SEC Charges Samuel Bankman-Fried with Defrauding Investors in FTX [pdf]

https://www.sec.gov/litigation/complaints/2022/comp-pr2022-219.pdf

by scrlk • 4 years ago

439 214 4 years ago

sec.gov

matheusmoreira• 4 years ago

That was fast...

ReptileMan• 4 years ago

And what about customers?

kshacker• 4 years ago

There must be some other org for that such CFPB. SEC focuses on investors, no?

ekpyrotic• 4 years ago

This might just be the 'first arrow' from the SEC with much more to be added down the track, but it's interesting to see that they have gone in heavily on defrauding equity investors in the FTX business -- rather than pulling the rug on customers.

Either that's because it's easier for the SEC to prove, and get it to the point of demonstrating fraud? Or the US customers and the FTX US business were relatively untouched throughout this whole process, so there is less to go on for US customer fraud?

Or, perhaps, this is just the first arrow to smoke out more data, informants, etc, with a strategic view to adding further allegations down the track?

PaywallBuster• 4 years ago

probably because FTX.com wasn't supposed to be servicing US customers

So US customers who may have used FTX.com were circumventing whatever minimal measures they had preventing them to signup/use the platform

quanticle• 4 years ago

    This might just be the 'first arrow' from the SEC with much more to be added
    down the track, but it's interesting to see that they have gone in heavily
    on defrauding equity investors in the FTX business -- rather than pulling
    the rug on customers.

Isn't that the same approach that federal prosecutors took with Theranos as well? From what I understand, Elizabeth Holmes went to jail for defrauding her investors, not providing false test results to patients. I think the SEC's reasoning here is the same — investor fraud is easier to prove, so hit the fraudster with that charge first.

nnmg• 4 years ago

I think you're spot on, it is easier to prove (or prosecutors have more experience prosecuting) financial crimes. To give them credit-- they at least tried to get Holmes for defrauding patients too, but she was acquitted of those charges [0]. Her partner, Sunny Balwani, was convicted on all counts, including defrauding patients [1].

[0] https://en.wikipedia.org/wiki/Elizabeth_Holmes#U.S._v._Holme....

[1] https://en.wikipedia.org/wiki/Sunny_Balwani#United_States_v....

evancox100• 4 years ago

It wasn’t for lack of trying though, Holmes was charged with defrauding patients but acquitted on those counts. Only the investment fraud charges stuck.

jcranmer2• 4 years ago

It's also worth point out, if you're interested in seeing punitive justice, that you're going to steeper punishments for defrauding investors than patients. If Holmes were nailed on defrauding patients, that would add something like $100 worth of fraud for sentencing guidelines, which is nothing. But an investor who was defrauded of $100 million... that's $100 million of fraud.

You have to specifically prove every instance fraud in a criminal case, so harm that is spread very widely but very shallowly (millions of people who lost $10) doesn't scale up for a fraud case, but harm that is narrow but deep (an investor who lost millions) can be easily done.

tiahura2• 4 years ago

It’s because neither the SEC nor the CFTC have jurisdiction over crypto.

The holding of the EPA v West Virg case (CO2 emissions) was that federal agencies can’t regulate new domains without actual legislation. The Securities Acts of 1933 and 1934 unsurprisingly says nothing about crypto.

pavlov4• 4 years ago

It's sort of curious that this SEC action is to protect the venture capital investors like Sequoia who invested in FTX shares directly.

If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense of billion-dollar funds whose own due diligence failed massively, while seemingly nothing is being done to help those who invested in crypto based on FTX's Super Bowl ads and celebrity endorsements...

At the same time, I fully understand why it's like this. Because the VCs bought actual FTX shares, the SEC has a clear case of securities fraud. The law is pretty clear about what happens when you sell shares in your company and lie about it.

In contrast, it's not really settled whether the little people who sent money to FTX in exchange for a crypto ledger entry were actually buying securities, commodities, custodial services, or something else — maybe nothing at all. (The crypto guys love this ambiguity, of course! They've been lobbying for regulation that keeps crypto in a no-man's-land where tokens that look and work like securities would still be something else.)

This seems to be the reason why the SEC doesn't have a clear-cut case to protect FTX customers, but does have a case to protect rich VC crypto-bro partners.

ethanbond4• 4 years ago

Whoa, are you trying to tell me all the big fish hyping up the Regulators Are Evil Economy get near-total legal protection of a regulated market, but all the little people who got taken in by it are going to get screwed?

