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The Rollup Up To Bankman-Fried’s Arrest And The Fallout

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Sam Bankman-Fried (SBF), former CEO of FTX has gone from being a media star living his crypto billionaire’s dream in the Bahamas, and traveling the world allegedly misusing other people’s money to near penniless in comparison to his past. Now indicted by several federal U.S. agencies, arrested and locked up in the Bahama’s notorious rat-infested Fox Hill prison with FTX in bankruptcy, and an opened investigation in the Bahamas, this is just the opening act. 

Bahamian Chief Magistrate Joyann Ferguson-Pratt scheduled his next court appearance on extradition to the U.S. for February 8, 2023. 

FTX’s colossal collapse resulting a bankruptcy filing on November 11 has exposed Bankman-Fried and his yet unnamed enablers and co-conspirators to some very serious chargers, the likes of which could land Samuel Bankman-Fried behind bars for 115 years. He is 30 years old. 

A lot of unanswered questions are still swirling around how speedy his arrest was on Monday night less than 24 hours before his Tuesday scheduled virtual testimony before the House Financial Services Committee in Washington, D.C.  It is a prosecutor’s wish to have a marked defendant speak publicly or privately before an indictment. It is called “tickle the wire,” and has been known to have been done before in investigations, and even in the Southern District of New York Attorney’s office by the FBI. 

In some cases, law enforcement has used the press to feed information to the media about cases while the wire-taps have already been approved by the courts. The purpose of which is to get those involved in crimes admitting their crimes so the evidence is clear, and if you lie to a prosecutor or law enforcement official, the charges increase to obstruction of justice in some cases, or flip the marked defendants to testify against other accused parties. 

Bankruptcy law is mired in transparency and creditors are usually listed, but in the FTX bankruptcy filings, creditors to date are not revealed in this case. There is a hearing set on that matter on December 15

For the last month, it was hard to shut up Bankman-Fried even though he admitted  in interviews his then lawyers did not want him to speak after his empire crashed. Nevertheless, Bankman-Fried kept talking even hours before his arrest on Monday night.

Naively, or perhaps, he thought he was smarter than the listeners, he even stated he was not worried about being arrested as he played video games during some conversations with those who wanted to know what happened and where is their money? 

Monday, Bankman-Fried was hammering his rationale in inarticulate answers when asked yes/no questions, as evidenced here. 

During this interview, Bankman-Fried stated he was going to testify virtually before the House Financial Services Committee the following day, completely oblivious to the possibility of being arrested.

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Hours later, Bankman-Fried was arrested after a Southern District of New York prosecutors presented his sealed indictment to the Bahamian government. 

By Tuesday morning, Bankman-Fried was in Bahamian courtroom for a bail hearing. Bankman-Fried’s request for release on a $250,000 cash bail late Tuesday after a morning recess was based upon the argument that he should not be denied bail because of his vegan diet needs and an ADD diagnosis and depression in need of medication. He argue he needed to be able to regularly take his medication, including Zyrtec, an over-the-counter allergy medication. Earlier in the day, police escorted Bankman-Fried’s parents to his home in Albany in the Bahamas to pick up Adderall, another medication. Bankman-Fried testified on Tuesday that he uses Emsam patches for depression, as well as 10 mg of Adderall every four hours.

His Mother, Barbara Fried, and his Father, Joseph Bankman, who has been involved in the FTX business model, sat in court sometimes laughing when their son was referred to a flight risk, and seen putting fingers to their ears seemingly in disbelief. 

They have been in the Bahamas for over a month with their son since the collapse of FTX. His father was approached by attorneys to encourage his son to resign to ignite the bankruptcy filings. 

His parents have been longtime Stanford University law professors. Bankman was on the FTX payroll involved with the company’s philanthropic endeavors and had lobbied with his son on Capitol Hill, and bragged to some that he was helping his son build FTX’s image and crypto’s image. 

His Mother, Barbara Fried, has been involved with The Mind Gap political action committee doling out political donations. 

“Mind the Gap is led not by highly experienced political hands, but by academics with no professional backgrounds as fundraisers. The group’s leaders are a pair of Stanford law professors: Barbara Fried, who has no apparent campaign experience, and Paul Brest, the former president of the William and Flora Hewlett Foundation. Graham Gottlieb, a Stanford fellow who served in junior roles for former President Barack Obama’s 2012 reelection campaign and in his White House, is its executive director,” as reported  in a January 2020 Vox article.

 Mind the Gap operates in a “cone of secrecy” claimed Vox.  

“Mind the Gap, whose efforts haven’t previously been reported, has recently petitioned some donors for at least $100,000 to support its efforts. Backers include people like Facebook co-founder Dustin Moskovitz, former Google CEO Eric Schmidt, San Francisco power broker Ron Conway, and a coterie of major Democratic donors from across Silicon Valley, including fundraiser Amy Rao,” reported Vox. 

Barbara Fried released a public statement on Mind the Gap reported Vox back in January 2020.

