Zeke Faux talks "Number Go Up" at the Pen & Pencil Club
I had the pleasure of hosting award-winning Bloomberg investigative reporter Zeke Faux to talk his book. It was quite a conversation for a full house.
Editor’s Note: You may notice a different look for me in the Zeke Faux book talk video. I am sporting a new ‘do as a result of some health issues. I will write more about that when I have had time to reflect on the rollercoaster ride from diagnosis last March to “complete response” in August. Suffice to say I am fine now and doing what I like to do with people I like to do it with. I bought a new Helmut Lang dress for this event, grabbed my vintage Chiche Farrace leather jacket from my Buenos Aires era work for JPM, and put on some Chanel red lipstick. What does Billy Crystal’s lounge lizard character Fernando always say? “I would rather look good than feel good!”
On November 15 I interviewed Zeke Faux, an investigative reporter for Bloomberg Businessweek and Bloomberg News and a winner of the Gerald Loeb Award and the American Bar Association’s Silver Gavel Award and a National Magazine Award finalist, about his book Number Go Up at the Pen & Pencil Club in Philadelphia.
We had an amazing crowd, including some of Zeke’s Bloomberg colleagues who Amtrak-ed in from New York, and Philly-local Danny Nelson from Coindesk, who I was thrilled to meet in person.
Did you miss the Coindesk SBF trial team IRL at @PubKey_NYC?
Catch the podcast! Listen to @nikhileshde, @LizKNapolitano, @skesslr, @realDannyNelson and @MarcHochstein reflect on covering the historic trial 👇
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I had more questions than we could get to and leave time for questions. We went a little over so I wanted to highlight a few spots on the video where there was news, even for me, and where my readers may be particularly interested.
We had a long conversation beginning at the 14:00 mark about a section of the book where Zeke met up with Nate Anderson of Hindenburg Research. I found the whole discussion very interesting because lots of folks ask me why I write when I could just file a bunch of whistleblower tips with my ideas or team up with a short-seller.
We talked about the new proposed “journalism” startup, Hunterbrook, that is supposedly going to be combo hedge fund and “journalism” outfit.
At the 32:00 minute mark we talked about Zeke’s book vs. Michael Lewis’ book. I mentioned that even the author Bill Cohan expressed disappointment that his friend Lewis was embedded with SBF and writing a book because he was working on a documentary on the subject. Cohan was in Philly to talk to my Wharton class November 10 and his book about GE, Power Failure, coming out November 15, 2022.
Cohan was supposed to do a bunch of media for the book that weekend and early the following week. Instead, the next day, November 11, 2022, FTX filed for bankruptcy and dominated every news program for the next few weeks.
When Cohan asked Lewis for an interview last month he got bumped again.
The good news for all you non-fiction writers out there is that there is still a book to be written, that I would devour, about why S.B.F. did what he did and how he did it and why. That’s not the book Michael Lewis wrote in Going Infinite, and it’s obviously not the book he wanted to write. Good for him. He wrote what he wanted and left that other book for someone else, if they have the discipline, courage and the chops to write it. (Writing a book is not for the faint of heart.) Michael’s late daughter, Dixie Lee Lewis, to whom Going Infinite is dedicated, would have been very proud of her father.
Michael Lewis is wrong about the "profitability" of FTX US and FTX Trading
So much has already been said about the Michael Lewis book about FTX and SBF that I won’t repeat it here. Suffice to say that most financial journalists are incredulous that Lewis is giving Sam Bankman-Fried the benefit of the doubt. I wrote about it on LinkedIn when I found out Lewis was punching down on Zeke Faux about his criticism of the book:
McKenna at Stanford on FTX, its auditors and much, much more
I wrote previously about my whirlwind trip to the west coast including a stop at Stanford University to guest teach for Professor Anat Admati. Professor Admati is also the Stanford GSB Faculty Director of the Corporations and Society Initiative. We had a chance to talk about a number of things including our history together, accounting and audit and non-GAAP metrics, and my sad departure from Twitter.
3. At the 38:00 minute mark, Zeke asks me a question about why Tether never got a full financial statement audit. I’ve written a lot about this issue. Zeke had a really good answer! Best place to start is my presentation to the Offshore Alerts Conference in October 2022, a month before the bankruptcy about the various kinds of services auditors were providing to the crypto companies.