An incredible and unforeseeable development!

Surely there will be more charges over time but the end result isn’t going to change much. The wealthy people who’ve been boosting all of this will take the smallest losses of all.

Frost1x• 4 years ago

I always find it interesting how in our implementation of capitalism here in the US, wealth is able to insulate and protect itself from many of the very measures capitalism is supposed to peel away and counter (in the interest of society at large).

It's almost like it there are fundamental inherent flaws that need to be fixed to continue on and we can't keep treating things like business is usual if we want to enable continued growth vs stagnation due to power concentration like we've seen in non-capitalist systems in the past.

You're going to see the big players like Sequoia get some retribution here and to a magnitude that's significant enough to be usable and recoverable, meanwhile you're going to see all sorts of others life savings evaporate, resulting in a far less recoverable scenario, with little to nothing recovered--at least that's how this tends to play out, historically. Everyone will of course lose, but you'll see disproportionate losses and disproportionate recoverability. Disproportionate wealth as a proxy to power does this.

JackFr• 4 years ago

None of the big fish are getting money back. No one is going get money back. It's gone.

At the same time, I have trouble finding sympathy for anyone involved. SBF is a sociopath, thief and liar.

Those big-name investors should have known better and I'm sure in many cases they did. They probably should start lawyering up too, because they've got investors of their own who have been harmed either through malfeasance of actionable incompetence.

And the 'small time' investors -- mom-and-pop, widows and orphans investing the life savings on the platform -- all crypto is a scam, a Ponzi scheme, at the very best it's a casino or playing the numbers. Always has been. Always will be. All they had to do was open their eyes or maintain critical thinking in the face of promoters trying to bamboozle them.

And yet dumb money says I'm wrong. BTC up 4% on the day....

jstx12• 4 years ago

Give it some time, he only got arrested hours ago and the DOJ still haven't unsealed their case.

nikanj• 4 years ago

The various players in crypto space have written a ton of EULA mumbo-jumbo explaining that the coins are not securities (as they want the freedom to pump&dump/front run orders/etc). If they admitted the cryptos are securities, all sorts of pesky regulations would apply

MrPatan2• 4 years ago

Stealing securities you're supposed to store for me is a crime.

Stealing non-securities you're supposed to store for me is also a crime.

freejazz2• 4 years ago

Admitting or not that something is a security is not a requisite for the thing to be found to be a security.

rundmc• 4 years ago

He essentially admitted this in recent calls so it's a 'safe' charge that the SEC used to get him arrested in Bahamas and presumably his personal assets will also now be frozen while they assemble the rest of the consumer fraud and other charges.

nradov• 4 years ago

The SEC didn't get SBF arrested in the Bahamas. That was done by the DOJ. The SEC has brought a separate parallel civil enforcement action.

fredgrott• 4 years ago

You seem to forget the debate between the SEC and the other org that want to regulate crypto.

The reason SEC moved this fast was to add to their counter-point argument that they should be allowed to fully regulate crypto as securities.

pavlov4• 4 years ago

No, this case is not about crypto at all. It’s about FTX shares and that’s unequivocally the SEC’s jurisdiction.

dwighttk• 4 years ago

DoJ also filed charges (I think the indictment is sealed)

blanketlamp• 4 years ago

This seems to be the reason why the SEC doesn't have a clear-cut case to protect FTX customers, but does have a case to protect rich VC crypto-bro partners.

I mean, given that FTX.us was supposedly completely isolated from FTX.com isn't that true?

Assuming (and I understand this is a big assumption) that SBF is correct that FTX.us deposits were completely isolated and US customers can be reimbursed in full, the only US citizens harmed by this would be Sequoia et al.

Even if it turns out US customers are actually left holding the bag as well, does the SEC even have clear jurisdiction over FTX on that? Maybe? Wouldn't the DOJ criminal charges be much better wrt nailing him for that though?

Seems much easier for the SEC to charge him with defrauding investors, as that's pretty much a slam dunk case at this point and also clearly the jurisdiction of the SEC.

You can draw analogies here to Capone and tax fraud etc. etc.

dom96• 4 years ago

I'm no lawyer, but to be fair it seems the SEC charges document[1] does allege that Sam Bankman-Fried defrauded FTX's customers too.

1 - https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...

warinukraine• 4 years ago

It's sort of curious that this SEC action is to protect the venture capital investors like Sequoia who invested in FTX shares directly.