“Most people have no idea whether their political contributions will actually make a difference,” Fried said. “Our aim is to evaluate the efficacy of different forms of political and civic engagement, and provide our conclusions free to individual, interested donors so they can make more educated decisions about where their money would be most effectively spent.”

As Barbara Fried and Joseph Bankman were with their son before Chief Magistrate Joyann Ferguson-Pratt in the Bahamian courtroom where his bail and extradition were being discussed, simultaneously, John Ray III, who is the new FTX CEO and handling FTX’s bankruptcy was testifying in person before the House Financial Services Committee, where Sam Bankman-Fried had told his audience the day before he was going to testify virtually.

John Ray and his team of forensic financial experts – considered to be an “A Team” of financial sleuths had been piecing the FTX entities from the ground up because they concluded there were no professional standards in the company, and even though they have sped through a lot of material to date, Ray could offer some opinions considering billions are still unaccounted for.

On the Hill, Ray was calling FTX “an old-fashioned fraud” operation about “embezzlement,” and “sophisticated” hide and seek from investors and clients. 

What roll should Bankman-Fried play, Ray was asked. 

“The one he is playing now – zero,” said Ray. 

Congresswoman Anne Wagner asked about book-keeping and Ray told the committee they were using quick-books. 

Ray said that “Ive never seen such an utter lack of recording.” He called FTX “sophisticated in hiding from people” “old-school” fraud.

Just a few hours later In New York City, the Southern District of New York prosecutors swung into action with their own press conference and brought in some brass from FBI, Security and Exchange Commission (SEC), and The Commodity Futures Trading Commission (CFTC) and read the DOJ criminal complaint of eight counts of fraud and campaign financing violations, and announced more charges. 

The DOJ criminal complaint alone has charged Sam Bankman-Fried with multiple counts of wire fraud, wire fraud conspiracy, security fraud, security fraud conspiracy, money laundering, and campaign election violations. 

Calling it “one of the biggest financial frauds in American history,” stated Damian Williams, the United States Attorney for the Southern District of New York, who formerly served as Chief of the Securities and Commodities Fraud Task Force in the SDNY. “As an Assistant United States Attorney, Williams primarily investigated and prosecuted white collar cases involving corruption in financial markets and politics” states their website. 

“These contributions were disguised to look like they were coming from wealthy co-conspirators when, in fact, the contributions were funded by Alameda Research with stolen customer money,” Damian Williams stated. “And all of this dirty money was used in service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington,” he added.  

“Come see us before we come see you…” emphasized Williams while Patrick Driscoll of the FBI followed stating, “Fraud is fraud” referring to how Bankman-Fried used other people’s money as his own personal piggybank. 

Their messages were direct and forceful. Williams made it clear this was not going to be their last press conference – a hint that more indictments were on the horizon, or perhaps to warn other parties in the know – we know who you are and what you’ve done.  

“FTX is a “$1.8 billion on the basis of lies” stated Gurbir Grewal, the Director of the SEC’s Division of Enforcement, announcing the SEC complaint. Grewal is the former Attorney General of New Jersey. 

The SEC complaint accuses Bankman-Fried of executing a “years-long fraud” while diverting customers’ funds from FTX to his crypto trading firm, Alameda Research. These charges cite the more than $1.8 billion FTX received from equity investors since 2019, including $1.1 billion from investors in the US — key to establishing the SEC’s jurisdiction since the main FTX exchange wasn’t allowed to operate in the US.

Bankman-Fried “used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses. None of this was disclosed to FTX equity investors or to the platform’s trading customers,” reads the SEC complaint.

“Bankman-Fried directed to have customers send funds to North Dimension in an effort to hide the fact that the funds were being sent to an account controlled by Alameda,” further reads the complaint. “Alameda did not segregate these customer funds, but instead commingled them with its other assets, and used them indiscriminately to fund its trading operations and BankmanFried’s other ventures.”

Between March 2020 and September 2022, Bankman-Fried executed promissory notes for loans from Alameda totaling more than $1.338 billion, including two instances in which Bankman-Fried was both the borrower in his individual capacity and the lender in his capacity as CEO of Alameda. 

Bankman-Fried also used commingled funds from Alameda to make large political donations and to purchase tens of millions of dollars in Bahamian real estate for himself, his parents, and other FTX executives. Two of his colleagues, Director of Engineering Nishad Singh and Co-Founder and Chief Technology Officer Gary Wang, also borrowed $554 million and $224.7 million, respectively, by executing promissory notes with Alameda in 2021 and 2022. 

When crypto market slid in May 2022, Bankman gave lines of credit to other crypto companies in the industry. 

Specifically, on or about July 22, 2022, Bankman-Fried loaned himself $136 million.

And, to close off this press conference, was Gretchen Lowe of the Commodity Futures Trading Commission (CFTC), who announced its complaint and Bankman-Fried and all the entities involved with fraud, which lays out more information on the history of this fraud. 

