Sam Bankman-Fried’s ‘George Costanza defense’ assumes only partial blame for FTX damages: Reporter

The Wall Street Journal Special Writer Gregory Zuckerman joins Yahoo Finance Live to discuss Sam Bankman-Fried's recent interview and comments about the FTX collapse.

Video transcript

SAM BANKMAN-FRIED: I wasn't spending any time or effort trying to manage risk on FTX, trying-- like, and that, obviously, that was a mistake.

GEORGE STEPHANOPOULOS: That's a stunning admission.

SAM BANKMAN-FRIED: What?

GEORGE STEPHANOPOULOS: That's a pretty stunning admission.

SAM BANKMAN-FRIED: Yeah, I mean, I don't know what to say. Like, what happened, happened. And, like, if I had been-- if I had been spending an hour a day, thinking about risk management on FTX, I don't think that would have happened. I think I stopped working as hard for a bit. You know, honestly, if I look back on myself, I think I got a little cocky. I made more than a little bit.

DAVE BRIGGS: Wow. To the utter amazement of the financial and legal community and George Stephanopoulos, the SBF redemption tour continues today as the founder of now bankrupt FTX took to GMA to explain his role in the collapse of his crypto exchange. The Wall Street Journal's Gregory Zuckerman has been covering the SBF downfall and joins us now with his takeaways. Gregory, good to see you. Just going to give you a blank slate here. Your reaction to the last 24 hours. Has he helped himself at all, and what stands out to you most?

GREGORY ZUCKERMAN: It's a little bit like the George Costanza defense or strategy, you know, the episode of "Seinfeld," doing everything--

DAVE BRIGGS: I do.

GREGORY ZUCKERMAN: --you wouldn't think logical and rational. Normally, in these cases, you lawyer up. You don't talk to the media. I mean, as a member of the media, we're appreciating it. But it's not necessarily a traditional approach. Might it work, this unorthodox approach? It might, but it seems like he is blaming-- taking blame. Not all the blame, he's shifting blame as well.

So on the one hand, he's saying I messed up, which is, I guess, kind of nice to hear if you're an investor, I suppose. But he's also kind of saying others are the ones who did the key-- criticism. The key issue here is shifting cash from FTX to Alameda, FTX the exchange, the crypto exchange, to Alameda the trading firm. And he's saying I'm blameless there. So on the one hand, he's owning up to culpability. On the other hand, he's pointing the finger at his colleagues.

SEANA SMITH: Hey, Gregory, you've talked to SBF recently. You've also talked to a number of former employees. And you had a recent piece in the Journal talking about some of those conversations, saying that years before this collapse, a group of employees quit because of his approach to risk. What can you tell us about those conversations and what you learned?

GREGORY ZUCKERMAN: Yeah, that was kind of startling in that some of the very issues that we're focusing on today, the lack of risk controls, accounting, commingling of cash, not paying attention to all these types of dangers, they were all identified years ago in 2017. Early on, Alameda and, til the spring of 2018, senior employees, colleagues of Sam Bankman-Fried pointed the finger at him and said, you're doing this the wrong way. You're not adopting proper risk control, just sort of basic stuff. And he was dismissive of those concerns.

So, to me, you can't really make the argument that, geez, I wish I had known better. Again, another George Costanza reference there. Who am I? Had I known, I would have been prepared. You can't really say that because you were warned years ago, according to-- as you see from our article.

DAVE BRIGGS: More Costanza references, the better, Gregory, OK? "Seinfeld" fan here, big one. The two things that stood out to me, didn't knowingly co-mingle funds, and I did not ever try to commit fraud. Is that possible, given all the things you've reported and have learned about the collapse of FTX and the intermingling of itself?

GREGORY ZUCKERMAN: Yeah, it's possible. I'm open to the argument that they were a bunch of young, not very savvy, not really financially sound trader types, who got in over their heads. There's a possibility of that. But you also-- you don't want to say that-- and I don't want to suggest that they're not culpable, and that they're blameless. They clearly are. You can't start this exchange and take customers' money. They have customers from all over the world, some of them smaller, obviously, many of them bigger.

And then they told these customers that we will not use your cash in our trading, elsewhere, in our trading shop, our sister trading shop, or elsewhere. And they did so. And frankly, I don't think the interview, so far, have really focused on that enough. At the end of the day, they did something that they promised they would not do. And they meaning Sam Bankman-Fried.