This action is to protect investors. No need to make it into a conspiracy.

empathy_m• 4 years ago

It's possible that we will hear from individual investors at trial or sentencing. Even though the Theranos trial was about defrauding investors, there was still testimony from an actual customer. ("The first patient to take the stand in trial of former Theranos CEO Elizabeth Holmes said that the company’s blood test inaccurately showed she was suffering a miscarriage when in fact she had a healthy pregnancy.")

pcl• 4 years ago

I would expect that the bankruptcy proceedings and any future civil lawsuits are the main avenues for individuals to seek individual redress.

If I were an individual, I wouldn’t really care about how the criminal charges were structured, since it’s not like I would get any individual benefit out of his jail time, one way or the other.

krisoft• 4 years ago

If I were an individual, I wouldn’t really care about how the criminal charges were structured

Yes. But! As an individual I care if the laws protect me. Have they been clever enough to only scam people like me, would they still go to prison?

As long as the answer to that is yes, I don’t mind if something else they have done is easier to prosecute.

jack_pp2• 4 years ago

Maybe financial companies not founded in the US shouldn't be allowed to advertise to US companies at all.

jacquesm2• 4 years ago

I don't see how that would work in practice, nor would the US want it that way because it would almost certainly be mirrored in the other direction.

duxup• 4 years ago

It should be noted Samuel is a really rich guy too, and he is being charged.

boplicity• 4 years ago

Frankly, it seems to me that VCs should be liable for money FTX owes its customers. These are professional investors who didn't insist on very basic things, such as proper financial sheets from a finance company. Frankly, that's gross negligence. Professional investors should have legal responsibility to do at least some due diligence. In addition, they're becoming owners of a company. As owners, why shouldn't they be exposed to liability that could have been prevented with some basic due diligence?

pavlov4• 4 years ago

I agree! For VCs, crypto has been a “Heads we win, tails you lose” proposition.

Normally it takes 3-10 years for a VC investment to reach an exit. In crypto, they get tokens that they’ve been able to dump to retail almost immediately. A16Z has a particularly suspicious shitcoin pipeline via their Coinbase board seat.

I hope SEC also ends up prosecuting investors who participated in these token offerings, and ideally also employees who got paid in tokens [1]. But I have no idea if there’s a legal basis because American securities law is designed to protect investors and doesn’t necessarily seem to account for the A16Z-style case where they’re essentially co-conspirators in the fraud: supplying crypto founders with money for marketing which pulled in retail dollars which ended up straight back to the VC’s and founders’ pockets.

[1] What difference does it really make if you’re a founder selling unlicensed securities, or an employee who signed a contract where you get paid in those unlicensed securities and then you dump them on retail investors? The SEC should look at these schemes which were popular with companies that hire on HN too.

phphphphp• 4 years ago

Setting aside the arguments to be made for/against the idea, and focusing on the implementation instead: most investments are handled through some sort of limited liability vehicle and so even if the “investor” was held responsible it would not necessarily impact the human(s) that stood to gain.

jacquesm2• 4 years ago

You are correct, insofar as we're not talking about the LPs of those funds, but the managers.

el_nahual• 4 years ago

Often VCs will have a seat on the company's board--in which case they might be liable.

However, it doesn't seem that Sequoia et al had seats on the board, at least from this early 2022 press release [1].

Holding shareholders that are not directors accountable is extremely difficult. This is called "piercing the corporate veil" (worth a google) and is done only vary rarely and in cases of clear and outrageous misconduct attributable to the shareholders themselves—it's so rare because it's antithetical to the entire premise of the "limited" corporation.

[1] https://www.prnewswire.com/news-releases/ftx-us-derivatives-...

jstx12• 4 years ago

If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense of billion-dollar funds whose own due diligence failed massively, while seemingly nothing is being done to help those who invested in crypto based on FTX's Super Bowl ads and celebrity endorsements...

It's not one or the other, he can be charged for both. It's up to the DOJ to file a criminal case, and they didn't arrest him for no reason.

winstonprivacy• 4 years ago

It's not that curious at all really.

The SEC is authorized to pursue criminal cases for securities fraud (among many other things). Furthermore, they can refer criminal cases to the Dept of Justice, which has almost certainly happened.

To the extent that FTX defrauded consumers, these will be reflected in civil and criminal cases.

