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- [00:01]
Podcast Sponsor Announcer
This episode is brought to you by Progressive Insurance. You're listening to this podcast, so I know you've got a curious mind. Here's a helpful fact you might not know yet. Drivers who switch and save with Progressive save over $900 on average. Pop over to progressive.com, answer some questions and you'll get a quick quote with discounts that are easy to come by. In fact, 99% of their auto customers earn at least one discount. Visit progressive.com and see if you can enjoy a little cash back. Progressive Casualty Insurance Company and affiliates national average 12 month savings of $946 by new customers surveyed who save with Progressive between June 2024 and May 2025. Potential savings will vary. This podcast is supported by Her Private Hell, official selection of the 2026 Cannes Film Festival. Her Private Hell is the newest film from Nicholas Winding Refn, director of Drive and the Neon Demon. It has been hailed by critics as visually striking, hypnotic neo noir. Starring Sophie Thatcher and Charles Melton. Her Private Hell opens in theaters everywhere July 24th.
- [01:07]
Al Letson
Ah, summer break. Time to kick back, relax and donate to our summer drive. Because the need for investigative journalism doesn't take a summer break. Our work is more important than ever and we need your support to keep at it. Independent nonprofit journalism is an antidote to authoritarianism. Say that three times fast. Anti I'm not going to do it, but you get the point. So please, before you head to the beach, head over to revealnews.orgsummer and donate today. Again, that's revealnews.orgsummer thank you. From the center for Investigative Reporting and prx. This is Reveal. I'm Al Ledsen.
- [01:57]
Jonathan Jones
What does FTX stand for?
- [01:59]
John Ray III
Oh, God. Futures Exchange. The F and the T, both from the word futures.
- [02:04]
Al Letson
That's FTX founder Sam Bankman Fried in an interview with Reveals, Jonathan Jones. Sam started the crypto exchange in 2019 and watched it turn into a huge success.
- [02:15]
Jonathan Jones
They call him the JP Morgan of crypto, right? Yeah, the Michael Jordan of crypto, if you will.
- [02:24]
Al Letson
By 2022, millions of customers were trading billions of dollars in crypto through ftx. But behind the scenes, people who worked for Sam were seeing signs of trouble.
- [02:34]
Jonathan Jones
Did you have moments where you felt he played a little too loose with the rules?
- [02:40]
Caroline Papadopoulos
Probably, yeah. I mean, I think it was, wow, we're moving really fast.
- [02:46]
Al Letson
In November of 2022, word got out that billions of dollars were missing. Investors panicked and started pulling out their money.
- [02:55]
John Ray III
On the 7th, we had $4 billion of net customer withdrawals. So like 40 times as much as we'd ever seen in a day before.
- [03:03]
Al Letson
Within days, the company imploded, triggering criminal investigations, global chaos and customers around the world losing access to their money. As Sam's empire crumbled, his inner circle turned on him and he decided to hand the company over to a new CEO, John Ray.
- [03:21]
Jonathan Jones
Ray, who previously oversaw the bankruptcy of Enron, said, quote, never in my career have I seen such a complete failure of corporate controls.
- [03:31]
Al Letson
FTX's new CEO declared bankruptcy, launching a legal process that would determine the future of the company, how, how much customers would get back and whether some would be left out entirely. This part of the FTX story has largely gone untold. The spotlight has always focused mostly on Sam Bankman Fried and much less attention has been paid to what happened to FTX after Sam's arrest and to the billions of dollars owed to FTX customers. Under bankruptcy, companies have a responsibility to their creditors to in essence act, act in their best interests. But in the case of ftx, some creditors say that didn't happen. And they accuse John Ray, FTX's new CEO, and Sullivan and Cromwell, the law firm running the bankruptcy, of making choices that did the opposite. Ultimately, these concerns would play out in a bankruptcy court. This week we're bringing back part two of our investigation into the FTX collapse. Updated for this rebroadcast, where we unspool what's become one of the most expensive bankruptc in history. The committee will come to order. This hearing is entitled Investigating the collapse of FTX. Part one reveals. Jonathan Jones picks up the story on December 13, 2022, a month after FTX filed for bankruptcy when Congress held its first hearing into the collapse. First, I'd like to welcome Mr. John Ray III who has been appointed CEO of of FTX to oversee its bankruptcy.
- [05:11]
Jonathan Jones
That's Representative Maxine Waters, the Democratic Chair of the House Financial Services Committee. As she begins, Sam Bankman Fried is nowhere to be found. The night before he'd been arrested in
- [05:24]
Al Letson
the Bahamas, he was scheduled to testify under oath before this committee today. Unfortunately, the timing of his arrest denies the public the opportunity to get the answers they deserve.
- [05:38]
Jonathan Jones
The Congressional hearing goes on without Sam, with John Ray alone taking the mic.
- [05:44]
John Ray (FTX CEO)
This is really old fashioned embezzlement. This is just taking money from customers and using it for your own purpose. Not sophisticated at all.
- [05:55]
Jonathan Jones
Ray portrays FTX as a catastrophic failure in leadership.
- [06:00]
John Ray (FTX CEO)
We're in many respects starting from near zero in terms of the corporate infrastructure and record keeping that one would expect in a multi billion dollar corporation.
- [06:09]
Caroline Papadopoulos
For someone to come in and say you guys were completely disorganized, you didn't have any records. No, we had records. You disagree and you're allowed your opinion, but the way you went about it in such a public frame and you didn't talk with the people who used it and why we used it, that part was very insulting.
- [06:27]
Jonathan Jones
Caroline Papadopoulos was controller of ftx, us running a team of accountants when the company went down. She was no Sam loyalist. She told me she only felt comfortable staying on post collapse once she found out Sam would no longer be CEO. But watching the congressional testimony, what she's hearing from the new CEO bothers her.
