Sam Bankman-Fried’s Embedding in FTX, and His Charged Investments: A Brief Account of his Misleading Activities
While his empire was beginning to collapse, Sam Bankman-Fried woke up on Monday as a billionaire. By Friday, his fortune was completely wiped out.
Bankman- Fried is accused of scheming with others to misuse customer deposits held in FTX to cover the expenses of his hedge fund.
The details of Bankman-Fried’s alleged fraud will likely take months, and potentially even longer, to disentangle. But the broader story is relatively straightforward, and familiar: He allegedly spent years defrauding unsuspecting investors of gargantuan sums of money, and then allegedly used that money to not only bankroll his lavish lifestyle, but to set up tens of millions of dollars in illegal campaign contributions.
On Thursday, the entire staff of the FTX Future Fund, which says it has committed $160 million in grants, publicly quit. In a statement, the five-person team wrote that they “have fundamental questions about the legitimacy and integrity of the business operations that were funding the FTX Foundation and the Future Fund.”
However, Neal will not be taking over. He isn’t able to serve in that position because he has nothing to do with FTX or its former CEO.
Why Blockfi, Binance, and Enron Did Not Run Into The Ground: A Complete Post on the Play-by-Play of Binance and Zhao
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. The price of the virtual currency dropped sharply after the announcement, but recovered a bit and is still under $17,000.
I was shocked to see the way things unfolded earlier this week, according to a thread posted today. I want to make sure that I get it right when I write a complete post on the play by play.
One of those critics was Binance founder and CEO Changpeng Zhao. The feud between the two billionaires spilled out onto social media, where they commanded millions of followers. Zhao helped kickstart the withdrawals that doomed FTX when he said Binance would sell its holdings in FTX’s crypto token FTT.
After overseeing the dissolution of Enron, John J. Ray III is in charge of sifting through the rubble of FTX, a once-mighty cryptocurrency exchange that will run into the ground by the year 2022.
There is an Update November 11th at 10:55AM. 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.
Where is the missing amount of FTX customer funds? The case of Alameda, the founder of ftx.com
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.
Two people with knowledge of FTX’s finances said that Bankman-Fried held a meeting with executives in Nassau to figure out how much outside funding he would need to cover the shortfall.
The documents showed that between $1 billion and $2 billion of these funds were not accounted for among Alameda’s assets, the sources said. The sources said that the spreadsheets didn’t indicate where the money was moved, and that they didn’t know what happened to it.
Alameda got ahold of FTX customer funds in two ways: first, by the “line of credit” but also by directing customers to deposit fiat currency into accounts controlled by Alameda. “As a result, there was no meaningful distinction between FTX customer funds and Alameda’s own funds,” the SEC suit says. “Bankman-Fried and Wang thus gave Alameda and Ellison carte blanche to use FTX customer assets for Alameda’s trading operations and for whatever other purposes Bankman-Fried and Ellison saw fit.”
Federal prosecutors are investigating the collapse of FTX, an exchange that marketed itself as a beginner-friendly way to get involved in what was, until recently, a booming if highly volatile market for digital assets. High-risk leveraged trading was not allowed in the United States. The firm was based in the country of The Bahamas.
The price of major coins have plummeted as a result of the crisis. FTX is being compared to earlier business meltdowns.
“In 2022, FTX began trying to separate Alameda’s portion of the liability in the “fiat @ftx.com” account from the portion that was attributable to FTX (i.e., to separate out customer deposits sent to Alameda-controlled bank accounts from deposits sent to FTX-controlled bank accounts). Alameda’s portion — which amounted to more than $8 billion in FTX customer assets that had been deposited into Alameda-controlled bank accounts — was initially moved to a different account in the FTX database. Bankman-Fried directed that the Alameda liability be moved to an account that would not be charged interest because the internal systems of FTX charged interest on the more than $8 billion liability.
Meanwhile, the Securities and Exchange Commission will file its own charges in the Southern District of New York “relating to Mr. Bankman Fried’s violations of our securities laws,” its head of enforcement, Gurbir Grewal, said in an email.
The First Twelfth: Bankman-Fried, Sequoia, FTX, and the Rise and Fall of Wall Street
There are a lot of retail investors who suffer and too many people wrongly think that FTX is a scam. He is publicly enthusiastic about bitcoin but has doubts about other parts of the universe.
Bankman-Fried probably talked to the world’s first trillionaire, according to the investment company who invested in Apple, Google,Airbnb andYouTube. Several of Sequoia’s partners became enthusiastic about Bankman-Fried following a Zoom meeting in 2021. After several more meetings, Sequoia decided to invest in the company.
At least a million people couldn’t access their money after Bankman-Fried’s company filed for bankruptcy, and he became a pariah overnight. The Royal Bahamas Police Force said that he was arrested without incident at his apartment complex shortly after 6 pm on Monday and was going to appear in a Nassau court Tuesday.
The Ontario Teachers’ Pension Fund said that not all of the investments in early-stage asset class perform to expectations.
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.
