Bankman-Fried’s $250mn bail

This is an audio transcript of the FT News Briefing podcast episode: ‘Bankman-Fried’s $250mn bail’

Marc Filippino
Good morning from the Financial Times. Today is Friday, December 23rd, and this is your FT News Briefing.

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Sam Bankman-Fried had a hearing yesterday. The bail was set at $250mn. US stocks had a horrible year and some investors are pivoting back to bonds. Plus, we’ll look at why 2022 was the year of the “I, alone, can fix it” CEO.

Andrew Edgecliffe-Johnson
And it may be the turtle-necked founder or it may be the guy in the suit who thinks that they alone have the key that will unlock the problems of this company.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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Sam Bankman-Fried went before a magistrate judge in New York yesterday. The founder of the failed crypto exchange FTX had an enormous bond set and an initial conference in Bankman-Fried’s case is scheduled for January 3rd. Here’s the FT’s US legal correspondent Joe Miller on what happened in that hearing yesterday.

Joe Miller
Firstly, we learned that despite the fact that Sam Bankman-Fried has, in the words of US prosecutors, “orchestrated one of the largest frauds in American history”, he will essentially be free until trial or as free as you can get if you’re confined to your parents’ home. He’ll be released on a $250mn bond, which government lawyers said was the largest ever pre-trial bond. And I think they said that in order to drive home the fact that they’re not letting him off easy. The terms are very strict. He will have to be confined to the northern district of California, which is where his parents live. He’ll only be allowed to go outdoors for monitored exercise. He will be wearing a location tracking bracelet, and he will not be able to engage in any financial transactions over $1,000 without asking the government first.

Marc Filippino
So Joe, I got to know, how is this guy affording bail right now?

Joe Miller
It’s a very good question because if you remember in the media tour that Sam Bankman-Fried was doing before he was arrested in the Bahamas, he told multiple journalists that he was down to his last $100,000 after FTX collapsed into bankruptcy. But it appears that this bond is secured against his parents’ home in California, in Palo Alto. And two further individuals will also have to secure the bond. They were not named yet. I think they are yet to be found. And the judge said that essentially he wasn’t particularly worried about Sam Bankman-Fried fleeing the country, not least because his assets have diminished somewhat, but also that he achieved sufficient notoriety, which will make it quite difficult for him to either, you know, flee the US or commit further crimes. So I think that’s also part of the judge’s decision in deciding to allow him to go to California.

Marc Filippino
So kind of overall, Joe, how are things looking for the Bankman-Fried case?

Joe Miller
Yeah, the skies have really darkened for SBF over the last 48 hours. On Wednesday night, while he was being extradited from the Bahamas to Westchester in New York, the US attorney for the Southern District of New York, he announced that two of Bankman-Fried’s most loyal and closest colleagues have not just pleaded guilty to fraud charges in relation to the FTX collapse, but have also agreed to work with federal prosecutors. In other words, they’ve turned state witness. And we learned on Thursday, at roughly the same time as the hearing of, Sam Bankman-Fried’s hearing began, that Caroline Ellison, who ran FTX’s trading affiliate Alameda, which had access to FTX funds and Gary Wang, who is a co-founder of FTX, they agreed to co-operate fully in perhaps the cleanest process that you could hope for if you are a US prosecutor. And that’s incredibly bad news for Sam Bankman-Fried’s defence. And we heard during the hearing that the government has dozens of witnesses lined up. So these aren’t the only two people apparently that the prosecutors, that federal prosecutors have managed to convince to co-operate.

Marc Filippino
Joe Miller is the FT’s US legal correspondent.

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If you haven’t heard, markets had a no good, very bad year. The S&P 500 fell around 20 per cent and the bond market had a massive sell-off. But it looks like investors are wading back into debt. It’s the first time fund managers are favouring bonds since the wake of the 2008 financial crisis. The historic sell-off that bonds experienced this year boosted yields and caused prices to fall. So investors think they can buy low and actually get some income from highly rated bonds.

