The Exchanges

Q Explain that. Why did you get it for free?

A Okay, because the rough math at the time, in 2018, Bitcoin is like 10 grand, 12 grandish, and the trustee sold a fifth of the Bitcoin. So he sold about 40,000 Bitcoin and brought in about six hundred million dollars of cash. And so there was six million million dollars of cash and there was about three billion dollars of crypto or two and a half billion dollars of crypto. We were buying the claims for below the cash value, the clash look through value on the claims. So the, so we were buying for about a four hundred million dollar valuation. There were six hundred million of cash and there was about two billion dollars of crypto. So that was the time when I was like really banging the table, because before that there was all Bitcoin and it was, it was cheap, but it was quite directional.

AI assessment note: “We were buying the claims for below the cash value”

Q You know, this is not the way you're going to get rich. It's the way, it's a hobby for people who are already rich. And that's like, If I was going to say, what's the real talk of angel investing? That's how I would describe it. What would you say is like the ugly side or the bad side of what you do? What's the downsides of this asset class?

A Well, distress, distress in general, uh, as a small player, you can get totally hosed. So don't like, every now and then I'll hear someone, um, even smart friends will say, oh, well, you know, KKR is going to make sure everyone's taken care of because they don't want the bad press. I'm like, what are you talking about? It's not like Wobegon. They are going to walk all over you in bankruptcy court. So I never understand this logic, and it's only from many years of Being like, oh, they're gonna play nice. No, they're not gonna play nice, and don't ever assume that. And sometimes you do get a gift, they'll do, you know, things that'll, that'll be a little more gift-like to wherever you are, if you're in a preferred, or if you're in equity. God forbid you're in equity, but if you're even claimant, things like that. Um, so that's one of the ugly sides. I think also one of the ugly sides is, you know, it's very transactional and financial. So, Doesn't exactly, you don't get people who are like giving you the starry eyes of the future. A lot of times you're sitting across people arguing over a pie that ain't growing. In fact, maybe the pie is bad apple pie that's already gone off. So it's like they're really arguing over, um, uh, over, you know, something that could be either dying or shrinking. So, um, I think it has an emotional toll on you being in distressed investing. Also, you a…

AI assessment note: “Well, distress, distress in general, uh, as a small player, you can get totally hosed.”

Q I want to play a game called First Best Worst Weirdest, which is where we go through maybe the first play you did, The best play that ever worked out for you, the worst deal that went sideways, and then just something where shit got weird while you were doing it. But I want, first, just, can you just make us a little smarter? Teach us, uh, distressed investing one-on-one.

A What are we talking about? Oh, man. Ok, so, I am the bottom of the food chain of distressed investing. So, there is a whole industrial complex of large distressed investing firms out there. You have Oaktree and Silverpoint and Fairlawn, and you can, you guys, Apollo, everyone's heard these names, or maybe if you follow business and investing, I guess. So for myself, I kind of came up a different way, which is my parents were bankruptcy lawyers, and I sort of learned, I knew a lot about bankruptcy, and generally what you're trying to do is, you're almost like value investing, and the toolkit is, you know a lot about the legal process. Um, the trick that I've, from studying a lot of distressed investing is, You know, and there's this famous Michael Pryce saying, which you guys have probably heard, but if you haven't, it's sort of, he says, when you're investing, you always want like the stake and the sizzle. I think what, where the okay investors in distress, um, do right is they find stake. You know, you find something and maybe it's a double. But where the guys that really knock the cover off the ball and have outstanding returns, um, generally are looking for that sizzle as well.

AI assessment note: “generally what you're trying to do is, you're almost like value investing”

Q What was the story of the baseball card shop? Ben told me there was a baseball print shop story.

A So these are the kind of things I was talking about when I was a kid. These were, these, these deals would come up. Uh, you know, there was a whole thing where they, the baseball card industry went through this, this, they were, they were printing cards. They said they weren't printing. I don't know if you remember this, Sean. Um, and, and there was a bit of fallout in like the collection market for baseball cards. And I'm sure a few of them went under, probably like the microbrewery thing was people overmade microbreweries. And then I've seen a bunch of microbrewery bankruptcies. And I remember seeing it was, the entire shop was 3000 dollars, which was a lot of money when I was a kid. And my mom was like, you want me to put up the money and you'd buy the whole thing? I was like, we can do that? I was like, ah. So I would hear about these things as a kid, and I guess it probably colored my, my imagination for what was possible. And then I kind of like between that and, you know, I was really obsessed. So I started, I guess I bought my first stock when I was 11 or 12. I can't remember, but I was sort of obsessed with Warren Buffett as a kid. Um, But I mean, and then what happened guys is over time is I sort of melded the two things together. It's like, what would Buffett do if he had the specific knowledge, you know, the normal term, like specific knowledge of bankruptcy plus wh…

AI assessment note: “the entire shop was 3000 dollars... you want me to put up the money”

Q well-known company. It's kind of what we were already talking about. So walk me through the origin story of, of the, uh, FTX deals so that we can kind of see like a, we can get like a blueprint of the type of thing that you're going to try to do. What is the type of thing that you do? So where does the story start with your FTX interest?

A Yeah, so we were, I had already been involved in a number of crypto distressed situations, and I should back up to just say, as a, as a backdrop, like, having studied so many different investors throughout my life, and kind of, that's what I was really always interested in, is principally just being an investor. One of the things you'll realize is the guys with really good returns also invented a category. So I was very interested in crypto distress as a category, and I thought, hey, crypto's the future. No one's willing to touch crypto. So back in 2014, 15, I was already looking at Mt. Gox, you know, myself, and at the time, my partner, we were the largest buyer of claims in Mt. Gox.

AI assessment note: “I had already been involved in a number of crypto distressed situations”

Q Oh wow, three years. Yeah, that has to feel horrible. I've gotten in trouble before when I was in college, and just like waiting to hear the verdict. I remember like that feeling, and mine was not, I think your, your, your consequences are significantly worse than my consequences, and I can't imagine, uh, three years of, what's gonna happen?

A You know, for me, I try to resign my fact, resign myself to whatever happened, like I have to accept responsibility, That was a big one for me. So I like really was, you know, bracing for the worst, but trying to do the best. Also, like even, even with the settlement, but like way before the settlement with different things that went on in the case, I was really trying my best to be constructive and cooperative with what the court wanted me to do. But at the same time, like, you know, not everybody's going to love your decision making. I guess it's like, you know, in a weird way, it's like, you know, it's, it's, you know, I grew up in the South where people are way too, like, I don't know, maybe, maybe sometimes, you know, maybe my upbringing was a bit too, like, people-pleasing, but this was more like, you have to do the right thing whether someone likes it or not. You have to do what you think is the right thing, so that's what I really, a lot of what I got out of this, and I tried my best, and people might not like what you've done, but, or, you know, what you've made a decision, like, oh, you're doing this, you're trying to hide this, or you're trying to do this, and you're not cooperating here, but you're still trying to, you're still trying to, to, to find some middle ground, so, but it was a big one, it was a big, big one over me.

AI assessment note: “I try to resign myself to whatever happened, like I have to accept responsibility”