FTX and Alameda: How Misappropriated Was Your Investment? A Sensitive Letter to the Banks and the Cryptospace Correlations
In the four weeks since FTX filed for Chapter 11 protection, Bankman-Fried has gone to great lengths to portray himself as a hapless CEO who forgot about his customers and got out over his skis.
The misuse of client funds contributed to the downfall of both entities and wiped out Billions of dollars in debt, according to the senators.
“I still do not have access to much of my data — professional or personal. Bankman-Fried said that there is a limit to what he can say and he won’t be as useful as he would like. I’m willing to testify on the 13th, even though the committee still thinks it’s useful.
There are still questions about how client funds were misappropriated, how clients were blocked from withdrawing their own money, and how you 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.
Warren and Smith wrote that “Cryptocurrencies may have close ties to the banking system than had been understood.” “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.”
FTX and Alameda both filed for bankruptcy in December after investors rushed to pull their deposits from the exchange, sparking a liquidity crisis and triggering contagion and panic across the crypto industry.
Bankman-Fried denied the accusations. He told The New York Times that he did not knowingly commingle funds. “I was frankly surprised by how big Alameda’s position was.”
Regulators have signaled that this may be the first of many charges. The SEC said there are ongoing investigations into “other securities law violations” and into other entities and individuals. The Commodity Futures Trading Commission is charging Bankman-Fried as well.
Bankman-Fried indicted on wire fraud conspiracy in the Southern District of New York and extradition to the United States after the collapse of FTX
“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.
We don’t know a lot 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 not sloppy but they do not indict without a solid case.
Bankman-Fried was arrested in the Southern District of New York in relation to the collapse of FTX and its sister trading firm, Alameda.
Bankman- Fried was handed over to the United States by the Attorney General of the Bahamas. The Foreign Minister of the Bahamas signed a warrant of surrender allowing his extradition to the United States, the Ministry of Foreign Affairs in the Bahamas confirmed in a statement.
The New York Times said that the charges against Bankman- Fried included wire fraud, wire fraud conspiracy and securities fraud.
The United States’ extradition treaty with the Bahamas allows US prosecutors to return defendants to American soil if the charges would be considered punishable by imprisonment of at least a year in both jurisdictions.
How Did the Collapse of FTX Happen? “I just didn’t know what to do,” Waters told the Prime Minister in New York
He said over the weekend that he didn’t know what he was doing. “I didn’t want any of this to happen. I wasn’t 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.
While the probe is incomplete, it appears that the collapse of FTX was caused by a small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any corporate controls.
Bankman- Fried said that there was no one in charge of the risk of customers on FTX. “And that feels pretty embarrassing in retrospect.”
Bankman-Fried denied any knowledge of a back door. He told Tiffany that he didn’t know how to code.
The arrest was made at the request of the U.S. government, based on a sealed indictment filed by the Southern District of New York, U.S. Attorney Damian Williams said in a tweet also on Monday night.
The prime minister said the country is cooperating with regulators in the US, but its own regulatory and criminal investigations into the collapse of FTX continue.
Sam Bankman-Fried, the CEO of Cryptocurrency Exchange (FTX) and the founding of the company FTX, as revealed by Generic Gensler
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 was generally inattentive while playing video games 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 became a pariah overnight last month as his company filed for bankruptcy and left at least a million depositors unable to access their funds. He was arrested without incident at his apartment complex after 6 PM on Monday and will appear in a Nassau court Tuesday, the Royal Bahamas Police Force said.
FTX has raised more than 1.5 billion dollars since it launched in May, and achieved a $32 billion valuation, including from investors such as Sequoia Capital and the Ontario Teachers’ Pension Plan. Some of the athletes who supported FTX received a stake in the company.
“Look, I screwed up,” Bankman-Fried said during a virtual appearance at the New York Times’ DealBook Summit. There are things I would do if given the chance.
The arrest has sparked jubilation in crypto circles, after some nail-biting over his ostensibly generous treatment by “mainstream media” and speculation (by Twitter CEO Elon Musk, no less) that his political donations may earn him a free pass of sorts with US law enforcement.
