Artificially Intelligent with Sam Maule and Maia Bittner

Unpacking the Cash App Controversy and FTX's Collapse: Lessons in Fintech Fraud and Founder Dynamics

• Sam Maule, Maia Bittner, Rachel Morrissey

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Could the collapse of a major fintech entity be more complex than a simple case of fraud? Join us on this intriguing episode of "Artificially Intelligent," where Maia Bittner and Sam Maule, with their signature mix of humor and insight, navigate the murky waters of fintech controversies. We jump right into the latest buzz surrounding Cash App, currently under the microscope of New York regulators. Maia then passionately dissects the downfall of FTX and its enigmatic founder, Sam Bankman-Fried, challenging the black-and-white narrative that has dominated headlines. Learn why she believes there's a potential for investors to reclaim their losses, and imagine the massive ripple effects if similar shutdowns happened to other major financial players.

Ever wondered how far you can push the boundaries of "fake it till you make it" in the startup world? Discover the delicate balance between ethical and unethical practices through personal anecdotes and high-profile fintech examples like Binance and WeWork. We also delve into the vital role of a founder's charisma in securing investor trust and achieving market fit. From the importance of regulatory compliance to the nuances of product-market alignment, this episode is packed with thought-provoking discussions and practical lessons for aspiring fintech entrepreneurs. Don't miss out on the lively banter and deep insights that Maia and Sam bring to the table!

Hosts: Sam Maule & Maia Bittner


Maia Bittner:

Hello, hello. Welcome to another episode of Artificially Intelligent brought to you by Money 2020. I am Maia Bittner. I'm your FinTech intern.

Sam Maule:

And I'm Sam Maule. I'm that other intern. There's a movie called T the Intern, with Robert De Niro and Anne Hathaway, which that would make me Robert De Niro and that'd make you Anne Hathaway.

Maia Bittner:

No, you'd have to be the other intern. Works for me. I mean, I feel like I'm a Robert De Niro kind of energy, though I gotta say.

Sam Maule:

You 100% are a Robert De Niro energy. I agree that's an excellent call out. It's been a rather crazy day in the fintech world. Maia, I don't know if you've seen the news today, if you know what I'm about to lead into.

Maia Bittner:

I mean, there's a lot of stuff happening. Crypto markets are crashing. Cash app is under scrutiny, I think from the state of New York.

Sam Maule:

That's the one. That's the one. That's the one.

Maia Bittner:

See, you just can't bank people in North Korea or Cuba. There's a lot of stuff you can do, but that's one you just really don't want to do.

Sam Maule:

That's the story. I was wondering if you saw that and there you go. Second one yeah, very interesting, that regulatory compliance AML thing. It's there for a reason, so it'd be fascinating to see what happens. There's a story out with the federal prosecutors basically looking at block right now. So that would be what? Cash App and Square and you know, have they processed transactions involving countries that have been subject to economic sanctions and such? So watch this space. I don't know how else to put it, but it's interesting because this kind of leans into a little sidebar conversation you and I have had and everybody. This is one of those M maya rant. So just gear up, get your popcorn, get a nice bourbon, sit down. Ooh, bourbon and popcorn, that's horrible. Get a nice Diet Pepsi.

Maia Bittner:

There we go, it's your big movie soda.

Sam Maule:

There you go. That's what this is going to be. So, Mai maya, what is the rant that you would like to do here, in a safe space, unlike, say X or Twitter, where, if we did this, oh my God, this would blow up.

Maia Bittner:

They're not safe spaces, not for me, ever. Okay, S sam. Today I want to talk about FTX. We're coming up on the one year anniversary and Sam Bankman-Fried is that how his name is pronounced- we're going to SBF.

Sam Maule:

SBF yes, we're going to go with that.