- [06:50]
John Ray (FTX CEO)
I've just never seen an utter lack of record keeping. Absolutely no internal controls whatsoever.
- [06:59]
Jonathan Jones
When you hear that, what goes through your mind?
- [07:02]
Caroline Papadopoulos
How dare you. I mean, only from the standpoint of I'm an ex auditor, I do know a thing or two about controls. And he had no ability to understand what was going on because he had truly just taken over.
- [07:21]
Jonathan Jones
Sam had prepared a statement he was going to read to Congress. It's leaked and published in Forbes the day of the hearing. In it, he paints a different picture than John Ray. Sam begins with a flippant apology. I effed up. He then quickly turns to blaming others. At one point, he makes a sarcastic jab at fees the law firm Sullivan and Cromwell charged ftx, saying they have, quote, done a good job of making sure they were wired $4 million. He argues that FTX's new leadership, John Ray and Sullivan and Cromwell, had rushed the company into bankruptcy. Sam's leaked testimony marks the beginning of a battle over the story of FTX that continues today. On the one side, Sam claiming bankruptcy wasn't necessary. On the other, the FTX estate now helmed by John Ray and Sullivan and Cromwell, arguing that a court approved bankruptcy would was the only way to preserve what was left of ftx. Once the bankruptcy is underway, tens of thousands of customers begin filing claims, officially registering as creditors in hopes of getting their money back. People like Tarek Murad, a Canadian FTX customer who had hundreds of thousands on the exchange.
- [08:42]
Tarek Murad
FTX wasn't supposed to be part of the risk. The risk was the investments you choose to invest in, not the platform you choose to invest in.
- [08:51]
Jonathan Jones
As Tarek starts to piece together what happened to his money, he feels betrayed, mostly by Sam Bankman.
- [08:57]
Tarek Murad
Fried customer funds are customer funds, so if I want it, he has to have the ability to return it. They're not his funds.
- [09:08]
Jonathan Jones
And for most FTX customers it was unclear when or if they'd get that money back. And that's where claims buyers come in. Claims buyers swoop in after a company goes under and offer cash to customers like Tarek who've lost money. Sometimes it's as little as pennies on the dollar for customers. It's a way to guarantee they'll get something back. For claims buyers, they're betting that the bankruptcy will recover more than they paid and they'll make a profit, sometimes a huge profit.
- [09:41]
Thomas Brazeale
They literally are vultures. Like, and I'm. I guess I'm one. So I don't want to, like, act like I'm holier than that.
- [09:48]
Jonathan Jones
Thomas Brazile is a claims buyer who specializes in crypto bankruptcies.
- [09:53]
Thomas Brazeale
It became a bonanza, you know, the entire docket in FTX with customer account claims. And so it's up there with Lehman and Madoff and Enron. There were, you know, billions of dollars of claims.
- [10:05]
Jonathan Jones
John Ray told Congress that his job was to recover as many of those billions as possible.
- [10:11]
John Ray (FTX CEO)
Our overarching objective is to maximize value for FTX customers and creditors so that we can mitigate to the greatest extent possible the harm suffered by so many.
- [10:20]
Jonathan Jones
But Ray also said at that hearing that he was pessimistic about that happening and that most of FTX's investments may be worth a fraction of what was paid for them. Thomas Brazeale, the crypto claims buyer, told us he ran into John Ray at an industry event in New York. He says he floated the idea that parts of FTX's portfolio of startup investments could still be very valuable.
- [10:44]
Thomas Brazeale
I said, john, you know, like, I didn't think of this whole venture portfolio that could work out to be 100. He said, oh, no, all this stuff's dog, Thomas. Dog.
- [10:52]
Jonathan Jones
We were unable to independently verify that John Ray ever said those words. And when we asked him, the FTX estate responded, describing Brazil's characterization of the conversation as patently false. They acknowledge that John Ray has indeed expressed skepticism about some of the company's investments and that over time, he's been proven right. Many deals, they added, were made with virtually no due diligence, a point backed up by an independent examiner. Brazeale says that after speaking with Ray, he began to suspect that the bankruptcy team would try to make it harder for some customers to get paid.
- [11:30]
Thomas Brazeale
It's like an aggressive tactic like Traffic, try to exclude people from the bankruptcy because they don't do the paperwork right, set up artificial deadlines, stuff like that.
- [11:40]
Jonathan Jones
Some customers would come to believe that, too, and they filed objections along those lines. The FTX Estate rejects this claim, saying the process followed routine court approved procedures. But it wasn't necessarily routine for the vast majority of FTX customers who were outside the United States.
- [11:59]
Thomas Brazeale
Think about it, if you're an international creditor, you have tax forms you've never seen, you've got everything in English. What if you're Finnish, what if you're Dutch, what if you're Chinese and you don't. It's not your first language. If you're not from America and you're getting all these court documents that look very official and they have all the federal district bankruptcy seals and stuff on it, it looks kind of scary.
- [12:18]
Lydia Favaria
I'm Italian and as you can hear I have this very exotic English. So for me all these legal language was really, I couldn't understand anything.
- [12:26]
Jonathan Jones
Lydia Favaria was one of those international customers who now had to play by unfamiliar rules written in foreign legalese.
- [12:34]
Lydia Favaria
We didn't choose this legal system, but our assets were seized. And I find these, yeah, shocking.
- [12:44]
Jonathan Jones
Under that system, Lydia was classified in one of the bottom tiers of customers. Her claim was worth under $50,000, but she told us it was everything she had. She spiraled until she stumbled across a community of fellow FTX creditors online, on Twitter threads and then in Telegram chats. These creditors had lost millions and they were growing increasingly uneasy about how much money they might get back. In a bankruptcy court filing in mid January 2023, John Ray referred to the company as a dumpster fire. But from the customer perspective it wasn't a mess at all.