So, yes, did he take his eye off the ball, as he's saying to every journalist out there, including myself? Yes, and does he seem like a nice enough guy? He could be, and I do really believe honestly that he and his colleagues were trying to give away a lot of money. And they get some credit for that. They didn't, in the end, give away too much. But that was the goal. By the end of the day, they did-- they seemingly, allegedly, did something that they promised they would not do. And they need to be held accountable.

SEANA SMITH: Well, Gregory, I want to pull up a tweet that we did get from SBF this morning, following up on the DealBook questions that SBF faced with Andrew Sorkin yesterday. And he said, expanding on DealBook, when I filed, I'm fairly sure FTX US was solvent and that all US customers could be made whole. To my knowledge, it still is today. To my knowledge, I think, is key to point out there.

I was expecting that to happen. I'm surprised it hasn't. I'm not sure why US withdrawals were turned off. What do you make of his argument, just in terms of the state of FTX when it did file for bankruptcy and what you think well likely see in the coming weeks, months, potentially years?

GREGORY ZUCKERMAN: Yeah, [INAUDIBLE] years. This case is going to go on for a long time. It feels like he's trying to make a distinction between FTX US and the other part of the company, the customers elsewhere in the world. And I guess he's kind of saying, hey, you fellow Americans, you should be fine. We should be able to get your money back. It's not my fault. Don't blame me, my fellow Americans.

And everybody else, I'm not really as concerned or focused, or I acknowledge that they may have lost everything. I don't know it. To me, you've made a blanket statement to your customers, and you need to be held accountable for misleading them in terms of-- or allegedly, misleading them.

DAVE BRIGGS: One of the remarkable things here is that he was the one pushing regulation in DC, regulation that might have sniffed this out well before it actually collapsed. And you point that out in your reporting that that's ultimately what broke him and formed a lot of enemies. So there was a hearing today on Capitol Hill on crypto. Did anything come out of it? Do you expect Congress to find regulation in the months ahead? And any theories why he was actually on Capitol Hill, pushing for regulation?

GREGORY ZUCKERMAN: So it's a tricky thing now for members of Congress to even embrace a law, rule changes that Sam Bankman-Fried had proposed, had been a fan of. And some of them seemingly are good ideas. So they're in a kind of-- caught in a tough position. Why did he-- was he a proponent of regulation? You could be cynical about it and skeptical and say, well, he was trying to freeze out his competitors. He was the second largest exchange. He already had the market share. There were reasons why he and FTX would prosper, even with these new regulations.

And frankly, if you buy his argument that he hadn't realized that what had been happening, that they were taking money from their customers elsewhere, that potentially could be the explanation for why he was a proponent of more regulation because he didn't realize how bad things were at his company. But I also don't want to come off as naive or, in any way, suggesting that he's blameless here by not knowing. That's not a good enough explanation to say, hey, I didn't know this was going on. It was his company.

SEANA SMITH: And Greg, you're speaking of the potential fallout of this, what that could look like if we don't see more regulation, or really just the result of FTX collapsing. We've already seen a couple of bankruptcies, BlockFi filing for bankruptcy earlier this week, citing their exposure to FTX. When you try to, I guess, gauge the contagion of this, what the potential fallout is going to look like, what do you see?

GREGORY ZUCKERMAN: Well, I have to say in some ways, I'm very reassured in that it hasn't really infected or affected TradFi, as we call traditional finance. Look at the stock market. It's been doing nicely the last few days. The economy is doing what it's doing. So you could argue that those crypto bros were always in their own world. And in the end, they blew up, and it didn't really affect the real world. I would also argue, though, that it has-- having tremendous effect on all kinds of people within this world.

And it's an enormous world, as you suggest. There are a lot of people that have left traditional finance and other kinds of jobs for the crypto world. Then, of course, there are investors in this world. And yeah, Bitcoin has stabilized around $17,000, but it's down a ton, and there's a lot of pain there. So I don't want to minimize the pain that is being felt out there.

SEANA SMITH: Certainly a lot of people lost a lot of money with FTX's collapse. Gregory Zuckerman of the Wall Street Journal, great to have you. Thanks so much for joining us.