Maia Bittner:

No one knows how his name is pronounced. We've all agreed Just go by SBF. So when FTX was collapsing, I saw everyone on Twitter was like this guy sucks Sequoia sucks for investing in him. They didn't do enough due diligence. They don't have enough governance controls. This guy's an asshole and I want to say, yes, what he did was illegal and I'm not endorsing it. And he misappropriated investor funds, lost people like $8 billion, et cetera. However, I think it's so much more nuanced than what people are giving it credit for, and I want us to talk about that balance that every founder needs to strike and then further. So the thing that I just heard is that it looks like it's part of the FTX bankruptcy investors are getting like 100% of what they're owed.

Maia Bittner:

And there's some caveats to that. The 100% is of what their crypto holdings were converted to in fiat at kind of the bottom of the crypto market and they don't have any money yet and it might be a really long time until they have it. And they thought they were buying Bitcoin or like true underlying assets. So there's a lot of caveats to that, but when I look at it it's like dude. If you think about an investor or a hedge fund, what if one day they had to stop operations? What are the odds that they're returning capital on that random one day? And it's actually pretty impressive if they made investments such that boom. You pull the plug one day and people are getting their money back.

Sam Maule:

Yeah, you do a margin call on pick anyone right, just in that day how many actual companies would survive. And you know I mean well, shoot. We have an example Silicon Valley Bank and the run that happened there.

Maia Bittner:

Yes, I mean there's yeah yeah.

Sam Maule:

It's SPF and the whole trial and FTX, it's easy to point and make fun of it. I've done it from stage because I have said look, you've got a company that was valued at, I want to say, 35 billion at one point in January of 2022, I believe there were 32 to 35 billion valuation. And then by November, you know, the world came crashing down and they were using, I believe, quickbooks as their accounting software. So, as somebody old like me, it's easy to make fun of them, but, like you said, at the same time, I think it's a lot more complicated and nuanced when you start digging into this.

Maia Bittner:

And here's what I think. So, fundamentally, the job of a founder is kind of to find product market fit right, and we throw that term around a lot, so I think everybody knows what it means. But I think it's helpful to really dig into the details, right. So, product market fit it's are enough people going to pay the price you're charging for your product and can you deliver it for less than that, such that you've got a business right. You spend less money than you make and you're making money. You've got a business right. That's what it is. Are enough people going to buy it? Can you deliver what they want at a price they're willing to pay and still make money? Can it cost you less? And I know I'm saying the same thing over and over again, but here's why I think it's important. So, Sam, do you know the jobs to be done? Framework?

Sam Maule:

Oh my God, do I love me a jobs to be done framework. I talk about this on stage. I do the milkshake story at McDonald's. So here's a great example of jobs to be done. Everybody, when you look at jobs to be done. Clay Christensen is basically the godfather of all of this and he was hired by McDonald's to come in because they wanted to increase sales when it came to their products. So they had hired people to come in to look at their shake sales and a ton of consultant companies came in, made a ton of suggestions. Nothing happened. The way he did jobs to be done is he actually observed customers' behaviors. This is shocking to everybody, but he hired people to basically take a notebook and a pencil and stand and just watch people in their orders, and what they observed was this Do you know what the peak time is for people to buy a milkshake? Here's my trivia question for Maia. Do you know what the peak time is for people to buy a milkshake? Here's my trivia question for Maia.

Maia Bittner:

Do you know what they found?

Sam Maule:

the peak time was, I would guess, 1 pm 8 in the morning 8 in the morning and so they came back and said the most milkshakes are sold in the morning and he went well, that's interesting. How about we go and talk to the people that are buying the milkshakes to find out why? What is the job they're trying to get done? Why would they buy a milkshake in the morning? And so they would follow people out to their cars and say excuse me, and ask them why. And what they found was people during their commutes in their cars.

Maia Bittner:

Having a meal is bulky and hard to do while you're driving and not safe.

Sam Maule:

But sipping on a milkshake, it lasts your whole drive. It gives you something to do while you're driving and not safe, but sipping on a milkshake it lasts your whole drive, it gives you something to do, it fills you up and that's why the sales happen there.

Maia Bittner:

And his simple feedback off this jobs to be done.