- [13:23]
Arush Sehgal
The dumpster fire thing is completely fictitious. You can ask any like institutional trader on ftx. They had like a world class accounting system. Everyone knew exactly their holdings. We knew what we were owed.
- [13:41]
Jonathan Jones
Arush Seagal was one of those customers and he was becoming one of the most outspoken critics of the bankruptcy. And more and more, some customers began to focus on the law firm in line to lead the bankruptcy, Sullivan and Cromwell. The firm had advised FTX for years before the collapse and played a central role in its final days. Now a judge would decide if Sullivan and Cromwell could be the lawyers overseeing the bankruptcy. To critics, including a bipartisan group of US Senators, this looked like a potential conflict of interest. As part of the approval process in December 2022, Sullivan and Cromwell filed disclosure statements laying out its connections to FTX. The next step was an approval hearing in late January 2023. Thank you, your honor. For the record, Juliet Sartisian, on behalf of the US Trustee, the watchdog agency that oversees bankruptcies, had filed an Objection. It wrote that Sullivan and Cromwell's original disclosure statements were wholly insufficient to determine whether the firm had conflicts of interest and that that alone should be enough to deny their application before the hearing. The US Trustee dropped its objections after Sullivan and Cromwell agreed to provide additional disclosures. But those new disclosures only raised new questions and Juliet Sarkeesian appeared in the court to explain the trustee's concerns for the record. Like why had the original filing by Sullivan and Cromwell failed to mention that Ryan Miller was a partner at the firm before becoming general counsel for FTX US the application and the initial declaration did not mention any connection with Mr. Miller, let alone that he was the individual who actually brought Sullivan and Cromwell to the attention of the debtors. In the US Trustees view, if Sullivan and Cromwell were to run the bankruptcy, they'd potentially be investigating themselves. FDX customers objected too.
- [15:41]
Thomas Brazeale
My clients have objected to the appointment of Sullivan Cromwell as the debtors lead counsel because they have grave concerns about the firm's lack of transparency in its mandatory disclosures.
- [15:51]
Jonathan Jones
Marshall Hoda is an attorney specializing in crypto recovery who represented several FDX customers.
- [15:57]
Thomas Brazeale
The bankruptcy system depends on the self policing conduct of lawyers making robust timely disclosures. The failure to get this right at the outset can result in a lot
- [16:11]
Jonathan Jones
of pain down the road. Sullivan and Cromwell's attorney James Bromley told the court that they had provided documents to address every issue raised by the objectors.
- [16:21]
James Bromley
So with that, your honor, we have been able to resolve any issues that the office of the US Trustee had with respect to Sullivan and Cromwell's disclosures.
- [16:33]
Jonathan Jones
Just hours before the hearing, there had been a surprise filing. A declaration by Dan Friedberg, FTX's chief regulatory officer. He accused the firm of misleading the court, downplaying its ties to FTX and pushing the company into bankruptcy and claimed that other employees inside the company also had concerns but were too afraid to speak out. Bromley quickly dismissed Freedberg's declaration.
- [17:01]
James Bromley
It was filed late, it was filed. Frankly, it's a little bizarre if you sit down and read it. But your honor, our view is that it has no place in the court. It should be stricken from the record.
- [17:13]
Jonathan Jones
He said the declaration was nothing more than a diversion tactic on behalf of Sam Bankman Fried.
- [17:19]
James Bromley
So what we have here, your honor, is a gentleman who ran this company into the ground, Mr. Bankman fried sitting in his parents home in Palo Alto, California with an ankle bracelet on.
- [17:31]
Jonathan Jones
And he dismissed the objections against Sullivan and Cromwell's appointment as part of a smear campaign.
- [17:37]
James Bromley
They can't throw stones at the U.S. attorney's office. But they can throw stones at debtors counsel. That's providing information to the prosecutors and the regulators, and that's exactly what's happening.
- [17:50]
Jonathan Jones
At one point, Friedberg appeared on the court's Zoom meeting waving his hand to be called on. One of the attorneys making arguments pointed him out. And then Judge John Dorsey said, I
- [18:02]
James Bromley
did see him and I did not recognize him intentionally because as I said, he has not filed a motion, he has not joined any motion. He is simply trying to be a witness, I suppose. But witnesses are not allowed unless they're here live.
- [18:19]
Jonathan Jones
I asked bankruptcy law professor Jonathan Lipson, how common is it for a law firm to represent a company before it's accused of fraud and then run its bankruptcy after it collapses?
- [18:30]
Jonathan Lipson
Never heard of it. Never heard of it. I mean, that's why it's so remarkable that Sullivan Cromwell, you know, has run the case. You know, in Enron, for example, you know, the two main law firms before bankruptcy, like, they obviously weren't going to be counseled to the company in its bankruptcy, and instead you'd have independent lawyers and independent investigators coming in and figuring out what went wrong.
- [18:53]
Jonathan Jones
But to other close observers, like claims buyer Thomas Brazeale, this was just how things tend to go in bankruptcy court.
- [19:00]
Thomas Brazeale
You know, the joke in bankruptcy is that the conflict rules are really, really loose compared to other parts of the court system. So they routinely allow like, more and more like aggressive conflicts. I don't like it because the pre petition guys who did a lot of the deal making were debtors counsel. Hell, I mean, you know, how are you going to look into pre petition activity? You did all the work. I mean, I find the whole thing disgusting. You know, how can you possibly question your own behavior?
- [19:34]
Jonathan Jones
In the end, Judge Dorsey wasn't swayed with that.
