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At This Hour

FTX Founder Arrested In The Bahamas; Biden Addresses Better Than Expected Inflation Numbers; L.A. City Council Member Under Fire For Racist Comments. Aired 11-11:30a ET

Aired December 13, 2022 - 11:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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JIM SCIUTTO, CNN ANCHOR AND CHIEF NATIONAL SECURITY CORRESPONDENT: Alexandra Pelosi is also releasing a documentary on HBO Max tonight about her mother's life and political service. HBO Max owned in part by our parent company, Warner Brothers Discovery.

ERICA HILL, CNN ANCHOR AND U.S. CORRESPONDENT: Thanks so much for joining us today. Great to have you with us. I'm Erica Hill.

SCIUTTO: And I'm Jim Sciutto. "AT THIS HOUR" with Kate Bolduan starts right now.

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KATE BOLDUAN, CNN ANCHOR (voice-over): Hello, everyone. AT THIS HOUR, the founder of the crypto exchange FTX arrested and charged with defrauding investors, just as Congress is hearing testimony about the company's wild and sudden collapse.

Plus the Biden administration is applauding a major scientific breakthrough, a small but huge step toward nuclear fusion. Energy Secretary Jennifer Granholm joins us live.

And an embattled Los Angeles city councilman refusing to resign after leaked audio of racist comments and so much since then. Our interview with Kevin de Leon ahead.

This is what we're watching AT THIS HOUR.

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BOLDUAN: Thank you so much for being here, everybody. I'm Kate Bolduan. Let's start with the new developments in the dramatic collapse of the crypto exchange FTX.

The SEC has charged the company's founder, Sam Bankman-Fried, with orchestrating a massive years long scheme to defraud investors. He was charged this morning on eight criminal charges, coming from the SDNY, including wire fraud and conspiracy.

All this happening just hours after he was arrested in the Bahamas at the request of U.S. prosecutors. Now Bankman-Fried was supposed to be testifying before Congress right now about the collapse of FTX. That was -- that company once valued at $32 billion, now bankrupt. A lot to get to. Let's begin with Kara Scannell.

What do we do with this?

KARA SCANNELL, CNN CORRESPONDENT: These are massive new charges unsealed by the U.S. attorney's office in Manhattan. There are eight criminal counts that he's facing, that includes wire fraud, conspiracy and multiple counts of conspiracy.

And what prosecutors lay out in the 14-page indictment are a number of schemes. They involve the trading platform known as FTX as well as a hedge fund also run by Bankman-Fried.

Prosecutors are alleging that customer funds were used and misappropriated and used by the hedge fund. Sam Bankman-Fried had borrowed more than $1 billion from the hedge fund. He used money to buy luxury real estate in the Bahamas and also for political donations.

Now among the criminal charges, he's also facing a conspiracy theory to defraud campaign finance laws. Prosecutors saying that he exceeded both the dollar limits and made donations in the name of someone else. More details on that are expected later today.

Hopefully when prosecutors may address the media and give information about these charges. But this is really a significant fraud scheme that both the U.S. attorney's office and the SEC is alleging.

The SEC has called this a house of cards, built on a foundation of deception. Bankman-Fried is in the Bahamas and expected to appear in court. The big question is extradition.

How quickly will he come to the U.S. to face these charges?

And whether he will fight that. Now his attorney just issued a statement, saying Mr. Bankman-Fried is reviewing the charges with the legal team and considering all of his legal options. Kate.

BOLDUAN: Thank you so much.

So the sudden collapse of FTX is attracting the attention of lawmakers on Capitol Hill, some would argue a bit too late. But the new CEO is testifying at a House hearing. It is the first time that he's spoken publicly since FTX's implosion last month. Matt Egan is live in Washington and watching all of this for us.

A big question has been, how did this happen?

Or was it -- how was it allowed to happen?

What does John Ray tell lawmakers about this?

MATT EGAN, CNN BUSINESS SENIOR WRITER: Well, Kate, the new FTX CEO is painting the picture of a company that is basically a Dumpster fire. He said that there are no internal controls. There is no record keeping. He said no reliable financial statements.