Sam Maule:

Methodology was make the shakes thicker and he increased sales exponentially from that. It is a great, great use case, everybody, and he's got a million of them, but I love that story. So, everyone, that's your jobs to be done. Framework, in a nutshell, is figuring out what is the user trying to accomplish, what is the job that they're trying to get. I love that.

Maia Bittner:

And as a founder I mean this is advice I give to founders all the time, which is you can't get too tied to your specific solution. You got to be looking at your customer's job to be done and be really open to ways of meeting that right, because that's the only way you're going to get to product market fit. It's the only way you're going to get people to pay is if you're fulfilling their job to be done. Now, sam, I'm not really a big crypto person. I think for like okay, maybe not everyone, but for like 99% of people, the job to be done of crypto is they're trying to get rich.

Sam Maule:

Yes, agree.

Maia Bittner:

There's all this stuff about like decentralization and like the da-da-da and like anonymity, which is actually weird because you're really not anonymous on the blockchain but there's a lot of talk about that. Some people, sure, but most people, I think they're fucking trying to get rich off of bot and quickly.

Sam Maule:

They're trying to get rich and very, very fast. So they can get the Lambo and be down in Miami and then do TikTok videos about how rich they are and how much smarter they are than me. So for SPF.

Maia Bittner:

To take, what was it? $8 billion of investor funds and instead of buying the underlying crypto assets they thought they were getting, or whatever, he was investing it in his pet projects on Alameda Research, investing in other startups, doing all kinds of wacky stuff. So, like I said, that's illegal. I don't endorse that. I don't think you should trick people like that. However, when you look at the job to be done of his customers and they're trying to get rich and they made some damn good investments at FTX and Alameda Research. They had that huge stake in Anthropic, they had all that Solana They've got right Like they made some really good investments for their customers and were trying to get their customers rich. So I'm like dude, I don't know. I feel like he was kind of getting the job to be done if his customer is done. Now, like I said, I don't enjoy this, but there's a lot of nuance here. It's like you can't lie to people. If they think they're getting bitcoin, they gotta have bitcoin.

Sam Maule:

Um but, but I here's. Here's another thing. I'll let this sink in as somebody who, I mean, you've done startups, you've founded companies, you've been in the game. I've done this too. Here's the thing with FTX it was founded in 2019. It all came crashing down in November of 2022. If my math is right, that's three years. Three years. Three years to build a product, find market fit, get people willing to pay. How many companies do you know that have actually accomplished that at that scale?

Maia Bittner:

At that scale hire a ton of people.

Sam Maule:

Yeah, get.

Maia Bittner:

Bill Clinton Raise a ton of money.

Sam Maule:

Get President Bill Clinton. And what's her name? Tom? Brady's ex-wife on stage with you.

Maia Bittner:

Yeah, I mean Giselle Bündchen or something, yeah.

Sam Maule:

I mean.

Maia Bittner:

And that Seinfeld guy.

Sam Maule:

Yeah, I do laugh, larry David. Yeah, I do laugh. You're doing Super Bowl commercials. It does make me laugh. It's always easier in hindsight than to be that Monday morning quarterback Like I'm watching the F1 Drive to Survive series on Netflix and I'll watch and I'll see these races from like 2021, where it's. All these crypto companies are the ones that did the um advertising because they had more money than god at the time. I mean, we came out of covid. Everybody during covid, everybody and their brother and sister was investing in crypto, as we know, which helped launch these. But you know, it's just fascinating to see the growth that they had um, how they did it again. I am with you, um person.

Maia Bittner:

They're obviously really delivering, or were really delivering on a customer need if they were able to go that quickly with their customer base.

Sam Maule:

And it always comes back to and I've said this a million times you might have the greatest idea or product in the world If you're in this space. Your second or third hire better be a compliance officer who knows what they're doing. Yeah, let me just say that over and over. I mean, we're seeing this with banking as a service, right? I mean, how many consent orders are we seeing coming out this year?

Maia Bittner:

And what does it always come back to In some cases?