- [19:39]
James Bromley
As I said, I'm going to overrule the objection and I will enter the order appointing or, excuse me, approving the retention of Sullivan and Cromwell. Are there any questions?
- [19:53]
Al Letson
Despite objections, the judge declared there was no evidence of any actual conflict and put Sullivan and Cromwell in charge of the bankruptcy. But it wouldn't be long before the bankruptcy team made a decision that would raise new concerns about whether they were acting in the customer's best interest. That's next on Reveal.
- [20:21]
Podcast Sponsor Announcer
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- [21:06]
Josh Sanborn
This is Josh Sanborn, producer at Reveal. This episode is made possible by support from League of Conservation Voters. America's public lands are world class. Within 640 million acres that include some of the country's most iconic national parks and monuments, Americans of all backgrounds come together to enjoy the outdoors and experience our shared history. But now those very places are under threat from greedy politicians and corporate polluters. For over 50 years, the league of Conservation Voters has fought to protect public lands. And now, as the Nation celebrates its 250th birthday, LCV has set a goal to welcome 250 new members this summer to secure these outdoor treasures for the next 250 years. Your support fuels this movement by becoming an LCV member today. Your donation helps defend the beautiful public lands we all treasure. Head over to LCV.org reveal right now to start your membership and help hit that 250 member goal. That's LCV.org reveal. Let's protect our future together.
- [22:17]
Al Letson
From the center for Investigative Reporting and prx, this is Reveal. Hi, I'm Al Letson, and this week we're Bringing Back Part 2 of our series about FTX. In January 2023, Sullivan and Cromwell, working alongside John Ray and his team, began preparing to sell off parts of the old company. In late April, they decided to sell off the small US regulated exchange called LedgerX. For critics, this ended up raising concerns about whether Sullivan and Cromwell should be running the bankruptcy Reveals. Jonathan Jones explains,
- [22:55]
Jonathan Jones
To understand why Ledger X matters, we have to go back in time. FTX acquired LedgerX roughly a year before the bankruptcy. And while LedgerX was small, it was licensed by the Commodity Futures Trading Commission, the agency that regulates U.S. financial markets. For Sam, this was a breakthrough, a way to gain a foothold in the United States through Ledgerx. FTX could now offer crypto futures, its core business, to U.S. customers. And to get it done, he hired some of Wall Street's most powerful lawyers.
- [23:30]
Jonathan Lipson
When you think of old line powerful law firms, the platonic form is Sullivan Cromwell. And in fact, Solven Cromwell is the law firm that helped FTX make the acquisition.
- [23:42]
Jonathan Jones
That's Jonathan Lipson, the bankruptcy law professor who studied the collapse and Sullivan and Cromwell's role in the company after FTX
- [23:49]
Jonathan Lipson
acquires LedgerX, they were acting as regulatory counsel to FTX. They were preparing and presenting to the government, the Commodity Futures Trading Commission in particular, what appears to have been a very important application to allow FTX to do certain things.
- [24:06]
Jonathan Jones
That meant answering questions about FTX's ties to Alameda Research, Sam's trading firm. Alameda wasn't just trading crypto and making investments. It had also acted as a kind of internal bank for ftx, handling customer deposits and withdrawals and even paying some of the company's bills. To make that possible, FTX programmers wrote lines of code allowing Alameda to access FTX funds.
- [24:32]
Al Letson
Technically speaking, the lower bound on that
- [24:33]
Jonathan Jones
was like $65 billion.
- [24:35]
Al Letson
But that's just an arbitrarily large number,
- [24:38]
James Bromley
basically just means that they can withdraw infinite amounts.
- [24:40]
Jonathan Jones
That's Dan Czapski, who was head of data science at ftx. He says Alameda could take that money without putting up the collateral to guarantee they could pay it back. Taken together, I think most people refer to it as the backdoor. Dan says he first heard about the issue in early 2022 from a team of employees at LedgerX who were in charge of identifying risk. Would you say they had a more robust risk management team than even FTX did at that time?
- [25:07]
James Bromley
I would say they had a more
- [25:08]
Al Letson
robust risk management team than any exchange at the time.
- [25:13]
Jonathan Jones
One of the members from that team brought up the lines of code to Dan. He says he told them it sounded bad and suggested they raise it with someone higher. According to the Wall Street Journal, Ledger X employees had raised concerns and flagged the backdoor code in a written message writing, quote, just want to point out that there are currently a few places in the code base where Alameda gets special treatment in one way or another. Ledger X's chief risk officer replied, yeah, we should clean up this sort of stuff. The risk officer then tried to take the issue to her boss. And here's where things get murky. According to Jonathan Lipson, we have no
- [25:50]
Jonathan Lipson
idea if in fact what she reported was accurate. We have no idea what the response was. We do know she was fired.
- [25:56]
Jonathan Jones
While all of this was going down, Sullivan and Cromwell was helping FTX with its US expansion. And that involved a lot of back and forth with regulators.
- [26:05]
Jonathan Lipson
And in that process, it appears that somebody from the CFTC asks ftx, well, can you tell us a little bit about the relationship between Bankman, Fried and all of the other companies in the FTX complex? And the statement that goes back, and I'm Paraphrasing. But the statement that goes back to the CFTC is there is no connection. There are no special privileges.
- [26:29]
Jonathan Jones
But there were special privileges, the ones that gave Alameda access to customer funds and formed the basis of the fraud charges. Court filings later revealed emails had been sent to regulators with inaccurate information.
- [26:43]
Jonathan Lipson
That was the underlying falsehood that I think drove all of this. And whether Sullivan, Cromwell themselves affirmatively made that statement, it's just not clear. But it's pretty clear that that statement was wrong.