They communicated invoices on Slack and used QuickBooks to balance their books. None of that is normal for a massive company like FTX. And John Ray says he has never seen such a corporate failure of internal controls like this one. And that is saying a lot because John Ray is also the guy who led Enron through bankruptcy.

Now he stopped short of outright calling FTX a fraud. But he did lay out a series of allegations that support some of these charges that Kara was just talking about, from federal prosecutors and the SEC.

John Ray said that the major breakdown here is that customer funds were mixed with the assets from FTX hedge fund. The SEC said that is at the heart of that is house of cards.

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EGAN: Hedge fund made risky bets with customer funds, they went on a $5 billion spending spree on money-losing investments and they made loans and payments to insiders in excess of $1 billion.

Hopefully, Kate, this hearing will bring some clarity to some other major questions that are still unanswered at this point.

One, what hope do customers who lost money in this bankruptcy have at recovering it?

And also how do you regulate crypto?

Because this bankruptcy has made it patently obvious that cryptocurrency is the wild, wild west of finance. But bringing regulation to crypto is easier said than done.

BOLDUAN: It sure is. Matt, much more to come. Thank you so much.

Let's answer some of those questions. Joining me is CNN chief business correspondent Christine Romans and CNN senior law enforcement analyst Andrew McCabe, former deputy director of the FBI.

So Christine, first, I would love if you could describe for people just how massive a collapse that this is, that this whole thing really is and how quickly.

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: There were Super Bowl ads and celebrity endorsements and this was marketed as something that was a reliable, safe way for regular Joe and Jane investors to get in there and get in on the crypto future, right.

And look at how quickly it all has come undone. When you look at the accounting of this company, when you look at sort of the business practices, there was no oversight. There were no controls. There is no risk management.

There wasn't even a CFO of this company. And even now the former CEO, the founder said that he maybe got too cocky. He didn't know what he was doing. He didn't understand what was happening. BOLDUAN: He didn't know how to run a company.

ROMANS: Clearly didn't know how to run a company. But there were no barriers here because, as Matt said, it is the wild West. There is a lot of discussion about who really regulates this space. And finally Congress will have to get involved and decide how you will regulate this space, which of the alphabet soup of regulators in Washington has the final say.

The SEC Is going in there and has charged these charges earlier today. I think there will be more charges.

BOLDUAN: So Andy, one question is, he's in a jail cell in the Bahamas right now. He's supposed to be extradited. That could take some time.

But any chance that he could avoid extradition?

ANDREW MCCABE, CNN SENIOR LAW ENFORCEMENT ANALYST: No, not really, Kate. We have a long standing extradition treaty with the Bahamas since the early 1990s. They are widely perceived as a stable democratic government.

The only ways that in circumstances like this that extradition can be avoided or complicated is if the crimes that the U.S. is trying to bring him back here to face are not crimes in the Bahamas. That is not the case here.

Financial crimes are the same in both places. And of course, there is no death penalty on the table here in the U.S. associated with the allegations against him. And that can sometimes lead nations to pump the brakes on turning over folks to the U.S. But that is not an issue here.

BOLDUAN: Christine, one of the many kind of unusual things about Sam Bankman-Fried and this whole situation is how many interviews he did since this whole thing collapsed, this kind of publicity tour that he did. I want to play something from the interview that he did with George Stephanopoulos that is really interesting today.

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GEORGE STEPHANOPOULOS, ABC HOST: A lot of people look at you and see Bernie Madoff.

SAM BANKMAN-FRIED, FORMER CEO, FTX: Yes: I mean, I don't think that is who I am at all. But I understand why they're saying that. People lost money. And people lost a lot of money.

And, I mean, at the end of the day, look, there is a question of what happened and why and who did what, what caused the meltdown. And I think that is -- reads very differently.

When you look at the classic Bernie Madoff story, there was no real business there. The whole thing, as I understand it, I think, was just one big Ponzi scheme, right. FTX, that was a real business.

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BOLDUAN: Also just that but also can people get their money back?

What is the chance that anybody does?

ROMANS: Was it a real business?

