Welcome to State of Crypto. Here’s what’s important in policy news this week:
Federal prosecutors have shared more information about their case against FTX founder Sam Bankman-Fried. Between two new indictments and civil suits against another former FTX executive, we now have a much clearer picture about what the Department of Justice thinks it has.
Bankman-Fried goes to trial in seven months. Lawyers for both prosecutors and his defense team are still working through discovery, but the newest indictments and lawsuits filed against him and Singh shed a lot more light on the case against Bankman-Fried than his original indictment in January did.
Within the pages of the indictment are allegations that Bankman-Fried launched or directed the launch of various companies that could secure bank accounts, as FTX couldn’t on its own. The DOJ says Bankman-Fried oversaw the misappropriation of customer funds and explicitly directed his team to obfuscate the source of funds donated to political campaigns.
Under the superseding indictment, Bankman-Fried faces charges of:
Conspiracy to commit wire fraud on FTX customers
Wire fraud on FTX customers
Conspiracy to commit fraud on FTX customers tied to derivatives
Fraud on FTX customers tied to derivatives
Conspiracy to commit securities fraud on FTX customers
Securities fraud on FTX customers
Conspiracy to commit wire fraud on Alameda Research lenders
Wire fraud on Alameda Research lenders
Conspiracy to commit bank fraud
Conspiracy to operate an unlicensed money transmitting business
Conspiracy to commit money laundering
Conspiracy to make unlawful political contributions and defraud the FEC
The original indictment merely listed charges of:
Conspiracy to commit wire fraud on customers
Wire fraud on customers
Conspiracy to commit wire fraud on lenders
Wire fraud on lenders
Conspiracy to commit commodities fraud
Conspiracy to commit securities fraud
Conspiracy to commit money laundering
Conspiracy to defraud the U.S. and violate campaign finance laws
Beyond that, the new documents provide a lot of little details that contain rather serious allegations.
“In November 2022, the general counsel of FTX.US warned employees that they should preserve documents because of the involvement of regulators, and then posted in a company Slack channel that FTX would need to be shut down,” one section of the superseding indictment said. “Bankman-Fried, however, deleted the general counsel’s message about FTX being shut down, continued to use Signal messaging and proceeded to delete some of his own statements on Twitter, including his tweets about customer assets being ‘fine.’”
The FTX founder also allegedly directed the creation of North Dimension, a U.S.-based company, purely to act as an intermediary between FTX and U.S. banks. Prosecutors claim Bankman-Fried lied about North Dimension’s true purpose to get through a bank’s due diligence process.
Moreover, prosecutors hold that Bankman-Fried never segregated FTX customer assets from Alameda assets or other assets, despite “representations … to the contrary.”
Bankman-Fried “used the FTX customer funds he misappropriated and caused to be misappropriated to, among other things … finance in substantial part [his] unlawful political influence campaign, which involved flooding the political system with tens of millions of dollars in illegal contributions to both Democrats and Republicans made in the names of others in order to obscure the true source of the money and evade federal election law,” the indictment said.
The document alleged that Bankman-Fried, while openly willing to support Democrats, also bolstered Republicans by having an unidentified co-conspirator be the public face of those donations.
While the document does not name the individual, CoinDesk reporting found that dozens of Republicans received donations from FTX Digital Markets co-CEO Ryan Salame. Salame has not been accused of any wrongdoing as of press time.
Another unidentified co-conspirator appears to be Nishad Singh, the former engineering director. While the criminal indictment against Singh does not mention Bankman-Fried by name, prosecutors filed the “conspiracy to make unlawful political contributions” charge against him that they filed against the former CEO.
The indictment details how Singh allegedly donated to candidates and committees well in excess of federal limits and lied about their origin.
“In or about 2022, Nishad Singh, the defendant, and one or more other conspirators agreed to and did make contributions to candidates and committees in the Southern District of New York that were paid for using funds from Alameda Research and reported to the Federal Election Commission in the names of persons other than the true source of the funds,” the filing said.
The SEC and CFTC filings against Singh are both more willing to mention Bankman-Fried (as well as other former FTX executives).
The SEC filing spends a lot of time looking at the way FTX and Alameda were structured, noting Alameda’s ability to have a negative balance on FTX’s books and the alleged misappropriation of customer funds to other uses. Similarly, the CFTC filing claims federal violations based on how the companies were set up and what they actually did.
Robinhood Received Crypto-Related Subpoena Request From SEC: 10K: The U.S. Securities and Exchange Commission and the California Attorney General sent subpoenas to Robinhood over its crypto offerings, the company said in its most recent filing, but did not provide a lot of detail about these subpoenas.
“A lot of people have been watching Nigeria as an experiment,” said Varun Paul, CBDC and market infrastructure director at Fireblocks. Paul was previously the head of the Bank of England’s fintech hub.
Countries will likely be looking to see if Nigeria cracks the code on CBDC adoption.
The country launched its eNaira in October 2021, after researching for around two years, and it faced low adoption. A year after it launched, less than 0.5% of Nigerians were using the eNaira, Bloomberg reported.
The Central Bank of Nigeria even limited the amount of cash people can withdraw from banks in January to encourage the adoption of the eNaira but despite its efforts people are not looking to the eNaira as an alternative – even in the midst of a cash crisis.
People are currently complaining on Twitter that they are not able to access basic needs like fuel or food without cash (thanks in part to Nigeria’s $220 billion informal economy that relies on cash and a limited amount of bank notes in circulation).
19:00 UTC (2:00 p.m. ET) Three Arrows Capital will also be going back to court to discuss subpoenas.
Elsewhere
(Vice) Cybersecurity reporter Joseph Cox was able to bypass his bank’s biometric voice-based security system using AI tools.
(Platformer) The U.S. Supreme Court is hearing a case with implications on Section 230 of the Communications and Decency Act, otherwise known as the law that explicitly allows platforms to remain free of liability for what their users post. And, weirdly enough, the lawyers fighting to weaken 230 seem a little underprepared.
(Molly White) Molly White has a more in-depth explanation of what happened with Oasis and its effort to recover stolen crypto by way of exploiting its own network.
(Ars Technica) Password service LastPass is finally providing details about how its systems were compromised last year.
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