McKenna speaks at the Offshore Alerts 2022 London Conference
“Whatever you think of the underlying technology, there’s no denying that the crypto industry is rife with fraud,” said OffshoreAlert’s founder and editor, David Marchant. “It has created an abundance of opportunities for investigators and asset recovery specialists.”
Also see Molly White’s Substack on this subject.
The elephant in the room throughout the trial was Tether. Tether is a shadowy stablecoin provider that powers truly massive portions of the cryptocurrency industry. The organization has been fined and banned from doing business in New York after the Office of the Attorney General discovered they were lying about the coin’s backing, and though the company has spent years promising to publish audits of the more than $80 billion Tethers (abbreviated to USDT) in circulation, they have produced none.
Besides exchanges, Alameda Research was Tether’s largest customer. We know that the company received around 40 billion of the tokens: almost half of the token’s current circulating supply, and 20% of the tokens ever issued by the company.23 What we don’t know is why, or with what money they purchased such a massive quantity of tokens.
Although cryptocurrency companies routinely purchase USDT from Tether with dollars and then redeem USDT for dollars in the opposite direction, Alameda Research appears to have only ever redeemed a small portion (around $4 billion) of the USDT they bought.
In the past, Alameda has claimed they used USDT to profit from arbitrage opportunities4 (that is, obtaining USDT from Tether at $1 and selling it on the markets at above $1 to people who don’t have the institutional access required to purchase USDT directly). However, whether there was truly demand for $40 billion of the stablecoin seems questionable at best. Exchanges like FTX also regularly facilitate the exchange of dollars for stablecoins by their customers, but again, not to the tune of $40 billion.
Some, like Jacob Silverman in The Nation, have suggested that Alameda and FTX may have in fact been using the tokens to enable money laundering and capital flight (particularly out of China, which has strict capital controls). Others, like David Z. Morris, have questioned whether Alameda ever actually sent Tether the roughly $40 billion in cash that would be needed to properly back the tokens, or if the tokens could have been minted with no backing — which would mean that a substantial portion of USDT on the market today could never be redeemed if it ever came down to it.
Further reading: The Nation, Protos, Bloomberg (with further commentary from David S. H. Rosenthal), David Z. Morris.
At the 54:00 minute mark Erin Arvedlund asks what Zeke thinks about SBF’s parents and their incarceration odds.
At the 1:00:00 mark there is another question about Michael Lewis and how he missed the boat about SBF. Tune in for a revelation!
At the 1:03:00 mark some asks what it was that made crypto so ripe for scams. I mention my writing about the early entries in the arena, ICOs.
The SEC's "token" enforcement action against Ripple for XRP
On December 22, a few days before Christmas, when you think everyone at SEC has turned off their computers until the new year, the SEC charged Ripple Labs and two of its executives with conducting a $1.3 billion unregistered securities offering. According to the SEC's complaint, Ripple; Christian Larsen, the company's co-founder, executive chairman of i…
Big companies borrow from the penny-stock playbook with NFT news
All that glisters is not gold— Often have you heard that told. Many a man his life hath sold But my outside to behold. Gilded tombs do worms enfold. Had you been as wise as bold, Young in limbs, in judgment old, Your answer had not been inscrolled
If you listen carefully you’ll also hear some Tom Brady/Giselle Bundchen gossip!
I want to thank Richard De Wyngaert of Head House Books and his team for supporting me for this series. You can find more signed copies of all the books I featured at Head House. Please support independent booksellers. Stay tuned for our lineup for Spring!
© Francine McKenna, The Digging Company LLC, 2023
Thank you so much for sharing this conversation and glad to hear you are fine now. I found it interesting that Mr. Faux began the interview discussing Axie Infinity and that scam that grew out of the Philippines. Are authorities in Germany still trying to figure out where the WireCard money went? The latest scam coming out of the Philippines is an ecommerce pyramid scam so its based on some truth at least at the beginning. I had a marketer reach out to me on LinkedIn from the Philippines and I've been digging into it by requesting information and pretending to be interest for sh*** and giggles! It seems a fraud fire was lit in the Philippines and I wonder who the entity was behind it!