“Bankman-Fried co-founded Alameda in November 2017 in Berkeley, California. Initially, Alameda primarily engaged in high-frequency digital asset arbitrage trading. This practice consisted of using proprietary algorithmic quantitative computer programs, commonly known as “bots,” to identity arbitrage opportunities due to price differentials between various digital asset platforms. Alameda engaged in high-frequency arbitrage trading across a large variety of digital asset exchanges, including certain exchanges operating in the United States,’ reads the complaint. “In a June 29, 2019 “white paper” Alameda represented that within a year of its inception, it had “become the largest liquidity provider and market maker in the [digital asset] space,” trading “$600 million to 1 billion a day” and accounting for “roughly 5% of global volume in digital asset trading.” Throughout the Relevant Period, Bankman-Fried has owned 90% of Alameda. Bankman-Fried was CEO of Alameda until October 2021, at which time he selected and appointed two co-CEOs to replace him.” Further notes the complaint. 

One of them was Catherine Ellison, who has been reported to have had some kind of a romantic relationship with Sam Bankman-Fried. 

But, Bankman-Fried did not step down. He remained a signatory on Alameda Research’s bank accounts and an authorized trader for Alameda’s accounts with CFTC registered futures commission merchants. He maintained direct decision-making authority over all of Alameda’s major trading, investment, and financial decisions, exercising his authority in daily participating in various in-person and mobile chat communications with senior personnel at Alameda.   

“Over time, Alameda expanded to new digital asset business models,  making large equity investments in various companies in the digital asset industry, including by securing large loans from digital asset lending platforms to enable it to increase the size and variety of its digital asset industry investments.  By late 2018, Bankman-Fried and others employed at Alameda’s offices in Berkeley, California had begun building the centralized digital asset derivatives exchange, which would ultimately become FTX. The platform development was funded, in part, by another digital asset exchange, Binance, which, upon information and belief, had acquired an approximately 20% stake in FTX in or before November 2019.  In early 2019, Bankman-Fried and others moved to Hong Kong to finalize and launch the FTX Trading platform to the public. The FTX.com website was launched and made available to the public by no later than May 2019. Bankman-Fried was at all times during the Relevant Period the majority shareholder of FTX trading and related entities,” notes the complaint.

In short, the CFTC is claiming the fraud was from the onset and continued throughout because there was no wall of separation as Alameda’s CEO stated even as late as August 2020 publicly in a media interview as noted by the complaint, which can be read in full here. 

But, perhaps, one of the most telling and overlooked piece of information is the fact that during a meeting with Alameda employees on or about November 9, 2022, – two days before the bankruptcy filing on November 11, 2022 – Catherine Ellison, who was the CEO of Alameda, admitted that she, Bankman-Fried, Wang, and Singh were aware that FTX customer funds had been used by Alameda. 

Alameda CEO Caroline Ellison, Bankman-Fried’s former girlfriend, has since retained her own legal counsel.

And days later, a gift to a reporter and a larger gift to law enforcement, when it became public. 

Bankman-Fried’s colleagues, Singh and Want were both gone from FTX in November after the bankruptcy filing – one ashamed and one scared. 

In one of the most remarkable admissions was Sam Bankman-Fried’s IN PLAIN SIGHT ADMISSIONS. No tickle wire even needed, SBK gave a gift to law enforcement. 

On a November 13, 2022 Twitter exchange, while under investigation by DOJ and SEC, which was later published by reporter, Kelsey Piper, in a truly stunning exchange with Bankman-Fried, the evidence was compounding and it never stopped because Sam Bankman Fried never shut up. 

It can be read in full here and I highly recommend that you read through this twitter chat in the context that Bankman-Fried at this point in time was under investigation by DOJ and SEC with billions missing

“(Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a grant for a 2023 reporting project. That project is now on pause.),” reads Piper’s piece in Vox in addition. 

Piper and Bankman-Fried discussed regulators, on being willing to behave unethically, on bending the truth, on what happened, on what Bankman-Fried regrets, on the hack of FTX after the bankruptcy filing when hundreds of millions were transferred out of the company, on what is next. 

Compounding even further, the Bahamian officials have opened up their own investigation as some of the missing money seemingly was invested in real estate in The Bahamas unbeknownst to some of FTX’s clients. His parents are on one of the deeds of property in The Bahamas.

Just the year before – In December 2021 – Bankman Fried stated before the House Committee on Financial Services something completely different about his own company then which is not evidenced in these complaints about, about FTX, and the cryptocurrency industry in general. 

“And the last thing I will say is if you look at what precipitated some of the 2008 financial crisis, you will see a number of bilateral, bespoke, non-reported transactions happening between financial counter parties, which then got repackaged and releveraged again and again and again, such that no one knew how much risk was in that system until it all fell apart. If you compare that to what happened on FTX or other major cryptocurrencies in use today, there is complete transparency about the full open interest. There is complete transparency about the positions that are held. There is a robust, consistent risk framework applied,” stated Bankman Fried.

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