His influence began to pour into politics and popular culture. FTX bought prominent sports sponsorships with Formula Racing and bought the naming rights to an arena in Miami. The man promised to give $1 billion to Democrats this year and invited Bill Clinton to speak at a FTX conference. Football star Tom Brady invested in FTX.
Sheila Bair, a top regulator during the 2008 financial crisis, told CNN there are eerie similarities between the dramatic rise and fall of Bankman-Fried and FTX and that of infamous Ponzi scheme mastermind Bernie Madoff.
Bair notes that a 30-year-old like Bankman- Friedman was able to take advantage of his connections to seduce sophisticated investors and regulators into not seeing the red flags.
The Implications of the FTX Debacle on Wall Street and Money: Senators and Activists Demand Answers Under Oath
FTX filed for bankruptcy on Friday, throwing the cryptocurrency industry into chaos and raising the specter of vast losses for customers of the crypto exchange.
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.
“You get this herd mentality where if all your peers and marquee names in venture capital are investing, you’ve got to, too. That adds credibility to policymakers in Washington. Bair said she was speaking for herself, not Paxos, but she said it all feeds on itself.
Madoff offered investors marvelous returns that were remarkably consistent and an improbable track record that later proved to be made possible by an elaborate scheme that involved repaying existing clients with new client deposits.
The former chair of the FDIC is not concerned about the FTX implosion, like Lehman Brothers did in 2008. A lot of the economy and financial market is related to scurvy.
As a result of his arrest, Bankman-Fried was no longer going to testify on Tuesday. The hearing was set to move ahead, however, beginning with testimony from FTX’s new CEO, John J. Ray III, who took over for Bankman-Fried on November 11 and is tasked with shepherding it through the bankruptcy process.
The senators wrote that the misuse of client funds caused the failure of the entities and wiped out billions of dollars owed to over a million creditors.
The FTX debacle would have been Bankman-Fried’s first time speaking under oath, if today’s hearing had gone ahead. In a statement, Waters said she was “surprised” to learn of the arrest. “The public has been waiting eagerly to get these answers under oath before Congress,” she wrote, “and the timing of this arrest denies the public this opportunity.”
Brown wrote a letter to Bankman-Fried on Wednesday, demanding answers about how client funds were misappropriated and how clients were blocked from withdrawing their own money.
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.
Warren and Smith wrote that the banking system may have deeper ties to the porn firms 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.”
Sam Bankman-Fried and the Collapse of FTX: The New York State Attorney’s Office is investigating the alleged back door
The information you have so far is enough for testimony, Waters told Bankman-Fried earlier this week.
The Southern District of New York is investigating Bankman- Fried and the collapse of FTX.
On Wednesday the Bahamas extradited Sam Bankman-Fried and sent him to the US. Williams confirmed Bankman-Fried is now in FBI custody and said he would be transported directly to New York to appear before a judge “as soon as possible.”
If the charges against the defendants would be punished in the other country, the US can bring them back to American soil.
He told the BBC over the weekend that he did not commit fraud. I don’t want this to happen. I was certainly not nearly as competent as I thought I was.”
“While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow, we remain committed to getting to the bottom of what happened,” Waters said in a statement Monday night.
Ray said that FTX’s collapse is believed to be due to the concentration of power in the hands of a very small group of grossly inexperienced and unsophisticated individuals.
The agency also alleged a longtime pattern of Alameda and FTX sharing funds. The complaint states that Alameda used the FTX customer funds to fund its own operations and activities.
According to Bankman-Fried, there was no one who was primarily in charge of risk for customers on FTX. “And that feels pretty embarrassing in retrospect.”
Bankman- Fried has never had knowledge of any such back door. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.
Sam Bankman-Fried: Building a House of Cards on a Foundation of Deception while Telling Investors About FTX
The arrest was made at the request of the U.S. government, according to the U.S. Attorney.
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.”
Against the advice of his lawyers, Bankman-Fried has given a series of interviews since the collapse, but none have been particularly illuminating (with the exception of a Vox report that caught him off-guard). He played video games while in the interview and has largely evaded straightforward questions.
As of late Monday night, the committee still had a notice of the hearing posted that listed Bankman-Fried as a witness and also included the written testimony of the hearing’s other witness, 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.
Bankman-Fried apologized during a virtual appearance at the New York Times DealBook Summit. “There are things I would do anything to do over.”
That unlimited negative balance didn’t upset things until crypto prices fell earlier this year, leading to lenders demanding repayment from Alameda. The SEC alleges SBF directed the firm to pay them using funds from FTX while hiding the billions of dollars Alameda now owed to FTX for its “line of credit” and continuing to withdraw hundreds of millions of dollars for himself and other executives.
The allegations against SBF also focus on his statements to investors that FTX was a safe place to invest because of an automated “risk engine” that would sell off a customer’s assets to make sure their collateral stayed at the required levels.
He is being charged by the SEC as well as by the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission.