Sam Maule:

Yeah, I mean it constantly is dialing back to this. It makes me laugh because I was doing a little bit of research when you said you wanted to talk about this, so I was thinking, okay, well, what are the big fraud cases during my career that always come up? So Enron is obviously a big one, right?

Maia Bittner:

Well, it's the same bankruptcy CEO right.

Sam Maule:

Leading.

Maia Bittner:

FTX out of bankruptcy as Enron.

Sam Maule:

Exactly so. You had the Enron crash.

Maia Bittner:

You've got this guy must be old.

Sam Maule:

It must be really good too. You got Bernie Madoff. Do you actually remember when that happened? It was in. It was in December of 2008, when the world was melting down. I forgot that. I forgot that during the financial crash, when literally we were watching banks disappear, is when Madoff was exposed. That story would have been even bigger if that had come out, say, a year before or two years later. It was in the midst of massive chaos and I think, with Bernie Madoff, I felt like the world was ending in December of 2008.

Sam Maule:

Yeah, yeah, I was absolutely shocked at what was taking place there. So, and then you've got Theranos with Elizabeth Holmes, right? Essentially, if you're on the cover of Forbes and you're young, don't go on the cover of Forbes ever.

Maia Bittner:

People say so let's talk about that. Was SPF Forbes 30 under 30? I bet he was.

Sam Maule:

Oh yeah.

Maia Bittner:

People talk about how fraudulent Forbes 30 under 30. Yeah, okay, spf was on Forbes 30 under 30.

Maia Bittner:

I was also on Forbes 30 under 30. And people are like now. They're like, oh my God, like it's almost a sign that you're going to be a fraudster and this thing that we thought was good, it's actually bad. I, this thing that we thought was good, it's actually bad. I don't think it should be surprising at all that people on the Forbes 30 under 30 list are much more likely to be fraudsters, and that's because I think, like I said, with the theme of this episode, people think it's so simplistic You're a bad person, you're a good person. This is fraud. It's not fraud, right? And I just think that gets you into trouble and it's rude and it's not the full grasp of the situation. Here's an example what SPF did? That was bad. It was bad for consumers, bad for investors. They lost a lot of money. It was bad.

Maia Bittner:

Here's something that I think is good, that I've advised people to do. I've done myself, but I think is on the same scale. So here's what it is. Let's say, you've got an expense tracking app where your customers they just have to take a picture of their receipt, and you've got AI technology OCR that recognizes the characters and automatically puts it into the system. Okay, so you sell them this software. They only have to take pictures of their receipts, automatically, puts all the information in and submits their expense reports.

Maia Bittner:

Let's say you have no technology and you just send the picture to somebody in the Philippines and you ask them to type it into a database. Do you know what I mean? Let's say that that's how it works. I think that's super legit. I actually tell people to do that. I tell people to meet the customer need first, find out if there's any demand there, and only once you know that people want that then you go build the technology to fulfill the demand. Don't build the technology first just because it's so expensive and such a big investment. I tell people to do that. I think when you take this crypto's job to be done is get people rich fast.

Sam Maule:

Minimum viable product right MVP duct duct tape in a box, but you have to prove this out. That's a basic concept and like you kind of.

Maia Bittner:

You kind of lie to people about how it's happening, but they don't care as long as you fulfill that job to be done for them can I tell you a true story?

Sam Maule:

um, so, the, so everybody, the. Um, what is? Criminality can't happen. It's been so long ago. This was in the 90s. Everybody, this was before cell phones. Everybody, calm down.

Sam Maule:

But I worked for a large global bank. We were doing, by the way, we were doing 401k and pension plan record keeping, and one of our clients was Enron. How funny is that? Wow. So Sam Mall lost a lot of stock Thank you, enron. In the 90s.

Sam Maule:

But we wanted to set up a call center for Pacific Telesis. This was before the big when the AT&T broke up. And so, in order to do that, they came on site to our facility in Atlanta and we did a big presentation. And I remember they went to give them a tour and a few of my bosses were running panicking through the hall with headsets and threw them at a couple of us in cubicles and said put these on type on your computer and act like you're on the phone. We won that deal.

