Prosecutors and regulators say from FTX’s launch, Bankman-Fried funneled buyer cash from the crypto buying and selling platform to an affiliated hedge fund known as Alameda Analysis, the place it turned a piggy financial institution for the 30-year-old and his inside circle to fund a lavish life-style and a multimillion-dollar allure offensive in Washington, all whereas making dangerous crypto investments. And at each flip, prosecutors and regulators argue in intensive filings this week, Bankman-Fried lied to prospects and traders.
If what regulators say is true, Bankman-Fried’s current media blitz solely deepens his peril, authorized consultants say. That’s as a result of the previous billionaire’s makes an attempt to whitewash his document may assist prosecutors show he knew what he did was incorrect. A spokesman for Bankman-Fried declined to remark.
“It’s generally mentioned {that a} false exculpatory story is sort of pretty much as good for the federal government as a confession,” mentioned Harry Sandick, a former assistant U.S. legal professional within the Southern District of New York, which is bringing the legal case towards Bankman-Fried. “If you happen to’re making an attempt to cowl up one thing, it makes it extra probably there was one thing to cowl up.”
The previous chief govt faces a swirl of fees. Federal prosecutors on Tuesday revealed an eight-count indictment, detailing offenses from fraud to cash laundering and marketing campaign finance violations. He’s in jail within the Bahamas. On Thursday, Bankman-Fried filed a brand new request for bail to the Bahamian Supreme Court docket, in accordance with Eyewitness Information. The nation’s highest court docket will hear his case on Jan. 17 after a choose denied him bail Tuesday arguing his monetary assets made him a flight threat.
The Securities and Trade Fee and the Commodity Futures Buying and selling Fee are additionally bringing civil fees towards Bankman-Fried. The 2 market regulators, in a pair of paperwork totaling 68 pages, laid out a detail-rich reconstruction of the huge fraud they are saying the FTX founder directed behind the scenes.
The dramatic distinction between the 2 sides’ variations of occasions goes to the center of FTX’s multibillion-dollar wipeout. Listed here are 4 areas the place they diverge:
1. Did Bankman-Fried knowingly ship FTX buyer funds to Alameda?
Bankman-Fried has averted immediately addressing whether or not he intentionally diverted shopper funds to Alameda, which is core to the federal government’s case. Pressed by ABC’s George Stephanopoulos, Bankman-Fried mentioned, “I didn’t know there was any improper use of buyer funds.” And in an interview with Andrew Ross Sorkin on the New York Occasions’s DealBook convention, Bankman-Fried mentioned, “I didn’t knowingly commingle funds. … I wasn’t making an attempt to commingle funds.”
The SEC says Bankman-Fried diverted buyer deposits to his hedge fund, Alameda Analysis, from the earliest days of FTX’s operations, again to Might 2019. The company says he used the deposits to make “undisclosed enterprise investments, lavish actual property purchases, and huge political donations.”
In line with the SEC, Bankman-Fried had two strategies of securing the funds. He inspired FTX prospects to deposit conventional forex into financial institution accounts managed by Alameda; and he allowed the hedge fund to attract from a “nearly limitless” line of credit score at FTX funded by buyer belongings. Bankman-Fried tried to hide the exercise, the SEC says, organising the financial institution accounts below an Alameda subsidiary known as North Dimension that made no public point out of that affiliation “in an effort to cover the truth that the funds had been being despatched to an account managed” by the hedge fund.
2. Did Bankman-Fried lead Alameda?
Bankman-Fried mentioned he didn’t management the agency. “Look, I wasn’t working Alameda,” he advised DealBook. “I didn’t know precisely what was occurring. … Clearly, that’s a reasonably large mistake and oversight, that I wasn’t extra conscious. I believe I used to be frightened of — I used to be nervous due to the battle of curiosity about being too concerned.”
The SEC notes that he owned 90 p.c of the corporate and “remained the final word decision-maker” there even after appointing two associates, Caroline Ellison and Sam Trabucco, to function co-CEOs in October 2021. He retained “direct decision-making authority over all of Alameda’s main buying and selling, funding, and monetary choices,” the CFTC added, declaring that he remained a signatory on the agency’s financial institution accounts.
Bankman-Fried and his crew used the fund as a “private piggy financial institution,” tapping it for luxurious condos, personal jets, private loans and dangerous personal investments, the SEC and CFTC mentioned.
3. Did Bankman-Fried use buyer funds to repay Alameda’s lenders?
The previous govt denied any data of utilizing FTX buyer cash to repay money owed racked up by his hedge fund. “I don’t know of FTX deposits getting used to repay Alameda collectors,” Bankman-Fried advised ABC’s Stephanopoulos.
The SEC, nonetheless, says Bankman-Fried diverted eye-popping quantities for simply that objective. The company says Bankman-Fried’s “home of playing cards started to crumble” in Might, when a crypto market downturn prompted different corporations that Alameda had borrowed from to demand repayments. At that time, the hedge fund had already siphoned off lots of of hundreds of thousands of {dollars} in FTX buyer funds. However Bankman-Fried “directed FTX to divert billions extra in buyer belongings” to take care of its ties to its lenders and preserve the enterprise afloat.
4. The place did Bankman-Fried’s political contributions come from?
Bankman-Fried plowed a minimum of $40 million into political campaigns this yr, making him one of many prime donors within the nation. He mentioned he earned the cash, telling DealBook he took it from “principally, income. It was considerably smaller than the quantity of buying and selling income that Alameda had revamped the prior few years.”
However the political spending is the main focus of one of many Justice Division’s fees, which alleges partly that Bankman-Fried violated a ban on utilizing company cash for campaigns. The SEC mentioned the funds for “massive political donations” got here from buyer deposits that Alameda took from FTX.
Whereas prosecutors seem to have ample proof to make their case, Bankman-Fried’s public relations tour may assist them deliver it house, mentioned Timothy Howard, a former Manhattan federal prosecutor. “You could possibly see a prosecutor enjoying video of the DealBook summit. It’s very compelling to a jury to see him speaking,” he mentioned, particularly if Bankman-Fried opts out of taking the stand. “The prosecutors would love a closing argument the place they only rattle off each lie they imagine they will show.”
Paulina Villegas in Nassau, Bahamas, contributed to this report.