To my knowledge, the SEC does not protect deposits in the event of bankruptcy. Most individuals with assets on deposit at FTX are unsecured creditors.

nova22033• 4 years ago

a case to protect rich VC crypto-bro partners

This may seem unfair but this is their best shot at securing a conviction. Elizbeth Holmes was convicted for defrauding investors, not users of Theranos devices.

Either way, the money is likely gone. Nobody is being protected.

adrr• 4 years ago

Pension funds are a large investor in VCs. Calpers has hundreds of millions of investment in sequoia and tiger global both invested in FTX.

3232• 4 years ago

If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense

The customers will be paid before investors with whatever money is there. This is well established by previous case precedents, including in places like unregulated poker betting sites.

Anybody can have a claim, including the SEC, but the courts decide allocation order.

robocat• 4 years ago

The customers will be paid before investors with whatever money is there.

That really depends whether the investment is structured as a secured loan (senior debt) or not. Secured loans get paid out in full, before the unsecured creditors such as customers.

but the courts decide allocation order

Mostly that is defined by the laws of the jurisdiction, not the individual court.

In the Bahamas, the ranking of creditors and shareholders are as follows[1]:

  Creditors with a mortgage or fixed charge: assets secured in this way are outside the scope of the insolvency.
  Costs of insolvency proceedings: all costs and expenses properly incurred in the company's winding-up (including liquidator's fees).
  Employees' debts: sums due to employees under the terms of their employment contract.
  Preferential payments, such as unpaid taxes, contributions to occupational pension schemes and liability for compensation for injury or occupational disease.
  Creditors with a floating charge.
  Unsecured creditors.
  Shareholder loans.
  Shareholders' equity.

In the US[2]:

  Under the Bankruptcy Code, the priority of allowed claims and interests is, in descending order:

  Secured claims.
  Administrative expenses and priority claims.
  General unsecured claims.
  Subordinated claims.
  Equity interests.

  Outside of bankruptcy, creditor ranking is determined by state law and in certain circumstances, the agreement of the parties, such as in an intercreditor agreement. In bankruptcy, the priority of creditors' claims and interests in a debtor's estate is set out in the Bankruptcy Code.

VC early investments may be a convertible note, often senior debt that can be converted to equity in the next investment round[3].

The costs of insolvency proceedings, or administrative costs, may be determined by the liquidator. The liquidator will generally milk the system (within their legal limitations) as much as possible (extremely high charge-out costs per hour, etcetera), so customers will often get didly squat. A senior liquidator might be charged out at say USD800 per hour, down to the secretary who might be charged out at USD120 per hour. The liquidator’s goal is to charge as many hours as possible, without being so extreme that the court pulls them up on it, or to finish up quickly if there is no more money left to suck.

[1] https://uk.practicallaw.thomsonreuters.com/9-518-5211

[2] https://uk.practicallaw.thomsonreuters.com/7-501-6870

[3] https://www.investopedia.com/terms/s/senior-convertible-note...

hnmullany• 4 years ago

The "S" in SEC stands for "Securities" -> they are chartered to protect investors. There are other bodies who are chartered to protect consumers.

pavlov4• 4 years ago

People who bought the FTT token on the FTX exchange most likely thought of themselves as investors, since the token promised rewards tied to the exchange’s cash flows.

I’m not sure it’s fair that the big boys get investor treatment and the retail suckers who were led to believe they’re investing get… nothing so far.

blitzar9• 4 years ago

Theranos and holmes ... convicted ONLY of defrauding VC investors. Not guilty of defrauding customers by faking medical tests etc.

chewz• 4 years ago

Well, for start investors put in dollars while customers put in some funny coins... It is hard to defraud someone out of some made up money...

matwood6• 4 years ago

I'll just quote part of what I said a month ago :)

And given what's leaked from their balance sheet, I don't see how people avoid jail time.

https://news.ycombinator.com/item?id=33608691

I'll also add that SBF going on tour was the stupidest thing he could have done. Every time he spoke, he was giving the government more evidence. Hubris has often been the downfall of the rich and powerful throughout history. What's changed is now we get to see it in real time with people like Musk and SBF.

bluGill2• 4 years ago

If he wasn't the type to go on tour and shout, then he wouldn't have attracted enough investors in the first place to be rich. It takes a specific personality to market things so others will buy, and that personality doesn't like to shut up and so won't.