Sam Maule:

I was a Lotus Notes programmer back in the day, folks. I wrote the call center application we used in Lotus Notes to date myself. But you know how we won that deal. I put on a headset and talked to my wife, called her and we were just typing away and we won that big deal and if you don't think, that happens a lot more than you think. So this gets back to due diligence, you would think, and knowing who you're partnering with. So I was thinking of your Forbes 30 under 30. Remember this story about Frank and JPMC? I think that was like $175 million.

Maia Bittner:

Sorry, when you first said Frank, I thought it was a person, but now, I realize that is the name of the startup that was acquired by JPMC.

Sam Maule:

There you go. Yeah, charlie Javis, who was another 30 under 30 founder, when they said she incredibly inflated the number of users she had. I believe she conschemed with a college professor to come up with some names. You know that fake it till you make it mentality.

Maia Bittner:

And like you should fake it till. You make it sometimes.

Sam Maule:

There's a line Without stepping over that line here we go.

Maia Bittner:

SBF crossed the line. It was illegal. He's going to jail for 25 years because of it. That's good.

Sam Maule:

By the way, the Binance. Did you see that? Yeah, he's going to jail for 25 years? The Binance CEO is going to jail for wait for it everybody four months, Four months, Wow, Four months, Four months. I'm going to say that one more time for the people in the back Four months.

Maia Bittner:

I'm just all these self-righteous people on Twitter who are like so bad? This guy's obviously terrible. I can't believe anybody invested in him. It's like that inkling to fake it till you make it.

Sam Maule:

Yeah.

Maia Bittner:

That is what makes a good founder. You need that energy and I think Sequoia saw that. That's why they invested is they saw that he had that. You need that.

Sam Maule:

That's good how do you think WeWork got all its money? How do you think Adam Neumann at WeWork got all his money?

Maia Bittner:

I mean, he's got the fake it till you, make it energy.

Sam Maule:

Oh he, Steve Flippin' Chops. Who to you make it energy?

Sam Maule:

oh he, steve flipping chops who we idolize like crazy, that right, the force field aura that they have. And trust me with your founders you want. You know, you know what founder I love and you're gonna laugh at me, my, I don't know if you know him or not mainly because he looks and acts like my uncle, david Ohad Sama at True Accord One, because Ohad was in the Israeli military and does Krod and Agar or whatever that stupid karate thing is and could break my neck if he wanted to. But he's also just the crabbiest, funniest, crustiest founder in the world. But he still has that aura around him when he speaks and on stage everybody listens, everybody listens.

Maia Bittner:

Yes.

Sam Maule:

When.

Maia Bittner:

Ohad talks. Everybody listens when he tweets, everybody responds right.

Sam Maule:

That aura means something and there's quite a few people in the industry I work for Move everybody, the payments company led by wade arnold. If you are a programmer developer, geek, wade arnold has an aura about him and I'm thrilled that he has right, but it's also not a con right. So it gets back to the aura is important. Finding market fit is everything and having the right people to keep you in check. This gets back to having a very good board.

Maia Bittner:

And that's. It's like the feedback and that's why, right, people talk about the governance. Should have been more governance at FTX. You need that and that's why that's what helps keep these things in check. But people say they're like oh, tech has learned its lesson, it's going to go in a different direction. We're going to back to no, no Tech has learned its lesson it's going to go in a different direction.

Maia Bittner:

We're going to back it. No, no, this is the direction that we should go in. This is like they went too far. Keep it in, but it's the right direction. Yes, it's.

Sam Maule:

Yeah. I mean, if you want to, innovating does mean breaking things. I'm sorry everybody, but it does to some degree. The problem is this is financial services. This is actually real people's money right, and how it impacts them. We've talked about so many examples of this. Actually, a lot of them came out during COVID. Remember, with Robinhood, the sheer number of people that were investing and then the young man that was investing actually committed suicide. Remember that story? Because he didn't understand fully what he was doing. We talk about democratizing payments. We talk about what FinTech can do for the market. When you're bringing all of this into the hands of so many people, a lot of people have no clue what they're doing. Hello, part of crypto. I'm saying part of crypto.

