Sam Bankman-Fried, founder of the FTX network, is facing charges of fraud, theft, and bankrolling in the Bahamas
The spectacular rise and fall of Sam Bankman-Fried, the founder of the failed crypto exchange FTX, came full circle on Monday, with his arrest in the Bahamas at the request of U.S. authorities, followed by the S.E.C. filing its own charges on Tuesday.
In the weeks following the FTX implosion, Bankman-Fried has apologized for his role in the collapse, responding to accusations of fraudulent business dealings at the company. In an interview during The New York Times’ DealBook Summit last week, Bankman-Fried said he “didn’t ever try to commit fraud on anyone.”
Bankman-Fried has been a follower of effective altruism and has wanted to make as much money as possible to give away. His philanthropic endeavors are now in doubt.
Just one month ago, FTX, a $32 billion behemoth in virtual currencies, filed for bankruptcy after suspicions rose that it was insolvent and also moving money around illegally.
It was obvious this week that FTX was close to collapse. They joined the ranks of Mt. Gox, Celsius, Three Arrows Capital, and others who have filed for bankruptcy in the US. The troubled exchange got a small boost on Tuesday when the CEO of Binance, Changpeng Zhao, announced on social media that a rescue deal had been reached. The company backed out less than 48 hours after announcing it was pulling out.
Neal is not taking over. He said he couldn’t serve in that position because he had nothing to do with FTX, Inc. or its former CEO.
Blockfi and Binance: The Bankruptcy Filled Case for the Bahamas-Based Cryptocurrency Company FTX Group
The negative ripple effect across the industry started last night with Blockfi, another crypto services firm, freezing customer withdrawals as a result of the FTX problems. After the announcement, the price of Bitcoin plummeted before recovering slightly but still dropping under $17,000.
In a thread posted today, SBF said he was shocked by the way things were done earlier this week. I am going to post a complete post on the play by play, but I have to make sure that I get it right when I do.
Bahamas-based FTX filed for bankruptcy on Friday after a rush of customer withdrawals earlier this week. A rescue deal with rival exchange Binance fell through, precipitating crypto’s highest-profile collapse in recent years.
Newly appointed CEO John J. Ray III is quoted saying, “The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I wanted to ensure that every stakeholder in this endeavor was treated with care, diligence and transparency.
Update November 11th, 10:55AM ET: Added bankruptcy filing, tweets from Sam Bankman-Fried, and noted that Sir Lewis Hamilton’s F1 car will not bear FTX branding at this weekend’s upcoming race.
Indictment of François Bankman-Fried on the charges of campaign finance violations in the FTX platform, indicted by the Southern District Court of New York
A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $2 billion.
That Sunday, Bankman-Fried held a meeting with several executives in the Bahamas capital Nassau to calculate how much outside funding he needed to cover FTX’s shortfall, the two people with knowledge of FTX’s finances said.
According to the documents, Alameda’s assets may not have been accounted for between $1 billion and $2 billion. The spreadsheets didn’t show where the money was moved, and the sources don’t know what happened to it.
In a subsequent examination, FTX legal and finance teams also learned that Bankman-Fried implemented what the two people described as a “backdoor” in FTX’s book-keeping system, which was built using bespoke software.
The CFTC’s complaint also indicates that Bankman-Fried may have lied to Congress about FTX’s terms of service during his appearance on February 9th, 2022. At the time, Bankman-Fried told US lawmakers, “As a general principle, FTX segregates customer assets from its own assets across our platforms.”
FTX has been hacked. All funds seem to be gone,” an admin on FTX’s official Telegram channel writes, while also instructing users to delete FTX’s apps and warning against going on the platform’s websites due to the presence of malware. FTX.com and FTX.us are currently down at this time of writing.
Bankman-Fried’s reputation as a liberal do-gooder was largely founded on his generous donations made to Democrats and progressive groups. But in its indictment published Tuesday, the Southern District Court of New York accused SBF of violating multiple campaign finance laws over his last three years at FTX.
An interview with Brian Armstrong, CEO of Coinbase, with Sequoia Capital, the first trillionaire, and the failure of FTX
The failure of FTX will likely destroy billions of dollars of wealth in an industry that was already skeptical of Cryptocurrencies at a time when the industry could use a vote of confidence.
Brian Armstrong, the CEO of Coinbase, told CNN in an interview on Friday that people feel deceived. FTX got a lot of attention on the surface. But as people looked into it, the fundamentals were not there.”
The meeting with Bankman-Fried is likely to be described by Sequoia Capital as “talking to the world’s first trillionaire.” Several of the partners of Sequoia became very enthusiastic about Bankman-Fried. Sequoia decided to invest in the company after meeting more than once.