- [26:57]
Jonathan Jones
Court documents don't show who sent those emails, and it's unclear if Sullivan and Cromwell wrote them or even knew about them. The FTX estate hired an outside firm to review these questions, which found no evidence Sullivan and Cromwell knew the statements to regulators were false. Nevertheless, this type of regulatory work was exactly what Sullivan and Cromwell was brought on by FTX to do. To Lipson, the uncertainty over what Sullivan and Cromwell knew or did raises a big could the same attorneys who worked for FTX before the collapse be trusted to investigate it afterwards? Or to paraphrase an FTX customer in their official objection to Sullivan and Cromwell's
- [27:40]
Jonathan Lipson
appointment, if you're worried about the foxes running the henhouse, this case is a problem.
- [27:50]
Jonathan Jones
Fast forward to April 2023, five months after the collapse. Sullivan and Cromwell is lead counsel in the bankruptcy, and the restructuring team decides to sell off Ledger X. For Lipson and other critics, this was a big deal, because selling off Ledger X meant that the court would no longer have access to the company's documents, documents that could potentially provide answers about who knew about the Back Door and and what they did about it. Neither Sullivan and Cromwell nor the FTX estate responded to our questions about the preservation of records. But the estate noted that Ledger X was sold at a public auction approved by the creditors committee and the court. As the bankruptcy unfolded, Sullivan and Cromwell's prior work for FTX continued to draw scrutiny, and the US Trustee, the watchdog meant to protect the public interest, continued to push for more oversight. That's when Jonathan Lipson went from being an observer of the FTX bankruptcy to a participant.
- [28:51]
Jonathan Lipson
I got involved in the case because I agreed to write an amicus brief to support the United States trustee's effort to get an examiner in the appeal.
- [28:59]
Jonathan Jones
An examiner is an independent investigator appointed by the court to make sure a bankruptcy is handled fairly. To Lipson, who studied the use of examiners in other major cases, FTX was exactly the kind of case that called for one. The bankruptcy court had rejected a request for an examiner, and the issue was taken up in appeals court.
- [29:20]
Jonathan Lipson
In all of my studies, I have never seen a free fall bankruptcy this spectacular, precipitated by allegations of such serious misconduct that did not also have an independent investigation by a truly independent examiner. Trustee, Enron, WorldCom, Lehman Brothers, New Century
- [29:39]
James Bromley
Refco, all had them.
- [29:41]
Jonathan Lipson
Which means that if the bankruptcy court's decision is affirmed today, it would be a first.
- [29:47]
Jonathan Jones
And then one of the judges pressed James Bromley, a Sullivan and Cromwell attorney, to explain why the case didn't need an independent examiner.
- [29:55]
James Bromley
Professor Lipson's point that in every other major bankruptcy there's been an examiner. This would be the first one that hasn't had one. Your Honor, this is. Is he wrong? Yes, he is wrong. Cite me one, because here's the situation. He's wrong with the context and how he frames it. Which one? Give me the name of a bankruptcy. This one.
- [30:17]
Jonathan Jones
In a twist, Bromley didn't dispute that FTX would be the first bankruptcy involving widespread fraud without an independent examiner. He just argued that it was fine. The company already had oversight from the creditors and the courts. The appeals court didn't buy it. They ruled that the law required an independent examiner. When the examiner's report was eventually released, it concluded the court did not make a mistake in approving Sullivan and Cromwell as bankruptcy counsel. The examiner said he'd seen no evidence Sullivan and Cromwell knew of or ignored the fraud. But Jonathan Lipson was critical of the report. He says the examiner was appointed late, had limited time, and on key issues relied too much on the work of the estate's outside counsel.
- [31:10]
Jonathan Lipson
It's very, very limited in scope, essentially, I think, to determine whether Sullivan Cromwell was involved in a few other things.
- [31:22]
Jonathan Jones
Meanwhile, Lipson says at the same time Sullivan and Cromwell was steering the bankruptcy, it was also cooperating with the prosecutors, building the case against Sam Bankman Fried.
- [31:31]
Jonathan Lipson
It takes a long time to put together a criminal prosecution normally.
- [31:35]
John Ray III
Right.
- [31:35]
Jonathan Lipson
It takes years to do that. In the FTX case, I think we, certainly, we being me and some other academic friends, worry a great deal that Sullivan Cromwell, in effect, was acting as the government' lawyers in the prosecution of Bankman Fried.
- [31:53]
Jonathan Jones
The FTX estate flatly rejected that characterization as false and without merit. The independent examiner also looked at this issue and found that Sullivan and Cromwell's ongoing cooperation with prosecutors was at John Ray's direction. At an early bankruptcy hearing, Andrew Dieterich, a partner at Sullivan and Cromwell, made clear that cooperating with prosecutors was a top priority. Despite the financial costs to creditors.
- [32:21]
James Bromley
In the first months, the board determined that spending estate resources to Cooperate with governmental investigations was in the best interest of our debtors.
- [32:31]
Jonathan Jones
This was expensive given the extent of
- [32:34]
James Bromley
those government investigations and the sheer number of them, but it has proven to be the right call.
- [32:40]
Jonathan Lipson
One of the partners at solvent Cromwell, Jim Bromley, says, you know, tens of millions of dollars of support to prosecutors. That is crazy. You know who's paying for that? Creditors are paying for that.
- [32:51]
James Bromley
Right.
- [32:52]
Jonathan Lipson
Sold in. Cromwell isn't doing it for free. They're billing $2,100 an hour to do that work. But it's, you know, dollars that would otherwise go to creditors.
- [33:00]
Jonathan Jones
In other words, every dollar going to Sullivan and Cromwell's legal fees was coming out of the same pot of money that would be used to pay back FTX customers. Almost a year after the collapse, the man at the center of it all finally faced prosecutors in court. In October 2023, Sam Bankman fried went to trial.