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ROMANS: Invoices via Slack? Look, people may be able to get some money back. There are coins and assets that were at one point associated with FTX.

Will they get all of their money back?

Probably not. You look at the spending and the fact that they can't even keep track, haven't kept track of where this money went. I will say something about Bernie Madoff, I covered him extensively.

He had very expensive records. They were fake but at least he had the veneer of being a legitimate investment business. The more you peel back the layers here, the SEC complaint said, everything he promised, he was actually not doing that in his business.

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ROMANS: And they're going to try to show that.

BOLDUAN: And it suggests what he knew what he was doing.

Andy, one thing that is also surprising is how fast this seems to be moving from bankruptcy to indictment, especially when it comes to charges involving something at its core as complicated as a crypto exchange.

What do you think that means?

MCCABE: There is a couple of things. It is possible that the government felt they needed to move quickly to get a charge against him in order to work the extradition angle, to pin him down, to try to get him back from a place where he could be extradited from.

Without this arrest yesterday, Mr. Bankman-Fried could have moved from the Bahamas to a place that does not enjoy extradition with the United States. And so then he'd be beyond the research of U.S. criminal justice.

So I'm just speculating that that is one reason they may have wanted to move quickly. And the other reason is they have a very solid, complicated but solid case to make here. There is no reason to delay. He is no doubt the first of many people who will likely be charged in this case.

So I think it will interesting to see, of his former associates and colleagues at FTX, who gets charged next. And then the question, is which of those folks will decide to

cooperate against him, making his fate and this criminal prosecution that much more serious?

BOLDUAN: If someone or more than someone, more than one person isn't already in terms of cooperating, maybe that is some of the commentary around why they may have been able to move so quickly on this indictment. Thank you both so much.

So a massive winter storm could impact 40 million Americans today. Blizzard conditions are creating a mess across the northern Plains and now states to the South, they're bracing for the potential of tornadoes.

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BOLDUAN: So stocks are rallying as investors are feeling buoyed by a new inflation report. What this means for you and the Federal Reserve as it prepares for the next rate hike decision. That is next.

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JOE BIDEN (D), PRESIDENT OF THE UNITED STATES: Wages have gone up more than prices have gone up.

And I want to be clear: it is going to take time to get inflation back to normal levels as we make the transition to a more stable and steady growth.

But we could see setbacks along the way as well. We shouldn't take anything for granted. But what is clear is that my economic plan is working and we're just getting started.

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BOLDUAN: President Biden there expressing optimism as inflation slows more sharply than expected in November. Consumer prices rose 7.1 percent from a year ago, the fifth straight month of a slowdown.

The news is driving markets up at this hour, all adding more interest and intrigue into what the Federal Reserve will do when it releases the latest interest rate decision tomorrow. Joining me now is Mark Zandi, chief economist at Moody's Analytics.

What sticks out to you in this report?

All good news? What is it? MARK ZANDI, ECONOMIST, MOODY'S ANALYTICS: It is about as good as it gets, Kate. Obviously inflation is still painfully high. And the average American household has to shell out about $400 more a month to buy the same goods and services they were buying a year ago because of the high inflation.

So inflation is painfully high but the good news is, it is coming in and it is coming in quickly. And I think the thing I got most comfortable about with the report was the moderation in prices was really across all goods and services.

Food price inflation moderated, housing costs inflation moderated, transportation costs declined and even vehicle prices, which have been going skyward here, have started to come in. It is hard not to be encouraged by today's report.

BOLDUAN: What does this mean for the Fed tomorrow?

ZANDI: Well, you know, the Fed going to raise rates. They signaled that they're going to do that and stick to that script. That is what investors are expecting. But this does seal the deal on them scaling back the size of the rate increase.

So as you know, they've been raising rates a lot every time they've been meeting, three quarters of a percentage point. But they are likely to raise rates by half of a percentage point. If we keep getting inflation numbers like these, in January, it could be a quarter percentage point. So still rate increases and still higher rates ahead of us.

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ZANDI: But the good news is the sizes of those increases are starting to Andrew Bates. And I think by early next year, we're getting to a place where they could stop and -- stop raising rates and take a look around.

