Prosecutors and regulators say that since the launch of FTX, Bankman-Fried moved client funds from the cryptocurrency trading platform to an affiliated hedge fund called Alameda Research, where it became the 30-year-old and his central banker. Piggy banks of the circle, funding lavish lifestyles and launching multimillion-dollar charm offensives in Washington, all while making risky crypto investments.At every turn, prosecutors and regulators Bankman-Fried argued in a spate of filings this week that he lied to clients and investors.
If what regulators say is true, Bankman-Fried’s recent media frenzy will only deepen his danger, legal experts say. That’s because the former billionaire’s attempt to whitewash his record could help prosecutors prove he knew he was wrong. A spokesman for Bankman-Fried declined to comment.
“Sometimes it’s said that a false exoneration story is almost as good for the government as a confession,” said Harry Sandick, a former assistant U.S. attorney for the Southern District of New York, who is pursuing criminal charges against Bankman-Fried. “If you’re trying to cover something up, it’s more likely to cover something up.”
The former chief executive faces a string of charges. On Tuesday, federal prosecutors unsealed an eight-count indictment detailing crimes ranging from fraud to money laundering and campaign finance violations. He’s in a prison in the Bahamas. On Thursday, Bankman-Fried filed a new bail request in the Supreme Court of the Bahamas, According to eyewitnesses. The country’s Supreme Court will hear his case on Jan. 1. On 17.17, the judge denied him bail on the grounds that his financial resources made him a flight risk.
The Securities and Exchange Commission and the Commodity Futures Trading Commission also filed civil lawsuits against Bankman-Fried. In two documents totaling 68 pages, two market regulators have detailed what they say is a massive fraud directed by FTX’s founders.
The stark contrast between the two sides’ perceptions of events is at the heart of FTX’s multibillion-dollar fiasco. Here are four areas where they diverge:
1. Did Bankman-Fried knowingly send FTX client funds to Alameda?
Bankman-Fried avoided talking directly about whether he Deliberately transferring consumer funds to Alameda, This is the heart of the government’s case.pressured by abc “I’m not aware of any inappropriate use of client funds,” Bankman-Fried’s George Stephanopoulos said in an interview with Andrew Ross Sorkin Speaking at the New York Times’ DealBook conference, Bankman-Fried said: “I’m not mixing funds on purpose. … I’m not trying to mix funds.
From the early days of FTX’s operations until May 2019, Bankman-Fried transferred customer deposits to his hedge fund, Alameda Research, the SEC said.The agency said he used the deposits Made “undisclosed venture capital investments, large real estate purchases, and large political donations.”
According to the SEC, Bankman-Fried had two methods of securing funds. He encouraged FTX clients to deposit traditional currencies into Alameda-controlled bank accounts; he also allowed hedge funds to draw money from a “virtually unlimited” line of credit funded by FTX’s client assets. The SEC said Bankman-Fried attempted to conceal the activity by opening bank accounts under an Alameda subsidiary called North Dimension, which did not publicly mention the affiliation, “to conceal that the funds were being sent to a The fact that the accounts are controlled by hedge funds”.
2. Does Bankman-Fried lead the Alamedas?
Bankman-Fried said he did not control the company. “Look, I’m not running Alameda,” he told DealBook. “I don’t know what the hell happened. … Obviously, it was a big mistake and an oversight, and I didn’t realize it. I guess I was scared — I was nervous because over-involvement would lead to conflict of interest.”
He owns 90% of the company and “remains the ultimate decision maker” even after naming two employees, Caroline Ellison and Sam Trabucco, as co-CEOs in October 2021, the SEC noted. He retains “direct decision-making authority,” the CFTC added, noting that he remains a signatory on the company’s bank accounts and has authority over all major transactions, investments and financial decisions in Alameda.
The SEC and CFTC said Bankman-Fried and his team used the fund as a “personal piggy bank,” using it to buy luxury condos, private jets, personal loans and high-risk private investments.
3. Does Bankman-Fried use client funds to repay lenders in Alameda?
The former executive denied knowing that FTX client funds were being used to pay off debts accumulated by his hedge fund. “I’m not aware that FTX deposits were used to repay Alameda creditors,” Bankman-Fried told ABC’s Stephanopoulos.
Yet Bankman-Fried misappropriated jaw-dropping amounts for precisely this purpose, the SEC said. The agency said Bankman-Fried’s “house of cards” began to unravel in May, when a downturn in the cryptocurrency market prompted other companies that Alameda had borrowed to demand repayment. By then, the hedge fund had siphoned off hundreds of millions of dollars in FTX client funds. But Bankman-Fried “directed FTX to transfer billions of dollars in customer assets” in order to maintain connections with lenders and keep the business afloat.
4. Where did Bankman-Fried’s political contributions come from?
Bankman-Fried has poured at least $40 million into political campaigns this year, making him one of the largest donors in the country. He said he made money, and according to DealBook, he was “basically a profit.” That’s far less profitable than Alameda’s trade in previous years. “
But political spending is the focus of a Justice Department charge that in part accuses Bankman-Fried of violating a ban on using corporate funds for campaigns. The SEC said the money used for the “substantial political contribution” came from customer deposits that Alameda took from FTX.
Former Manhattan U.S. Attorney Timothy Howard said that while prosecutors appeared to have enough evidence to make their case, Bankman-Fried’s public relations tour could help them drive the evidence home . “You can see the prosecutor play the video of the DealBook summit. It’s very persuasive for the jury to see him speak,” he said, especially if Bankman-Fried chooses not to appear in court. “Prosecutors are going to love closing arguments where they just babble about every lie they think they can prove.”
Paulina Villegas in Nassau, Bahamas contributed to this report.