Totally Fried

FTX founder Sam Bankman-Fried has been talking the ears off of journalists, but up until now, he has avoided speaking to Congressional investigators. 

That has changed. 

Today, Bankman-Fried tweeted that he would appear before the House Committee on Financial Services this coming Tuesday.

SBF will presumably be under oath, so it’s probably a good thing that he has hired a high-profile lawyer to represent him. (This same advocate recently represented Ghislaine Maxwell, Jeffrey Epstein’s partner in pedophilia.) 

Still, Bankman-Fried will have a lot of splainin’ to do. 

The former crypto wunderkind will inevitably be asked whether he transferred customer deposits to Alameda Research, a hedge fund that he controlled. FTX’s new CEO, John J. Ray, III, a man who has been hired to clean up the mess at FTX, has stated that SBF used “special software to conceal the misuse of customer funds,” which Bankman-Fried has denied

It would also not be unreasonable to think that SBF will face questioning about the $1 billion that he borrowed from Alameda as well as the $2.3 billion that an Alameda affiliate loaned Paper Bird, another company that he controlled. 

And he will surely face questioning about the money he put to work with both the Democratic and Republican parties as well as news organizations such as the crypto news publication The Block, which, according to a report in today’s Axios, received some $43 million in loans from  Alameda. Was this all part of a cynical and manipulative game that the former billionaire was playing as he intimated to a Vox reporter in a series of late night DMs? 

For what it’s worth, if the House Committee is open to suggestions, I would like to know more about the Signal conversations that SBF had with Binance CEO Changpeng (CZ) Zhao in the days leading up to FTX’s bankruptcy and what they reveal about the state of the cryptocurrency market. In a fascinating article in today’s Times, reporters  David Yaffe-Bellany and Emily Flitter write about one such conversation in which CZ accuses Bankman-Fried of trying to tank Tether, a USD stablecoin, with a $250,000 trade. SBF retorts that there is no way such a small trade could ever undermine Tether, but the fact that Zhao was so concerned about Tether’s stability does not speak well for stablecoins or the crypto industry in general. 

So we will be watching on Tuesday and looking to see in particular if committee members will be able to poke any holes in SBF’s defense, namely that he was a terrible CEO and lost sight of FTX’s risk exposure. 

One thing is certain: whatever SBF’s lawyer is getting paid, it’s not enough. 

Game On!

Yesterday, the Federal Trade Commission announced that it would seek to block Microsoft’s $69 billion acquisition of Activision, the video game behemoth behind Call of Duty, a franchise that has generated almost $30 billion in revenue from game sales and microtransactions since 2003.

It’s a curious development for two very different reasons. First, according to a story in today’s Wall Street Journal, Microsoft has been engaged in a charm offensive with every regulator that will sit down with it, an effort led by its vice chairman and president, Brad Smith, who joined the company back in 1993. To allay regulators’ concerns, Microsoft has made many promises, the most important of which is that Call of Duty will be available on other platforms, such as Sony PlayStation. 

Perhaps a more important reason that the FTC’s move came as a surprise is that courts have been skeptical of challenges to so-called vertical mergers, or mergers in which two businesses don’t compete directly. Although the landmark Paramount case famously barred vertical integration in the movie business, in which studios tried to control production, distribution, and exhibition of feature films, the justice system has looked the other way when it comes to other vertical mergers. One famous albeit dated example is the AT&T / TIme Warner merger, which was ultimately allowed. 

Given how many concessions Microsoft has made to help this deal go through, Daniel Francis, an assistant professor of law at New York University and a former F.T.C. official, thinks the FTC has overplayed its hand. “Courts have been surprisingly solicitous about the kind of things that Microsoft has offered here,” he told the New York Times.

The Times also notes that the FTC’s leader, Lina Khan, has been very aggressive in pursuing novel novel or little-used arguments to challenge deals.

Still, any parent of a thirteen-year-old StrictlyVC intern who plays NBA 2K can tell you that Xbox and PlayStation don’t always play well together, especially when it comes to fast-twitch games like Call of Duty. 

No matter how much Microsoft protests that Call of Duty will not tilt the scales in its favor, we can definitely see why regulators and Sony are so concerned