BOLDUAN: I did want to ask, because if we see inflation slowing -- and that obviously was a key thing that the Fed needed to see in the -- in moderating their interest rate hikes -- what then is the key question now for the Fed going forward?

ZANDI: Well, they want to make sure that inflation keeps coming in, right? I mean, you know, 7 percent is a long way from their target. Their target is closer to 2 percent.

BOLDUAN: That is true.

ZANDI: So there is a lot between 7 percent and 2 percent. So they want to make sure that happens.

But also they want to make sure the economy doesn't get pushed into a recession. So it is a balancing act. They want to raise rates high enough, fast enough to quell the inflation but not too far and too fast that they undermine the economy and push us into a recession. They're trying to thread that needle. It is a difficult needle to

thread. But with today's numbers, if we get more of those kind of numbers, it makes it feel like it is easier for them to actually pull this off. And I'm increasingly hopeful that they will.

BOLDUAN: I want to play what Treasury Secretary Janet Yellen said this weekend, because she seems optimistic about 2023.

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UNIDENTIFIED FEMALE: What is 2023 going to look like for the average consumer?

JANET YELLEN, U.S. TREASURY SECRETARY: So I believe inflation will be lower. I am very hopeful that the labor market will remain quite healthy so that people can feel good about their finances and their personal economic situation.

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BOLDUAN: Do you share that optimism for the next year?

ZANDI: Yes, I do. Kate. You know, I do think that the reason for this mess we're in is the pandemic, which really scrambled supply chains. Up to this point in time, the Chinese economy is struggling because of the supply chain issues and COVID.

And labor markets have gotten all messed up, childcare and long COVID has messed up the labor market. And the Russian invasion of Ukraine caused oil, natural gas prices and agricultural prices and metal prices to go skyward.

So here we are. But the good news is both the pandemic and the Russian invasion, the fallout from those massive shocks to our economy are fading. And if that continues -- and it is obviously a lot of risk around that.

But if that continues, then I would expect inflation to continue to moderate and we'll get a -- an outlook similar to what the Treasury Secretary articulated.

BOLDUAN: We'll stand by and you'll be right there with us. Thank you, Mark, appreciate your time.

ZANDI: Sure thing.

BOLDUAN: It is heralded as a major scientific breakthrough. Up next, Energy Secretary Jennifer Granholm will join us on how real the future is for nuclear fusion to power or homes and what this breakthrough means for fight against the climate crisis.

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BOLDUAN: Embattled Los Angeles city councilman Kevin de Leon is still facing repeated calls to resign over a scandal sparked by racist comments caught on tape. Other members of the council have resigned or plan to because of this whole scandal.

But de Leon is defiant and refusing to do so. He's experienced fierce backlash since recording of the racist conversation leaked back in October. And he has since largely been out of the public eye, returning to the council for the first time just on Friday.

And look at what happened when he made his return to the council chamber.

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UNIDENTIFIED MALE: So I'm going to have to -- I'm going to have to call a brief recess of this meeting.

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BOLDUAN: Joining me right now for an exclusive interview, L.A. city councilman Kevin de Leon.

Thank you for coming on. I know we've been working and trying to have this conversation for quite some time. Friday's meeting was the first that you've attended, I believe, since October 11th or early October.

Were you surprised by the reaction of the council members who left in protest and also people in the community, who were clearly still very upset and not over this scandal?

KEVIN DE LEON, L.A. CITY COUNCIL MEMBER: Well, good morning, Kate. Unfortunately, I wasn't quite surprised by a handful of individuals, who serve on the city council, with them walking out. Obviously it is unfortunate.

But nonetheless, I came on Friday to get back to work. The past two months I've been taking a lot of reflection, working with my constituents as well as having conversations, not just with constituents in the district but with constituents or folks outside of the district with many communities; in particular, the African American community.

Let me underscore something. This is something that I have profoundly taken a lot of reflection. But I rolled up my sleeves and I'm getting back to work, engaging with my constituents every day and that is why I returned back on Friday.

BOLDUAN: There is, in the city charter, it does say that an office becomes vacant when an office holder is absent from the city without the consent of the council for more than 60 days.