Known as “SBF,” Bankman-Fried is the 30-year-old crypto celebrity who became a pariah overnight last month as his company suffered a liquidity crisis and filed for bankruptcy, leaving at least a million depositors unable to access their funds. He was arrested without incident at his Bahamas apartment complex shortly after 6 pm ET Monday, and is set to appear in a Nassau court Tuesday, the Royal Bahamas Police Force said Monday in a statement.
Not all of the investments in this early-stage asset class perform to expectations, according to a statement from the Ontario Teachers’ Pension Fund.
Why Did Jill Bankman-Fried Start Voyager Digital? When Jill and I met Bill Clinton and Bill Bair in Los Angeles, where he bought a stake in FTX
When Bankman-Fried bought up the assets of bankrupt crypto firm Voyager Digital for $1.4 billion this summer, it brought a sense of relief to Voyager account holders, whose assets has been frozen since its own failure. That rescue is now in question.
As king of crypto, his influence was starting to pour into political and popular culture. FTX bought prominent sports sponsorships and bought the naming rights to an arena in Miami. He promised to give $1 billion to Democrats in this year’s election, and Bill Clinton was invited to speak at a FTX conference. Brady invested in FTX.
“Charming regulators and investors can distract [them] from digging in and seeing what’s really going on,” Bair, who chaired the Federal Deposit Insurance Corp. from 2006 to 2011, said in a phone interview on Monday. It felt like it had been committed by the same person.
Bair notes that 30-year-old Bankman-Fried, like Madoff, proved adept at using his pedigree and connections to seduce sophisticated investors and regulators into missing “red flags” hiding in plain sight.
Long before his Ponzi scheme collapsed, Madoff was known as a wizard on Wall Street. He was the former chairman of the Nasdaq Stock Market, served on Securities and Exchange Commission advisory panels and managed money for the rich and the famous.
If your peers and marquee names in venture capital are investing, then you have to as well. That adds credibility to Washington policymakers. It all feeds on itself,” said Bair, who sits on the board of directors at Paxos, a blockchain infrastructure company (Bair said she was speaking for herself, not Paxos).
Sam Bankman-Fried, the founder of a failed crypto exchange, was arrested and charged with a misappropriation of client funds
It is possible that an elaborate scheme that involved repayment of existing clients with new client deposits made it possible for Madoff to offer investors wonderful returns that were remarkably consistent.
The bad news is the market is largely unregulated and is making it the Wild Wild West of the financial world. And that leaves investors vulnerable when something breaks.
Sam Bankman-Fried, the founder of failed crypto exchange FTX, was arrested in the Bahamas on Monday after US prosecutors filed criminal charges against him, according to a statement from the government of the Bahamas.
The failure of both entities was caused by the misuse of client funds and wiped out billions of dollars in debt, the senators wrote.
The first time Bankman-Fried had spoken under oath would have been at today’s hearing. Waters was surprised to learn of the arrest. The public has been waiting for these answers under oath and the timing of the arrest denies them, she wrote.
Brown wrote a public letter to Bankman- Fried on Wednesday, saying that there were still unanswered questions about how client funds were misappropriated, how they were blocked from withdrawing their own money and how they orchestrated a cover up.
Separately, Sens. Elizabeth Warren of Massachusetts and Tina Smith of Minnesota, both Democrats, sent letters to three regulators – the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency – asking them to assess the traditional banking system’s exposure to turmoil in the crypto space, a largely unregulated, parallel financial system.
According to Warren and Smith, the banking system’s relationship with theCrypto firms may have been more advanced than previously thought. “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access.”
Waters and the Collapse of FTX: Evidence in Support of the Bankman-Fried Resolution of the ‘Fiat’ Account
“Based on your role as CEO and your media interviews over the past few weeks, it’s clear to us that the information you have thus far is sufficient for testimony,” Waters replied to Bankman-Fried earlier this week.
His arrest has been confirmed by the New York district which is investigating Bankman Fried and the collapse of FTX.
The Bahamian attorney general said police made the arrest after officials received “formal notification from the United States that it… has filed criminal charges against” Bankman-Fried, and they learned that the U.S. is “likely to request his extradition.”
The United States has a treaty with the Bahamas that allows US prosecutors to return defendants to American soil if their charges are found to be of enough severity to justify imprisonment in both countries.
He told the UK Broadcasting Corp that he wasn’t guilty of fraud. I did not want this to happen. I was certainly not nearly as competent as I thought I was.”
Waters said in a statement that they are committed to getting to the bottom of what happened and will be disappointed they wont be able to hear from him tomorrow.
