How Much Trouble Is FTX’s Sam Bankman-Fried In?

At one point in recent years, Sam Bankman Fried, The co-founder of cryptocurrency exchange FTX was reportedly worth an estimated $26 billion. Earlier last week, that figure was $16 billion. Now it’s about zero dollars and zero cents. And that must hurt, but perhaps of greater concern to “SBF,” as he’s known, is the prospect of potentially jail following the stunning, epic collapse of his company, which filed for bankruptcy on Friday, days after he insured to go customers that “FTX is fine”.

That Wall Street Journal reports that the Manhattan U.S. Attorney’s Office has opened an investigation into the FTX implosion, according to people familiar with the matter. For now, prosecutors are likely focused on one thread Diary, is that FTX allegedly loaned billions in client funds to Alameda Research — a crypto trading firm that also happens to own SBF — to fund risky trades. As the diary notes, “The use of client funds for proprietary trading or lending them — without an investor’s consent — is generally prohibited in the regulated securities and derivatives markets.” While such protections do not exist in the unregulated crypto market, such as the diary notes that FTX’s Terms of Service have explicitly informed users that they own the cryptocurrencies in their accounts; The Terms of Use document reads: “None of the digital assets in your account are owned by, nor shall or may be loaned to, FTX Trading.” As the diary‘s Gregory Zuckerman As reported last week, revelations about the use of client funds not only shocked Bankman-Fried’s “admirers” and employees, they “torn a hole in FTX’s finances” and “set the stage for the exchange’s rapid implosion.”

FTX is also reportedly under investigation by the Securities and Exchange Commission and the Commodity Futures Trading Commission.

According to prosecutors, using customer funds for a purpose that has not been clearly communicated can be the basis of allegations of fraud or embezzlement. “That will boil down to whether there were willful lies to convince depositors or investors to divest themselves of their assets?” Samson Enzer, a former Manhattan prosecutor said the Diary. “Were false statements made and the maker of those statements knew they were false and were made with intent to mislead the investor?” The Feds could also reference SBF’s tweets last week just before the company collapsed, in which he wrote that FTX was “fine,” as were its assets, especially given that he later deleted such claims.

As the diary notes, “Authorities would need to show that Mr. Bankman-Fried intended to mislead customers when he wrote these tweets,” and while proving intent can be difficult, prosecutors could point to the allegedly secret efforts SBF made to to support Alameda. “These are all potentially strong circumstantial evidence of intent” Aitan Goelman, a former federal prosecutor said the Diary. Over the weekend, Reuters reported that of the roughly $10 billion in client funds SBF transferred from FTX to Alameda, at least $1 billion and possibly as much as $2 billion had “disappeared.” The outlet also wrote that Bankman-Fried “secretly wired” the money; In response, he texted Reuters that he “disagreed with the characterization” of the transfer, writing, “We did not conduct the transfer in secret.” We had confusing internal captions and got it wrong.” When asked about the alleged missing funds, he replied: “???”

Reuters also reported that:

Bankman-Fried implemented what… two people described as a “back door” into FTX’s accounting system, which was built with custom software.

They said the “back door” allowed Bankman-Fried to carry out orders that could alter the company’s financial records without alerting others, including outside auditors. That facility meant the movement of $10 billion in funds to Alameda did not raise any internal compliance or accounting flags at FTX, they said.

In his writings to Reuters, Bankman-Fried denied the implementation of a “back door”. On Friday he has tweeted that he was “putting together” what had happened at FTX, adding: “I was shocked to see things unraveling the way they did earlier this week. I’ll be writing a more full post on play-by-play soon.” At 10pm on Sunday in the Bahamas, where SBF is based and FTX operates, he tweeted, “What”. Almost an hour later, he tweeted the letter H. Over the course of Monday he seemed to be spelling it out Happened, although he had done it in the late afternoon only got around to it the letter n. How Much Trouble Is FTX’s Sam Bankman-Fried In?

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