And as if all that weren’t enough, Bankman-Fried’s successor, Ray, spent the day calling out the colossal mismanagement that took place before FTX and Alameda collapsed. Ray explained that the previous leadership was a small group of grossly inexperienced and unsophisticated individuals by revealing that FTX used the accounting program, QuickBooks, to run its business. Ray said there was nothing against the program. It’s a very nice tool. Just not for a billion dollar company.
Ray told the lawmakers that the crimes committed at Enron were orchestrated financial transactions to keep transactions off balance sheets. 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.
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. The fact that only one person has been charged so far would seem to back this up.
Lawyers forBankman-Fried were negotiating with the prosecutors in New York about a bail deal that would allow him to avoid being arrested, according to CNN.
For example, a few weeks before Bankman-Fried was arrested, crypto vlogger Tiffany Fong interviewed him by phone, and the conversation turned to Bankman-Fried’s campaign contributions. He gave about 40 million dollars to the Democrats during the midterms.
The 30-year-old appeared to be holding a plastic bag of personal belongings during the hearing. Bankman-Fried told the court that his address was a little unclear.
In the week and a half since his arrest in the Bahamas, the Bankman-Fried has been held in a prison that US officials have described overcrowded, dirty and lacking medical care. Rats, insects, and mattresses are the things that are found in its cells.
Prosecutors and Bankman-Fried’s lawyers are working on a way for Bankman-Fried to be released without going to 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.
The judge said Bankman-Fried would be arraigned on the charges that he stole billions of dollars from customers of his crypto-trading platform at a future date.
Bankman- Fried entered the courtroom in a navy suit jacket with a white button-down shirt. He heard the clanking noise from his shackles as he walked to the defense table.
Bankman-Fried spoke once during the hearing when Magistrate Judge Gabriel Gorenstein asked him if he understood the consequences he would face if he skipped out on bail, saying, “Yes, I do.”
There are other bail conditions, including surrender of firearms and mental health treatment, which prohibits businesses from opening new lines of credit or engaging in transactions over $1,000 without government approval.
Sam Bankman-Fried is not a white-collar lawyer: He’s not like the other sureties, he’s just like me
Multiple cooperating witnesses and the testimony of other employees of the companies are included in the evidence against Bankman-Fried.
“I agreed with others to borrow several billion dollars from FTX to repay those loans,” Ms. Ellison told Judge Ronnie Abrams of the U.S. District Court for the Southern District of New York.
Gary Wang, who co-founded FTX, and Caroline Ellison, the former CEO of Alameda Research, both pleaded guilty to fraud charges and are cooperating with prosecutors.
Mr. Wang also entered his plea on Monday, several hours before Ms. Ellison’s court appearance. Mr. Wang said that he knew what he was doing was wrong, according to the transcript of the proceeding which was released on Friday.
“There is serious cause for concern that the two additional sureties would face similar intrusions on their privacy as well as threats and harassment if their names appear unredacted on their bonds or their identities are otherwise publicly disclosed,” the letter states.
Federal sentencing guidelines say Wang could face up to 50 years in prison. She faces a maximum of 110 years in prison after she pleads guilty to seven criminal counts.
A court hearing was held in New York for the US District Court for the Southern District.
The attorney entered the not guilty plea on his behalf as Bankman- Fried’s mother, a professor at the law school, sat two rows behind him. His trial is going to start in October.
He has been charged with orchestrating one of the largest financial frauds in history and facing the possibility of spending his life in prison, yet he has been giving interviews to the media in an attempt to defend himself in the public eye.
“It is common for defendants to do this,” said Christine Chung, a professor at Albany Law School. Sam Bankman-Fried would get a better idea of theevidence that the government has collected thus far in its investigation if he were to plead not guilty.
James Park, a securities fraud expert, said Bankman-Fried had few options going into Tuesday’s hearing because of Wang’s and Ellison’s plea deals.
