Sam Bankman-Fried with eight counts, including conspiracy to commit wire fraud, money laundering and violating campaign finance laws. The former CEO of failed cryptocurrency exchange FTX was arrested in the Bahamas late Monday night. Bankman-Fried also faces civil charges from US securities regulators. To talk more about these latest developments, I’m joined by the FT’s Joshua Oliver. Hi, Josh.

Joshua Oliver
Hi, Marc.

Marc Filippino
So why did the US come down so hard on Bankman-Fried?

Joshua Oliver
This is an incredibly high-profile case and I think part of this is Sam Bankman-Fried’s celebrity profile coming back to haunt him. I mean, he, he, over the past year or two, had deliberately made himself into a major public figure. You know, for many people, the face of cryptocurrencies in the United States, not to mention ads at the Super Bowl — all of this stuff that for a time, made you know, Sam Bankman-Fried a celebrity and someone who was listened to, now means that the collapse of his company is something that is gonna draw a ton of scrutiny and attention from lawmakers, you know, regulators and authorities. But also, you know, you’re looking at a very significant case of, you know, alleged fraud. So it’s, it’s partly the celebrity factor, but I think also partly just, you know, the scale of the misconduct that prosecutors and regulators are now describing, that this is something that they, they had to go after.

Marc Filippino
Josh, there was just a pile of charges from the Department of Justice and the Securities and Exchange Commission. Was there anything that stood out to you?

Joshua Oliver
I think one thing that stood out is, you know, that the allegations here from, you know, prosecutors and regulators are that misconduct at FTX and, you know, lying to investors and customers went back to the very beginning, you know, of the launch of the company in 2019. You know, the US authorities have made it very clear, you know, they are going after this, as you know, a multiyear fraud that started at the very beginning. And the other thing that I think was key is, you know, Sam Bankman-Fried in all of his recent media appearances, has tried to portray what happened as some sort of massive accident, that the charges yesterday really contradict that. And particularly the SEC portray, you know, things as being personally directed by Sam Bankman-Fried over the years. And so, you know, it’s clear that they have not accepted the idea that this was all sort of an innocent accident and that they are gonna try and prove that he was in control. He knew what was going on and he was responsible.

Marc Filippino
Now, Congress also held a hearing about the FTX bankruptcy yesterday. What were some of the highlights and big takeaways from that, Josh?

Joshua Oliver
Yes, the hearing was supposed to hear from Sam Bankman-Fried himself, but he was arrested so he could not appear. Instead, they heard from the other witness, who’s John Ray, who is the the new chief executive of FTX. You know, he, you know, went over what he’s described before in terms of the, you know, incredibly lax management and bookkeeping. But he also spoke, quite frankly, about what he thought was the root cause of the collapse, which he, you know in his words, he described as embezzlement. And he also, you know, made some comments that people have been waiting for in terms of how much customers and other creditors might expect to get back at the end of this, you know, tremendously complicated bankruptcy. He wasn’t gonna put a number on it, but he said that people are looking at a massive loss.

Marc Filippino
Joshua Oliver is the FT’s asset management reporter. Thanks, Josh.

Joshua Oliver
Thanks, Marc.

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Marc Filippino
The US energy secretary yesterday announced a breakthrough in efforts to develop clean energy. Jennifer Granholm said that scientists in California managed to generate more energy from a nuclear fusion reaction that was used to start the process. It was a net energy gain.

Jennifer Granholm
This is one of the most impressive scientific feats of the 21st century.

Marc Filippino
The FT’s energy correspondent, Tom Wilson, broke this story earlier this week.

Tom Wilson
So the reason that fusion is so tantalising as an energy prospect is that the two key hydrogen isotopes, which are used in the fusion reaction, deuterium and tritium, are relatively widely available. So deuterium is incredibly available. That’s found in seawater and it’s found in seawater in huge volumes. So it’s basically a limitless supply of seawater. Tritium is slightly harder to find, but it can be extracted from lithium, which is also commonly occurring. But most importantly, the process is so energy intensive that in theory, a small cup of deuterium, tritium fuel could power a house for 800 years.

Marc Filippino
Wow. 800 years. That’s wild. So is what just happened in the laboratory in California as big a deal as the US energy secretary makes it out to be?

Tom Wilson
No the, so the, scientifically, the breakthrough is huge. Unfortunately, it doesn’t mean that fusion power stations are just around the corner. Even the most optimistic fusion industry advocate would say that we’re at least a decade away from the first prototype fusion power plant. What needs to happen is the scientists need to figure out a way to now improve that energy gain. So rather than an energy gain of 1.5 that we’ve just seen, they want an energy gain of 30 or a hundred times the energy put in. But ultimately, the hope is that this breakthrough will galvanise interest in investment in the sector and so accelerate the progress.

Marc Filippino
Tom Wilson is the FT’s energy correspondent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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