- [33:24]
Tarek Murad
You got it?
- [33:26]
James Bromley
How are you gonna plead this morning, guys?
- [33:28]
Jonathan Jones
The media was all over it. You know, we're covering this story. Disgraced FTX founder Sam Bankman Fried took the stand today in his criminal fraud. He looks like a method, okay, And I'm not saying this in a mean way, but it almost is like. Like Pig Pen from Peanuts with this just, like, haze around him. And in these, the once media darling had become public enemy number one.
- [33:49]
Carly P. Riley
I mean, look, the defense was wildly outgunned. I mean, the defense's case felt so bad. Like, kind of surprisingly bad.
- [33:58]
Jonathan Jones
Carly P. Riley is an independent podcaster and journalist. She attended the trial and posted daily updates.
- [34:05]
Carly P. Riley
The prosecutor who spoke for the prosecution in opening statements, his story was very simple. Basically, Sam took money from FTX and spent it like his own personal piggy bank on whatever he wanted. He spent billions of dollars of customer money. And like, that was the story.
- [34:22]
Paul Peltier
White collar crime boils down to three things. Lying, cheating, and deceitin'. It is really. How did they lie? How did they cheat? How did they deceive people and cheat them out of their money? That's it.
- [34:38]
Jonathan Jones
Paul Peltier spent almost three decades in the Department of Justice and for years led its criminal fraud section, prosecuting major financial crimes. He wasn't the prosecutor who tried Sam Bankman Fried, but from the outside, here's how he saw what happened.
- [34:53]
Paul Peltier
We were doing stuff with the money, and we weren't telling people what we were doing, what we were doing with the money, and it was creating risk, and we told them the opposite. That's a crime. That's fraud.
- [35:08]
Jonathan Jones
Peltier says white collar trials almost never move this fast. But he noted prosecutors close cooperation with Sullivan and Cromwell.
- [35:16]
Paul Peltier
This was a little bit easy, and I say that with all due deference to how difficult these cases are. But it seems like Solomon Cromwell, you know, put. I'm going to call it silver plattered it a little bit with the prosecutor's office and then they effectively were able to get a witness fairly quickly that gave them the keys to the kingdom.
- [35:39]
Jonathan Jones
Nearly all of Sam's inner circle turned to government witnesses. The most devastating testimony came from Caroline Ellison, his on and off girlfriend and head of Alameda Research.
- [35:50]
Paul Peltier
They had his girlfriend and she was a co conspirator. And she. The prosecutors beautifully lined it up. Literally this was their questioning. What did you do? I worked for Almeida. Who did you work there with? Sam Bankman Fried. Did you commit a crime with him? Yes, I did. Who did you commit a crime with? Sam Bankman Fried.
- [36:11]
Jonathan Jones
Here's how Carly described it.
- [36:12]
Carly P. Riley
At every turn, Caroline made it very clear that everything she did was at the behest of Sam. It almost became a joke. I mean, if I had a flask in there, it would be a drinking game, right, like. And everything was like. Well, at Sam's direction.
- [36:23]
Jonathan Jones
Well, Sam told me Caroline wasn't the prosecutor's only star witness. As the trial turned against him, Sam testified in his own defense against the advice of his lawyers. It did not go well.
- [36:36]
Carly P. Riley
He did all this while seeming incredibly semantic and pedantic for sure, but also like a. I think one person said to me, what the jury had prior to Sam taking the stand was a stick figure version of him, this criminal CEO. And now Sam has basically gotten on the stand and breathed life into that stick figure and made that person real.
- [37:02]
Jonathan Jones
After just four hours of deliberation, the jury found Sam guilty on all counts. Sam Bankman Fried perpetrated one of the biggest financial frauds in American history. A multi billion dollar scheme designed to make him the king of crime.
- [37:18]
John Ray (FTX CEO)
Crypto.
- [37:19]
Jonathan Jones
That's Damian Williams, the U.S. attorney in the Southern District of New York, addressing the cameras immediately after the verdict. The cryptocurrency industry might be new. The players like Sam Bankman Fried might be new. But this kind of fraud, this kind of corruption is as old as time and we have no patience for it. Paul Peltier says that lack of patience was a far cry from how the DOJ handled the last major financial scandal, the 2008 banking and mortgage collapse. Back then, he felt his hands were tied.
- [37:51]
Paul Peltier
The people above us weren't empowering the Department of Justice to bring these cases the fraud section lost 70% of its prosecutors during this time period, mostly out of frustration.
- [38:06]
Jonathan Jones
Peltier and Lipson believe that in that historical context, Sam Bankman Fried was an appealing high profile target.
- [38:14]
Jonathan Lipson
The prosecutors come out of the financial crisis of 2008 really not going after anybody individually. There are no perp walks, right? So Bankman Fried is just this incredibly attractive candidate to prosecute. And the fact that Sullivan Cromwell has basically delivered him on a platter and all the resources to do it really fast and really hard, I mean, what prosecutor wouldn't take that?
- [38:50]
Al Letson
Five months after his conviction, Sam Bankman Fried would return to the court for sentencing. But first, FTX customers were invited to speak. And many were upset, not just at Sam, but at the bankruptcy itself.
- [39:04]
Lydia Favaria
And it is a lie that the new administration is planning to pay us back 100% of our money.