Maia Bittner:

The due diligence part, talk, know, talk about, like, how much people know, like there's this argument that the investors in FTX didn't know enough, they didn't check into the details I recently had. So personally, I recently had a startup, I invested in it's shutting down and the underlying technology was not viable and my LPs asked me. They said, you know, is this a sign that we should have done more due diligence to understand, like, whether the technology was viable or not? And I said, you know, it's really tempting to be like, oh yeah, I'm going to change things and do things differently and things like that. But I said, you know what? No, our whole investment thesis is backing like a specific category of person. I was never going to do any due diligence on the underlying technology. That wasn't part of the plan that I pitched you and promised you. I didn't do it, I'm not going to do it in the future and we're vulnerable to things like this happening to us because that's our investment thesis and we're betting on the founders in a specific profile, because that's what we're betting on and that's the investment and I think it's going to work. I hope it works. It might not overall on a portfolio basis, but that's what we're doing right, and I think Sequoia was probably like and I think Sequoia was probably like dude.

Maia Bittner:

It's not that much about the technology of FTX. We can see the energy in this SBF guy and we know that he's going to make this happen. We know we're making the bet and we're betting on him, and he took it too far. It didn't work out. Everybody lost all their money, um, but I don't know that people are like learning a lesson other than right. The controls is what's needed, the governance is what needed, but I don't think it's like these are actually the type of people should be backing. We should be backing forbes 30 under 30. We should be backing people who have the push to maybe be fraudsters if they take it too far that's hilarious.

Sam Maule:

Are you almost a fraudster? Please come and see us. Yeah, it's hilarious.

Maia Bittner:

People who are nearly fraudsters, but not quite I mean honestly, but like like I said, my example with the receipt tracking like that's fraud. But who are not illegally defrauding? People are not doing it in ways that lose them money or that they care about. But maybe some light deception is okay.

Sam Maule:

It's a little light.

Maia Bittner:

Deception never hurt anybody right.

Sam Maule:

As long as you're not doing it to the OCC or FDIC. It is funny. It's especially, like I said, looking back from Enron to again the news today with Block, with Cash App and Square. Your point of have we learned our lesson?

Sam Maule:

No not whatsoever. Is it the same with assuming that consumers are going to learn what they're doing? I'm old enough to have started working when there were pensions and I had pensions. I was around when 401ks were introduced and I'm also around now where, at my age, many of my peers want to retire and can't because they didn't invest anything in their 401ks or they took money out of them. And we're in a situation that we are now, with a significant number of Americans of retirement age who are looking to go into. The system didn't work for me. So have we learned our lessons? No, the stuff's cyclical. I don't mean to be a downer. I still love this space, Maia. You still love it, right? I mean you're looking to invest.

Sam Maule:

Yes, yeah.

Maia Bittner:

Backing almost fraudsters.

Sam Maule:

The movies that come out of this are fantastic on Netflix. We can't recommend them enough. I my favorite episodes everybody are Maia rants. I'm just going to be honest. We should probably rename the podcast to Maia rants.

Sam Maule:

I like it. I can imagine what the uh, the logo will look like. All right, everybody, Um, amazing I. We came full circle on this. We got to wrap up. We love hearing from you One. Please do go out, Give us a review, Tell your friends about it. Word of mouth is the greatest way to grow a podcast. Reach out to me on LinkedIn. Reach out to me on Twitter if you get ideas for an episode. Maia, same thing, right.

Maia Bittner:

Twitter. You're still out there like crazy Twitter. Send me your almost fraudulent founders.

Sam Maule:

I would watch a N netflix movie about FTX. No, I'm in, I'm I'm so in for that. Yeah, I'll be there, we'll look for it everybody. Thanks for listening. We'll talk to you next week.