While the probe isn’t completed, Ray said, FTX’s collapse appears to stem from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to implement virtually any corporate controls.
FTX was attempting to separate Alameda’s liability in the ‘fiat’ account from the portion that was attributable to FTX. The $8 billion in customer assets deposited into the Alameda-controlled bank accounts was moved to a different account in the FTX database. Bankman-Fried moved the liability to an account that would not be charged interest, because FTX internal systems automatically charged Alameda interest on the over $8 billion liability.
“There was no person who was chiefly in charge of positional risk of customers on FTX,” Bankman-Fried told DealBook. “And that feels pretty embarrassing in retrospect.”
Bankman-Fried denied having knowledge of that. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.
Sam Bankman-Fried indicted on a false false assumption that FTX is a safe place to invest in Cryptocurrencies
The indictment was filed in the Southern District of New York, and the arrest was made at the request of the United States government.
In a statement, the prime minister of the Bahamas stressed the country is cooperating with law enforcement and regulators in the United States, but its own “regulatory and criminal investigations into the collapse of FTX continue.”
Still, Bankman-Fried wanted the world to think there was a strong separation between the two entities, the complaint says. That motivation caused him to resign as CEO of Alameda.
The notice of the hearing was still on the committee’s website late Monday night and included the written testimony of FTX’s CEO, John Ray.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in a statement.
“Look, I screwed up,” Bankman-Fried said during a virtual appearance at the New York Times’ DealBook Summit. “There are things I would do anything to do over.”
Specifically, US attorney Damian Williams said in a Tuesday press conference that SBF’s “contributions were disguised to look like they were coming from wealthy co-conspirators when in fact the contributions were funded by Alameda Research’s stolen customer money.”
SBF was accused of making false statements to investors about FTX being a safe place to invest because of an automated risk engine that would sell off customers’ assets to make sure they kept their levels.
Other charges are possible, but these are the ones he is facing so far, and that is just from the SEC.
In the days leading to his arrest, SBF was scheduled to testify before the House Financial Services Committee via videoconference, having made two live appearances on Monday. That hearing will go forward and is scheduled to begin at 10AM ET, with testimony from FTX’s new CEO, John J. Ray III.
The arrest has brought joy to the community after some of the coverage by the Mainstream media and speculation about how his political donations may be used by US law enforcement.
Tim Bankman-Fried and the Commodity Futures Trading Commission: Why we are so concerned about FTX and Alameda Research
A written preview of Ray’s testimony, published in advance of the hearing, gave the first indication that Bankman-Fried was in for a rough ride. “Never in my career have I seen such an utter failure of corporate controls at every level of an organization,” wrote Ray, before describing Bankman-Fried and his inner circle as “grossly inexperienced and unsophisticated.”
The US government says it was fraud from the jump. The complaint made public by the Commodity Futures Trading Commission has some strange details, and Sam Bankman-Fried hasn’t been telling the truth for a long time. Bankman-Fried operated Alameda Research as a common enterprise according to the complaint. This complaint is civil.
The press conference that Damian Williams held today stated that Alameda Research was one of the biggest financial frauds in American history.
A strong argument was made by the CFTC that this could be false, in part because the two companies are quite separate in terms of day-to-day operations.
Both teams shared office spaces, as well as technology and hardware, intellectual property and other resources.
Ray told lawmakers that there were complex financial machinations that were used to keep transactions off balance sheets. FTX, on the other hand, was “not sophisticated at all.”
Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.
There is still a lot we do not know about the case. But the fact that prosecutors put together an eight-count, 14-page indictment just four weeks after FTX filed for bankruptcy suggests prosecutors may have an ace in the hole, and/or a preponderance of evidence against the company. TheSDNY are an aggressive bunch, but they are not sloppy and don’t indict without a solid case.
Several lawyers not involved in the case have told me that the speed of Bankman-Fried’s arrest signals that former FTX employees may be aiding prosecutors.
“The smart move by former employees would be to rush to become a cooperator in exchange for more lenient treatment, and it would not be surprising to learn that one or more of them had done so,” said Howard A. Fischer, a former SEC lawyer. He added: “The fact that only one person has been charged so far would seem to indicate this as well.”
Indictment of Ben Bankman-Fried for Political Donations in the Name of “Words” and “Means of Other People”
It remains unclear what time Bankman-Fried will appear in court. If he waives his extradition, he would likely return to the United States quickly. Upon arrival in the states, he will be in front of a US judge regarding his bail.
The indictment states that Bankman- Fried and others made political donations in excess of federal legal limits to candidates and committees in the name of other people.