- [39:11]
Al Letson
A customer movement challenges the story told in court. Next on Reveal. From the center for Investigative Reporting and prx. This is revealing Almao. As Sam Bankman Fried's sentencing approached, the Department of Justice invited victims to write impact statements about the harm he'd caused. More than 100 people wrote in. They described savings wiped out, livelihoods destroyed and families uprooted, all because of FTX's collapse and fraud. And in an uncommon move, John Ray, FTX's new CEO, filed his own victim impact statement. Wray told the judge he was writing on behalf of FTX victims to correct false claims by Sam Bankman Fried that the harm was zero, the money was there all along, and FTX was solvent at the time of bankruptcy. Wray argued customers were still suffering as a result of Sam Bankman Fried and that whatever people get back was only possible because of his team's efforts to dig through the wreckage. Ray spoke about FTX victims on Freakonomics Radio.
- [40:32]
John Ray (FTX CEO)
I mean, there's people, they've got children, they've got to put them through school, they've got a house, they may have a mortgage. If you are a customer and you have money hung up, you want to get it back as quickly as possible.
- [40:43]
Al Letson
Lydia, the Italian artist living in London, had already written a victim impact statement. But then she read Ray's letter reveals. Jonathan Jones picks up the story from there.
- [40:55]
Jonathan Jones
Lydia had lost her life savings in the collapse. For more than a year, she'd been obsessively reading court filings, media coverage, telegram threads and Twitter arguments. In her first impact letter, Lydia focused squarely on Sam Bankman Fried.
- [41:11]
Lydia Favaria
I lost my money because Sam Bankman Fried and his clique of friends were trying to play gods and became the new gatekeepers of a new world and a new economy. To do so, they stole the money, the hopes and the dreams of hundreds of thousand human beings from over the world.
- [41:35]
Jonathan Jones
But by the time she read John Ray's letter, she was growing increasingly outraged at the team now running the bankruptcy.
- [41:41]
Lydia Favaria
When I read the impasse statement of John Rain, I was here, there is something wrong now.
- [41:48]
Jonathan Jones
She was having second thoughts about what she'd written.
- [41:51]
Lydia Favaria
When I read his, I was furious, so furious. I felt so bad about what I wrote about Sam. And I just thought, well, it's true the trial is not about Sullivan and Cromwell and John Ray, but I feel it's not okay. In that impasse statement. I'm just not saying anything about John Ray. I don't know. I felt that was not okay. So I send a second impasse. Dear Honorable Judge Kaplan, I'm a conceptual.
- [42:25]
Jonathan Jones
Lydia's second letter still expressed anguish at what she called the greed of Sam and his inner circle.
- [42:31]
Lydia Favaria
But then, unfortunately, the new administration doesn't appear to be so different. Rather, it appears to use and abuse FTX clients and their assets for their own personal benefits.
- [42:44]
Jonathan Jones
Lydia says she was upset about the fees Sullivan and Cromwell were charging and that the new FTX leadership was making decisions about her money that she didn't agree with. And she wasn't alone. Lydia had become part of a cohort of customers who were determined to call attention not just to Sam Bankman Fried, but to the bankruptcy left. In his wake. Creditor activist Sunil Kovouri wrote a victim impact statement too, saying the bankruptcy had compounded the harm rather than making things right. One customer questioned whether Sullivan and Cromwell could be trusted, given their work for FTX before the collapse. Another said they'd been trapped in a constant state of anxiety and depression since the bankruptcy proceedings began. But the hearing wasn't about the bankruptcy. It was about Sam Bankman Fried. Prosecutors told the judge that whatever victims might get back later, Sam had already stolen billions from customers all over the world. Judge Kaplan agreed and sentenced Sam to 25 years. After his sentencing, Sam Bankman Fried faded from public view. The media moved on. But the bankruptcy continued. And soon a new battle was heating up over whether reviving FTX could help make customers whole. Almost from the beginning of the bankruptcy, some creditors have been pushing for John Ray and his team to restart the exchange without Sam as a kind of FTX 2.0. And John Wray, in his interview on Freakonomics Radio, said that his team was seriously looking into it.
- [44:22]
John Ray (FTX CEO)
We're looking very strongly at restarting the exchange. There were some capabilities to exchange that people liked. There was certainly a need for competition within the sector. But look, if there's a life for it, the market will determine that.
- [44:37]
Jonathan Jones
When Ray put the exchange up for sale, the market responded. According to court records, there were more than 75 potential bidders. Prominent creditors like Arush Sehgal even got involved.
- [44:49]
Arush Sehgal
Would have been the only exchange where the customers owned the exchange and therefore have a preference to trade there.
- [44:56]
Jonathan Jones
But then Andrew Dieterich from Sullivan and Cromwell told the court they couldn't find a single viable offer.
- [45:03]
James Bromley
The costs and risks of creating a viable exchange from what Mr. Bankman Fried left in the dumpster were simply too high.
- [45:12]
Arush Sehgal
They put out this statement in the hearing. Oh, there were no buyers that were willing to take on ftf, something like that. So I screenshot it and sent it to the head of our bid and I was like, what is this? And he goes, news to me.
- [45:26]
Jonathan Jones
Some creditors saw FTX 2.0 as a missed opportunity to give them a stake in the company and to get back the crypto they'd lost access to.
- [45:36]
Arush Sehgal
It was complete nonsense. We could have driven billions in recovery.
- [45:44]
Jonathan Jones
With the idea of restarting FTX dead, the estate pivoted to a wind down plan. After nearly two years of twists, turns, courtroom battles and customers waiting for their money, the end was finally in sight. In October 2024, it was time for the bankruptcy team to present their repayment plan for final court approval. At that hearing, Sullivan and Cromwell attorneys shared that more than 95% of creditors voted to back it. Only certain groups of creditors were allowed to vote, though. And a lot of the voting power came from big firms that had bought people's claims. The bankruptcy team announced that FTX creditors would be paid back in full. They'd also get interest. But the reality was far more complicated and controversial. Creditors would be paid back in cash, not crypto, with claims pegged to the value of Crypto, or on November 11, 2022, the date of the bankruptcy. But that's exactly when the crypto market had tanked, in part because of the collapse of FTX. Back then, a single Bitcoin was worth something like $17,000. But by the time of the approval hearing for the plan, bitcoin had bounced back to roughly $60,000. But under the deal, the owner of a bitcoin would be paid back in full with $17,000. Not surprisingly, many FTX customers were not happy, including Lydia, who made her case at the approval hearing.
