How Did Sam Bankman-Fried and His Inner Circle Deceive Their Investors? An Attorney General’s Perspective on FTX and Alameda
But according to a complaint by the US Department of Justice, FTX was already using customers’ deposits tofund its own trading when they joined Alameda, which would eventually lead to FTX’s bankruptcy. Behind the collapse of the exchange is, allegedly, one of the largest financial frauds in history, one in which Bankman-Fried and his inner circle deceived not only ordinary punters, but venture capitalists, institutional investors, and sovereign wealth funds—and people who worked for them. Several executives at FTX and Alameda pleaded guilty to some of the charges they faced. Bankman-Fried goes on trial in New York tomorrow. The trial likely will look at whether or not he and others deceived their investors. It won’t answer why those investors were so easy to fool.
Bankman- Fried was an unusual poster boy for the industry, a mop-haired academic, with a kind of condescending anti-charissem that made him stand out from the crowd. He was also, famously, a proponent of effective altruism—a philosophy that espouses making money to give it away. He was making billions of dollars to save the world and that made him compelling. The mission is kind of a noble one. “And it’s contrary to the mission of a lot of trading firms … where, you know, the goal is just like, ‘make money.’”
Soon after, the man was on the FTX rocket ship. Alameda had its headquarters in Hong Kong, Bankman-Fried was in the process of moving to Nassau, and FTX was also in the process of moving. Staff members were free to move between the two. There were parties and conferences with celebrities and political leaders that helped cement the companies’ status. “Sam’s face was on the cover of Forbes. Everyone was calling him a genius. It made it easy to believe that we were a part of a really special and unique thing and that it would keep going.
It is natural to ask, how could Sam and others have deceived so many people including people who are closest to them? The person says that. If you consider the hundreds of millions of dollars invested in FTX, and the fact that the investors have access to all the documents they could ever want about the company’s financials, then you have to think about how much was invested in this enterprise. I think it’s telling you that a lot of the figures surrounding them are in reality distortion field.
Silicon Valley could be said to be in the business of reality distortion. When raising money for a startup, it’s as much about the narrative as it is about the economic basics. Most venture capital portfolios are filled with companies that will fail because their model is wrong, their product won’t land, their vision of the future won’t pan out. The high dropout rate means that everyone is in search of the one thing that will reach escape velocity. Everyone is looking for an epochal success—a Steve Jobs, a Jeff Bezos. That creates a degree of hunger—even desperation—that can be exploited by someone who arrives with a great story at the right moment.
FTX founder Sam Bankman-Fried: Going Infinite: The Rise and Fall of a New Tycoon (A 60 Minutes Perspective)
Sam Bankman-Fried has pleaded not guilty to seven criminal charges, including securities fraud, wire fraud, and conspiracy to launder money. Prosecutors intend to try him on several other counts in a separate trial that is expected to take place in 2024.
The trial ended with a hard fall from grace for a person who was once pictured with Gislant Bndchen and Bill Clinton.
The head of the Securities and Exchange Commission’s division of enforcement said that FTX “operated behind a veneer of legitimacy that Bankman-Fried created.” “That veneer wasn’t just thin, it was thick.” It was definitely not legit.
The hedge fund’s executives used customers’ money without their knowledge to plug a billion dollar hole in the fund’s balance sheet.
Two financial regulators, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, have brought parallel suits against Bankman-Fried, alleging similar misconduct.
Kaplan sent the former FTX CEO to an institution after Bankman- Fried violated his bail. The New York Times reporter was shown private writings by Bankman- Fried’s ex-girlfriend and the former head of Alameda, and he used a Virtual Private Network without the court’s permission.
A book by author Michael Lewis called “Going Infinite: The Rise and Fall of a New Tycoon” is due to hit store shelves on Tuesday.
In an interview with “60 Minutes,” Lewis said he thinks the disgraced crypto mogul “may go mad” if he loses access to the Internet for a long stretch of time.
“If you gave Sam bankman-Fried a choice of living in a $39 million penthouse without the internet or a jail in Brooklyn, I’m pretty sure he would go to jail,” Lewis said.
Sam Bankman-Fried’s trial is about to start. Here’s what you need to know about cryptocurrencies and the FTX case
According to Tarek Helou, a lawyer in private practice who spent more than a decade at the Department of Justice, there is a mantra among federal prosecutors: “Thin to win.”
The case is novel because of the company that does business in the new world. But according to Helou, prosecutors will want to stress that this is just a financial fraud case, plain and simple.
He predicts the Justice Department isn’t going to talk about the topic of cryptocurrencies. They’re going to simplify it, and say that it’s a case about lying and stealing.
“I didn’t ever try to commit fraud on anyone,” Bankman-Fried told The New York Times days before he was arrested. “Clearly, I made a lot of mistakes that are things I would give anything to be able to do over again.”
FTX was headquartered in The Bahamas, where employees and executives, many of whom were in their 20s, lived together in a $30 million penthouse as they ran a sprawling business.
She pleaded guilty to several fraud counts shortly after Bankman-Fried was arrested last December, and three other executives have also pleaded guilty: Nishad Singh, Gary Wang, and Ryan Salame.
In addition to them, both sides have asked to call expert witnesses, and in a recent court filing, prosecutors said they plan to put FTX customers on the stand.
When Bankman-Fried first posted bail was withdrawn, journalists stopped talking about him, and he told him to stop talking about it
He used X, formerly known as Twitter, and started a newsletter on Substack. Bankman-Fried invited journalists to visit him at his parents’ house where he had been placed initially after posting bail, and prosecutors say Bankman-Fried had around 1,000 phone calls with reporters.
It is unorthodox for a defendant facing such serious charges to talk so openly about his case, and it was a source of growing frustration to prosecutors and the judge, who decided to revoke Bankman-Fried’s bail in August.
“He’s an experienced, very well-respected judge,” says Joshua Naftalis, an attorney with the law firm Pallas, who tried a case before Kaplan when Naftalis was a federal prosecutor. He’s no-nonsense, and he’s in charge of both parties. He runs an efficient courtroom.