The lawyers of Martin Shkreli remind their clients that they couldn’t keep quiet before his trial, but Bankman-Fried doesn’t believe he’s like him.
“I think every white-collar lawyer you could ask would say, ‘Shut up: Keep your mouth shut, and let us do the talking,'” says Rebecca Mermelstein, a partner at the law firm O’Melveny.
A Dark Side of the Bankman-Fried Trace? Commentary on a Justice Insight from the FTX Investigative Team
The trail of communication — including eight tweets, a Substack newsletter, and a handful of lengthy interviews with the media — that Bankman-Fried has left behind is already coming back to haunt him.
“All my Republican donations were dark,” he told Fong. The reason wasn’t for regulatory reasons. If you donate to a Republican, the reporters will freak you out. They’re all super liberal, and I didn’t want to have that fight. All the Republican ones were made dark by me.
Then, on Thursday, when federal prosecutors unveiled four additional criminal charges against Bankman-Fried, they included new details about their widening case against him.
In the latest indictment, prosecutors specifically cited the comments from that interview as part of their additional evidence for their charge on “unlawful political contributions.”
Bankman-Fried has been in trouble because of other things. He reached out to the FTX employees, which could lead to more consequences.
Source: https://www.npr.org/2023/02/26/1157528598/ftx-crypto-sam-bankman-fried-bankruptcy-fraud-criminal-charges
“You can’t make a bad guy out of someone, but you can do it,” Bankman-Fried told FTX
“I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other,” they say he wrote. “I’d love to get on a phone call sometime soon and chat.”
After that message came to light, the judge overseeing the trial imposed new restrictions on Bankman-Fried’s bail, prohibiting him from sending encrypted messages and others that disappear after they are read, and he restricted Bankman-Fried from contacting current and former employees of FTX.
Although Bankman-Fried has not made a public comment since Jan. 19, lawyers who have dealt with prominent white-collar defendants warn that it can be a challenge to keep them quiet for long, especially if they are accustomed to living in the spotlight.
Bankman-Fried frequented with people at the height of his popularity, including former President Clinton and quarterback Tom Brady.
Barbara McQuade, a former US Attorney, says she has seen politicians struggle with temptations to speak, especially when they find themselves in scandal.
“‘If I could just talk to you long enough, I can explain it all away,'” she imagines a defendant thinking. “‘And I can tell you that I was doing was perfectly legitimate.'”
In his public pronouncements, the former CEO of FTX has sought to defend himself by saying he did not intend to spark losses for customers of FTX, and maintaining, above all else, that he’s not a bad guy.
George Stephanopoulos asked Bankman-Fried if he felt it was fair for people to compare him to someone who had messed up lots of people’s money.
“I don’t think I’m that person,” Bankman-Fried said. I understand why they are saying that. People lost money, and people lost a lot of money.”
Source: https://www.npr.org/2023/02/26/1157528598/ftx-crypto-sam-bankman-fried-bankruptcy-fraud-criminal-charges
The image of Shkreli’s lawyer is not going to help FTX’s CEO: How does he get out of it?
He first sparked controversy after his company bought the rights to a drug used to treat people with compromised immune systems, and then spiked the price dramatically.
He got into a public feud with the rapper Ghostface Killah, and did many broadcast interviews against his lawyer’s advice. When the trial got started, Shkreli said a lot of things to the reporters.
Fred, who teaches crisis management at Columbia University, doesn’t understand what Bankman-Fried hopes to get out of it.
And the public image that helped Bankman-Fried gain notoriety as a twenty-something CEO could now work against him. He played a video game during a pitch meeting with a prominent venture capital firm, and became well known for wearing shorts and t-shirts.
According to Anthony D’Angelo, a professor of public relations at Syracuse University, that persona is not going to play well anymore among FTX customers because they fear their fortunes have disappeared.
“Unorthodox is okay,” D’Angelo says. “Losing $8 billion among people is not, and whatever charm your cargo shorts and frizzy hair may give you an advantage in in other forums, it’s not going to help here.”