FTX founder Sam Bankman-Fried was denied bail by a Bahamas judge Tuesday after being determined to be a flight risk. He now faces possible extradition to the U.S. As SBF was sitting jittery in a courtroom, new FTX CEO John Ray III told the U.S. House Financial Services Committee that FTX’s leaders embezzled customer funds “right in front of their eyes.” Meanwhile, the CFTC and SEC have provided detailed information on the “back door” between FTX and Alameda. Finally, non-U.S. customers of FTX.com have created a “customer committee” to protect their interests and claw back funds.
Binance Stress Test
Binance CEO Changpeng Zhao took to Twitter to calm fears about a potential run on the exchange after some $3.8 billion in customers’ digital assets were withdrawn this week. He called the withdrawals a “stress test.” On Dec. 12 Reuters reported the U.S. Department of Justice might levy money laundering charges against the exchange related to an investigation that began in 2018. That’s just part of the reason Zhao reportedly warned staff to expect turbulent times ahead.
Celsius Bankruptcy Update
Lawyers for bankrupt lender Celsius Network are seeking to claw back $7.7 million from the estate of rival crypto lender Voyager Digital. Earlier in December, the bankruptcy judge ordered $50 million worth of crypto held in Celsius’ “Custody” program to be returned to customers, and on Tuesday approved the sale of Celsius’ self-custody platform GK8 to Galaxy Digital as liquidators looks for cash to return to customers and investors.
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“I’m inclined to believe that [Sam Bankman-Fried] is a pathological liar.”
– U.S. House Representative Ritchie Torres (D-N.Y.), discussing Tuesday’s House Financial Services Committee meeting, on CoinDesk TV’s “First Mover”
The Takeaway: SBF’s Crimes
FTX founder and former CEO Sam Bankman-Fried (Nikhilesh De/CoinDesk)
Charges filed over the past two days make clear that the U.S. government is treating Bankman-Fried as the ambitious and calculating criminal that he is, not as merely a bumbling tech wunderkind who made some bad bets. A laundry list of incredibly serious civil and criminal charges have come from three U.S. agencies: the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC) and, most importantly, the Department of Justice (DOJ).
The charges are comprehensive, and the theory of the case presented is unambiguous – all of the agencies claim that Sam Bankman-Fried knowingly and with significant forethought committed fraud on a scale only comparable to history’s most elaborate cons. FTX will be remembered alongside not just Enron, but the Credit Mobilier scandal of the 1860s-1870s, and the South Sea swindle of the 1720s.
It turns out Sam Bankman-Fried was not a genius of crypto or finance, but he was unambiguously a kind of idiot savant of financial crime. There is a very good chance that he will never breathe free air again.
The three primary sets of charges are distributed according to the purview of the three charging agencies. The SEC supervises securities, and charges focus on Bankman-Fried’s fraud against equity investors, rather than against customers. Those charges will almost certainly result in huge fines and Bankman-Fried’s barring from the financial industry, probably for life. While the CFTC picked up on the commingling of deposits between FTX and Alameda.
What we really care about are the criminal charges, filed by the U.S. Department of Justice in the Southern District of New York. They are unbelievably extensive and serious, with wire fraud, conspiracy and money laundering making up just three of the eight total charges. The charging documents are reportedly vague on purpose, to give prosecutors leeway to assemble a case and specific allegations as their investigation progresses.
It’s an open question whether the government will offer a plea deal or seek to make an example of SBF. But the general path of events from here has been set, and it will not end well for Sam Bankman-Fried. As you read this, he is in a literally maggot-infested Bahamian prison, awaiting what I hope will be a rapid extradition to a high-security facility in the United States.So, bon voyage to the former wonder boy. In a life defined by big bets, he made the wrong ones, again and again.
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Off-Chain Signals
‘99% of People’ Will Lose Crypto Storing in Self-Custody: Binance CEO Changpeng Zhao (Decrypt)
Balancer Ends Long Governance Battle With Whale (The Defiant)
Tom Brady pushed crypto to his fans. This lawyer wants him to pay up. (The Washington Post)
How it feels to be sexually objectified by an AI (MIT Review)