- [47:24]
Lydia Favaria
Thank you so Much, you, Honor, for giving me the chance to speak. There was John Ray. There were lawyers of Sullivan and Cromwell that I knew they were them because I researched and I was fuming. I was furious because these people, they were playing around with our lives with her money.
- [47:49]
Jonathan Jones
She wanted her money back as crypto, not cash. She had calculated that if her claims were paid back in dollars pegged to November 2022, she'd lose two thirds of what she'd originally put in and completely miss out on crypto's rebound.
- [48:06]
Lydia Favaria
Under this plan, my contractual rights and my ownership rights have been trampled. My property rights have been disregarded.
- [48:14]
Jonathan Jones
Despite hearing objections from Lydia and other creditors, Judge Dorsey went ahead and approved the repayment plan. He called it a model case for how to deal with a very complex Chapter 11 bankruptcy, setting off worries that it could set a precedent for paying back victims of Future crypto bankruptcies. Three months later, in January 2025, the first repayments to FTX customers were scheduled to go out. The day before I happened to be on a call with Sam Bankman Fried. I'm wondering how you're feeling knowing that this marks this beginning of this attempt to repay the people who lost money.
- [48:57]
John Ray III
It's really frustrating, basically. I'm very glad that it is starting, but it's hard to think about it without thinking about the deficiencies in the process. So it's been over two years now. There is no reason for this to have taken two years.
- [49:13]
Jonathan Jones
In May 2025, Tarek Murad from Canada finally received his first cash payment. And he says he can live with what he got.
- [49:22]
Tarek Murad
Just getting your money back is wonderful. It's a good feeling and I'm very happy about it.
- [49:28]
Jonathan Jones
But he knows it didn't come cheap.
- [49:30]
Tarek Murad
I know they were talking about fees going towards the billion dollar mark, which is absurd, but if that's really what it took and we got our money back, I guess that's what it took.
- [49:44]
Jonathan Jones
The process of repaying customers did come with a staggering price tag. By early 2025, professional and legal fees in the FTX bankruptcy were nearing a billion dollars, making it one of the most expensive in US history. Sullivan and Cromwell alone billed about $232 million, with partners charging up to $2,375 an hour. And John Ray? He requested a $38 million bonus on top of his $3 million salary. It was later reduced to 30 million, all of it court approved and paid for with FTX funds. John Ray was asked about the exorbitant costs on Freakonomics Radio crime is very expensive.
- [50:33]
John Ray (FTX CEO)
You know, a lot of people get hurt, and it's very expensive to fix it.
- [50:37]
Arush Sehgal
Right.
- [50:38]
John Ray (FTX CEO)
But on the other hand, we're sort of investing in a reflection, if you look at it from that perspective.
- [50:46]
Jonathan Jones
In a statement to reveal, the FTX estate said it has, quote, managed its Chapter 11 case in a transparent public process that was supervised by the U.S. bankruptcy court, reviewed by an independent examiner, and had the full support of the official creditors committee. They said they are proud of the integrity and impact of their work. But even with billions recovered, some international customers still may face an uphill battle to get their money back due to local regulations impacting payouts. To law professor Jonathan FTX is a cautionary tale about the power that lawyers have to frame control and profit from a crypto crisis and bankruptcy.
- [51:34]
Jonathan Lipson
So why should Joe Public care? I think Joe Public should care because there are about a million Joe Publics who had accounts at ftx, and at the end of the day, they're not getting back nearly what they could have gotten back if the case had been handled differently. So I think, you know, there's going to be a cloud over the case, probably forever.
- [51:55]
Jonathan Jones
As for Sam Bankman Fried, he remains in federal prison. Since we first aired this story, judges have denied his request for a new trial and also his appeal to have his conviction overturned. Sam's also applied for a pardon from President Trump, but so far there's been no action on that request. If your appeal is successful and you're released, would you anticipate going back into the crypto world?
- [52:22]
John Ray III
I'd look into it. You know, I haven't been able to follow it as closely as I've wanted, obviously, over the last two years, but I still think it's like an incredibly high upside area, one that could be valuable for the world, one that could be really profitable to be in. It's an area where there's a lot of growth potential. So I think I, I give sort of like a, you know, tentative, like. Yeah, look into it.
- [52:54]
Al Letson
To read a companion story about the collapse of FTX and the aftermath, and to see original documents related to the case, visit revealnews.org Our story was reported by Jonathan Jones with additional reporting by artist Cheriscus. The lead producer was Sophie Bridges. She had help from David Richer. Taki Telenides edited the show with additional editing from Daniel Shulman. Archival research by Julia Haney. Sarah Solagi is our fact checker. Victoria Baranetsky is our general counsel. Our production manager is the great Zulema Kal Score. And sound design by the dynamic duo Jay Breezy, Mr. Jim Briggs and Fernando My Man Yo Arruda. They had help today from Claire C. Nope Mullen and Cameron Smith. Support for reveals provided by the Riva and David Logan foundation, the John D. And Catherine T. MacArthur foundation, the Jonathan Logan Family foundation, the Robert Wood Johnson foundation, the park foundation, the Schmidt Family foundation and the Hellman Foundation. Support for reveal is also provided by yes you our listeners. We are a co production of the center for Investigative Reporting and prx. I'm Al Ledson and remember, there is always more to the story.
- [54:16]
Jonathan Jones
From prx.