Prior to his arrest, SBF had continued an ongoing post-bankruptcy-filing media tour of Twitter Spaces chats and Zoom calls, with at least two live appearances on Monday, and he was expected to appear remotely today to testify before the House Financial Services Committee. 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 sparked jubilation in crypto circles, after some nail-biting over his apparently generous treatment by “mainstream media” and the speculation that his political donations may earn him a free pass from the law.
The FTX-Alameda Correspondence: A Case Study of Unsophisticated Management at a Financial Fraud-Corporate
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. Ray described Bankman-Fried and his inner circle as “grossly inexperienced and unsophisticated”, saying he had never seen an utter failure of corporate controls at every level of an organization.
The US Securities and Exchange Commission and Commodity futures trading Commission have filed new civil suits detailing Wang and Ellison’s roles. “Wang, with Ellison’s knowledge and consent, exempted Alameda from the risk mitigation measures” FTX used, providing Alameda Research with a “virtually unlimited ‘line of credit,’” according to the updated SEC complaint.
In a press conference today, US attorney Damian Williams characterized Alameda Research and FTX as “one of the biggest financial frauds in American history.”
According to the data, the two companies are quite separate in regards of day-to-day operations, so this could be false.
Both teams shared offices as well as resources including technology and hardware, according to the complaint.
Ray told lawmakers that the crimes that were committed at the company were highly orchestrated financial machinations. FTX 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 a lot we do not know about the case. The fact that prosecutors put together the indictment just four weeks after FTX filed for Chapter 11 suggests that they may have an ace in the hole. The SDNY are aggressive people, but they do not 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.”
The author and investigative journalist is known for her coverage of dark money networks across the globe. He is the author of “American Kletocratic: How the US Created the World’s Finest Money-LAUNDERS in History” and is working on a book about foreign lobbying in DC. The opinions are of his own. Read more opinion at CNN.
In some ways, these kinds of cases, many of which resemble traditional Ponzi schemes, are as old as American capitalism itself. They almost always pair a lack of regulation and oversight with promises of simple wealth schemes, all predicated on proprietary technology that seems to generate returns out of thin air.
Look at American history and you will see the same story repeated over and over. The Panic of 1873 wreaked havoc on the American economy, leading to bank failures and destitution.
The Bankman-Fried and Ellison-Wang Indictment at the Metropolitan Detention Center in New York Observed by Damian Williams
Once he is stateside, Bankman-Fried will appear before a judge in Manhattan for a bail hearing. When he arrives in New York, the timing of that hearing will be related to that.
According to the indictment Bankman-Fried and others agreed to violate federal election laws by making political donations in excess of federal legal limits and in the names of other people.
The 30-year-old appeared to be holding a plastic bag of personal belongings during the hearing. Bankman-Fried gave his occupation as “entrepreneur and executive” and told the magistrate that his address was “a little unclear right now.”
The bankman-Fried has been held in a prison that US officials describe as dirty, overcrowded and lacking in medical care since his arrest in the Bahamas. Its crowded cells often lack mattresses and are “infested with rats, maggots, and insects.”
Attorneys and prosecutors are working on an arrangement for Bankman- Fried to be freed with certain conditions that he can avoid spending time at the Metropolitan Detention Center. The MDC is a pre-trial holding facility that former inmates and rights advocates have described as inhumane, citing frequent lockdowns, overcrowding and power outages that have left it without heat in the middle of winter.
Damian Williams, the US attorney for the Southern District of New York, announced the charges in a video message Wednesday night. New charges in the case are not the last, according to him, who reiterated that the investigation is still ongoing.
Gary takes his obligations as a cooperating witness seriously and has accepted responsibility for his actions. Wang has already appeared in court for his guilty plea.
Ellison and Wang were involved in a scheme to deceive investors and conduct that was critical to its success, the SEC said in a release.
SEC Chairman Sam Bankman-Fried, Ms. Ellison, and M. Wang: A Search for a New Cryptocurrency Executive
“As I said last week this investigation is very much ongoing and it’s moving very quickly,” Williams said. I said last week’s announcement was not our final one, and neither is today’s.
Mr Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag, according to the Chairman of the SEC.
Two executives of Sam Bankman-Fried’s fallen digital currency empire, as well as others, have pleaded guilty and are cooperating with prosecutors. The news was announced late Wednesday by Damian Williams, the US Attorney for the Southern District of New York.
Ellison pleaded guilty to seven charges. She faces up to 110 years in prison, WaPo says. Wang pleaded guilty to four counts and faces up to 50 years in prison.
A lawsuit alleging Ellison borrowed $12$ from banks to make Alameda Bankman-Fried a personal piggy bank
The SEC suit alleges that Ellison borrowed billions of dollars from the banks. The loans were backed by a token issued by FTX and given to Alameda for free, according to the SEC. Ellison was to buy FTT on different platforms in order to make it more valuable than it already was. That made it possible for Alameda to borrow even more.
In response to a staff question, “Ellison also acknowledged that her November 6 tweet to the Binance CEO offering to buy his FTT holdings at $22 per token was ‘kind of a misleading thing to tweet’ and expressed remorse,” according to the CFTC complaint. Most of the staff resigned after that.
That made Alameda Bankman-Fried’s ”personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses.“