By Dante Bosnic
After FTX filed for bankruptcy in the beginning of November, Samuel Bankman-Fried was finally arrested and extradited to the U.S. in late December.[1] In early January, Bankman-Fried appeared in federal court and pled not guilty to eight felony counts, including fraud, conspiracy, and money laundering.[2] If convicted, Bankman-Fried could face over 100 years in prison.[3]
Even worse for the once famed cryptocurrency star, according to a recent statement by the U.S. Attorney of the Southern District of New York, Damien Williams, Caroline Ellison, a former executive of Alameda Research, and Gary Wang, the co-founder of FTX, have agreed to cooperate with authorities to build a case against Bankman-Fried.[4] According to recent court documents, Ellison has agreed to provide investigators with key inside information, including handing over relevant documents, giving crucial eye-witness testimony, and fully disclosing the extent of her crimes as well as the crimes of other defendants.[5]
Along with going after Bankman-Fried, federal prosecutors are investigating an alleged cybercrime that drained more than $370 million out of FTX just hours after the cryptocurrency exchange filed for bankruptcy.[6] According to an individual who is familiar with the case but has been asked not to be identified, U.S. authorities have managed to seize some of the stolen funds. However, the frozen assets represent only a fraction of the $370 million.[7] In interviews before his arrest, Bankman-Fried indicated that the cyberattack may have been an inside job.[8] The conduct could amount to a charge in connection with computer fraud, which carries a maximum sentence of ten years in prison.[9] Regardless, the amount stolen is significantly less than the amount of money Bankman-Fried is accused of misusing while in charge of FTX.[10] According to authorities, Bankman-Fried, who is currently on bail in California, fraudulently raised $1.8 billion from investors and used FTX funds to wage high-risk bets at hedge fund Alameda Research to cover personal expenses.[11]
It also appears that individuals outside of FTX may be culpable as well. According to FTX’s lawyers, some of FTX’s immediate family aren’t cooperating with the investigation.[12] Bankman-Fried’s brother, mother, and father were his “advisors” and should be subpoenaed alongside former company executives.[13] FTX, known in bankruptcy proceedings as the Debtor, alleges that Gabriel Bankman-Fried, Sam Bankman-Fried’s brother, used his lobbying organization, Guarding Against Pandemics, to purchase a multi-million dollar property just a few blocks from the United States Capital.[14] Additionally, Fried’s political action committee, Mind the Gap, allegedly received donations from Sam Bankman-Fried and other FTX staffers. Furthermore, both parents resided in a $16.4 million [Bahamas] house titled in their names, despite understanding that the house was intended to be the company’s property.[15] In an emailed statement, Marissa McBride, Executive Director of Mind the Gap, told CoinDesk that “Sam Bankman-Fried contributed to some of the programs that Mind the Gap recommended to its network, but he did not make any direct contributions to Mind the Gap,” and that the group publicly discloses all contributions received to the Federal Election Commission. Finally, FTX and investigators are questioning Sam Bankman-Fried’s decision to send $400 million to an obscure cryptocurrency firm named Modulo Capital.[16] The young firm, which was founded in March and operated out of the same Bahamian compound where Mr. Bankman-Fried lived, had no track record or public profile.[17] According to the New York Times, prosecutors are investigating if Bankman Fried used FTX’s customers’ funds to invest in Modulo Capital, given that he is also accused of doing the same with Alameda Research.[18]
As it stands, Bankman-Fried has quite a lot on his plate. While the investigation continues, we most likely will not see or hear from him until his trial in October.[19] Depending on how the investigation goes, this could be a very long or short ten months for Samuel Bankman-Fried.
[1] See Travis Cartwright-Carroll, SBF Extradited, The Nassau Guardian (Dec. 22, 2022), https://thenassauguardian.com/sbf-extradited/.
[2] See Lauren Leffer, Sam Bankman-Fried Pleads ‘Not Guilty’ on All Counts, Gizmodo (Jan. 3, 2023), https://gizmodo.com/sbf-ftx-not-guilty-sam-bankman-fried-crypto-1849943902.
[3] Id.
[4] Mehron Rokhy, FTX Debacle: Two Top-Level Insiders Cooperating With Prosecutors in Criminal Case Against Sam Bankman-Fried, The Daily Hodl (Dec. 22, 2022), https://dailyhodl.com/2022/12/22/ftx-debacle-two-top-level-insiders-cooperating-with-prosecutors-in-criminal-case-against-sam-bankman-fried/.
[5] Id.
[6] Ava Benny-Morrison, U.S. Probes How $372 Million Vanished In Hack After FTX Bankruptcy, Bloomberg (Dec. 27, 2022), https://www.bloomberg.com/news/articles/2022-12-27/us-probes-how-372-million-vanished-in-hack-after-ftx-bankruptcy.
[7] See id.
[8] See id.
[9] Id.
[10] Benny-Morrison, supra note 6.
[11] See id.
[12] See id.
[13] Jack Schickler, Sam Bankman-Fried’s Mother and Brother Not Cooperating With Financial Probe, FTX Lawyers Say, Coindesk, (Jan. 26, 2023), https://www.coindesk.com/policy/2023/01/26/sam-bankman-frieds-mother-and-brother-not-cooperating-in-financial-probe-ftx-lawyers-say/.
[14] Id.
[15] Id.
[16] David Yaffe-Bellany, Matthew Goldstein, and Royston Jones Jr., The Unknown Hedge Fund That Got $400 Million From Sam Bankman-Fried, N.Y. Times (Jan. 24, 2023), https://www.nytimes.com/2023/01/24/business/ftx-sbf-modulo-capital.html.
[17] See id.
[18] See id.
[19] See Soumen Datta, SBF free on bail for 10 months until trial in October as he pleads not guilty, CryptoSlate (Jan. 3, 2023), https://cryptoslate.com/sbf-free-on-bail-for-10-months-until-trial-in-october-as-he-pleads-not-guilty/.
Image Source: https://abcnews.go.com/US/ftx-crypto-ceo-sam-bankman-fried-expected-plead/story?id=96107918