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2022 had enough corporate drama to fill an entire book. But to our US business editor, Andrew Edgecliffe-Johnson, one of the stories he covered stands out in his mind.

Andrew Edgecliffe-Johnson
For me, the most colourful story, but also the one that encapsulated so many big trends in corporate America and in markets this year was the story of the rise and fall of Peloton.

Marc Filippino
Yes, Peloton, the company behind those high-tech stationary bikes and workout gear. Peloton’s stock blew up 400 per cent during the pandemic, thanks to people being stuck at home wanting to exercise. Things were good for then-CEO John Foley. Executives were spending big. And then when vaccines started bringing things back to normal, things got real bad for the business. Edge explains what happened next.

Andrew Edgecliffe-Johnson
So suddenly, Peloton hits a cash flow crisis. And what we discover is that it’s also been cutting corners. And our reporting exposed that they were shipping bikes that actually been rusting in a corner of the factory. But early 2022, suddenly reality hits. We have thousands of lay-offs. John Foley himself is persuaded by the board to step back and in comes a hard bitten former chief financial officer for Netflix and Spotify. A guy called Barry McCarthy. And his message is it’s time to get real.

Marc Filippino
Isn’t the story, though, Edge, also one about the end of cheap money? I mean, Peloton and other companies had access to all this cheap money thanks to pandemic stimulus measures and low interest rates. I mean, that’s got to be part of it, right?

Andrew Edgecliffe-Johnson
This is absolutely a story from the easy money era, and it’s juiced by this tech story that has dominated markets for the last couple of years. And it’s a particularly extreme example of that. Obviously, the Apples and the Amazons and the Microsofts and the long established tech businesses have really driven market valuations for some time now. But we’ve also had these pandemic stories within that tech story like Zoom, like Netflix and like Peloton, that were predicated on the idea that our behaviour as consumers had fundamentally changed. And we’re gonna spend much, much more of our time in front of screens and much less time out in the real world. What actually happened was since we had a chance to get back out in the real world, that’s what we wanted to do.

Marc Filippino
OK, Edge. So I want to talk to you about another trend from this year, and that’s the outsized role of CEOs. I mean, you had Bob Iger returning to run Disney. You had Howard Schultz coming back to run Starbucks. What is your takeaway about how CEOs performed in 2022?

Andrew Edgecliffe-Johnson
This is the era of the “I, alone, can fix it” CEOs. But I think what’s going on here is the CEO’s job is hard. Very few of them are good at juggling all the disparate demands on a modern CEO. And a few of these individuals get carried away with the idea that because they’ve done it before, only they can do it again. And what fascinates me is, I spent a lot of time writing about ESG — we’re in the age of environmental, social and governance investing, and the G stands for corporate governance. And the idea was that boards were supposed to balance out the totemic CEOs, the kind of Jack Welch-era individuals who we all put on a pedestal. But what’s actually happening is that there’s still a massive imbalance of power between CEOs and the boards who are trying to, who are supposed to tell them when it’s time to go and hand over to somebody else.

Marc Filippino
So do you think this is gonna change any time soon, Edge?

Andrew Edgecliffe-Johnson
I think there will be pressure, from investors largely, for boards to do better on succession planning and to show that they’re not excessively beholden to a single individual. And we’ve seen in other countries outside the US, notably the UK, a pushback against the idea of combining the chair and CEO in a single individual on a board. So I think that is the direction of travel long term. At the same time, corporate cults return, you know, year after year. And it may be the turtle-necked founder or it may be the guy in the suit who thinks that they, alone, have the key to, that will unlock the problems of this company. But we do see corporate America, the wider corporate world, fall into this trap of hoping again and again that one individual will fix it.

Marc Filippino
Andrew Edgecliffe-Johnson is the FT’s US business editor. Thank you, Edge.

Andrew Edgecliffe-Johnson
It was a pleasure, Marc. Thank you.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. We’re taking a break next week for the holidays, but we’ll be back in your feeds in the new year. Make sure you check back on Tuesday, January 3rd, for the latest business news. See you in 2023.

The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio and our theme song is by Metaphor Music.

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