Some things sell themselves, but most great ideas sit around unknown by people who need them just because they don't know about it. I'd love to buy a better mousetrap to take care of my mouse problem, but if one exists I don't know about it. If you shout that your mouse trap is better I'll probably try it.

blitzar9• 4 years ago

It worked to get him to a net worth of 100bn why wouldnt it work again.

macrolime• 4 years ago

I think I know just the thing for you. It's a sophisticated autonomous mousetrap that doesn't even need bait, as it has the ability to locate and catch the mouse all by itself. With its unique combination of strength and agility, this mousetrap is able to outsmart any mouse. When you least expect it, the mousetrap will pounce and capture its target. It's called a cat.

thepasswordis• 4 years ago

like Musk and SBF

I‘m sorry, but what?

Just to give some perspective that I don’t think HN really gets: most of my friends have increased their twitter usage.

If you aren’t aware, whatever the team did there a few days ago really has appeared to cut bots down to almost 0.

SBF is an [alleged] criminal who has [allegedly] defrauded people of billions of dollars, and will likely be spending a substantial amount of time in prison for it.

These things aren’t the same. A restaurant changing their menu to suit a larger audience is not “hubris” simply because it no longer caters to you.

SilverBirch2• 4 years ago

Just for reference what Musk did is just blocked half the mobile carriers in emerging markets, kneecapping their ability to grow Twitter in those countries whilst only temporarily tamping down on bots. The bots will be back, the users won't.

katbyte• 4 years ago

most of my friends have increased their twitter usage.

it doesn't matter if people use the platform more if they don't pay for the blue check or if advertisers are not interested in paying for ads.

actualwitch• 4 years ago

Just to give some perspective that I don’t think HN really gets: most of my friends have increased their twitter usage.

So your friends are using twitter more and you just assume everyone else does too? Have you considered that people who have other opinions exist and theirs is as valid as yours?

mradek• 4 years ago

Twitter use is up because everyone wants to see the sometimes insane tweets put their by their top leadership. I had never used twitter prior to Elon taking over, and I made an account to check it out for a week or two.

Ultimately stopped using it because it isn’t really for me. I also don’t care enough for anyone’s opinion that much that I’m willing to scroll through insanity, bots, and a holes to find a nugget. But I’m sure millions of others do enjoy that.

HN is my fav social media lol.

kibwen4• 4 years ago

most of my friends have increased their twitter usage

Meanwhile, all of my friends have erased their Twitter accounts (some migrating to Mastodon, others to other social media sites, others happily forgoing social media at all), all of the organizations I'm a part of have stopped using Twitter for official communication, the subreddits I follow have banned Twitter links, and my product has removed its Twitter integration. Large swathes of the internet are defederating from Twitter.

matwood6• 4 years ago

If we assume (big assumption) Musk has done everything right since the closing, he may still just be rearranging the deck chairs on the titanic. His hubris got him stuck in a deal way over paying for Twitter. I think he thought he could run his mouth and get out of any real consequence like he's done every other time. Except this time he found out.

astrange2• 4 years ago

I've gotten more bots, all three of crypto pump replies, sexy women accounts following me, and group DMs about job offers in Japanese.

Aaronstotle• 4 years ago

Everyday I am tagged in a crypto bot spam comment and get invited to a spam group DM. Twitter still has issues

_hcuq• 4 years ago

Are your friends buying advertising on Twitter?

eric_cc2• 4 years ago

people like Musk and SBF

What a ridiculous take. It’s also very telling of where you get your information. Orange Man Bad has transitioned to Elon Bad.

matwood6• 4 years ago

Is there an information source that says he didn't massively overpay and saddle Twitter with a near insurmountable debt load? Reports are Twitter has stopped paying its bills [1], which is common when bankruptcy is inevitable.

[1] https://www.nytimes.com/2022/12/13/technology/elon-musk-twit...

0xbadc0de5• 4 years ago

"won't somebody /pleeease/ think of all those poor VC's"

Facetiousness aside, whatever results in seeing those responsible held accountable is a step in the right direction. I suspect that this was the easier case to prepare and that the customers will eventually see their day in court as well.

lajosbacs2• 4 years ago

I hope that swiftness of these charges will slightly diminish all these voices that keep repeating everywhere that 'the man' is on it with him, that the media defend him etc.

cycrutchfield2• 4 years ago

Unlikely. That sound you hear is the goalposts being moved yet again

bena• 4 years ago

Yeah, now the charges are "too soon" or something.

I noticed the behavior living in oil country concerning gas prices. When gas prices go up, that's bad because it makes everything costs more. When gas prices go down, that's bad because it makes the oil and gas industry fire everyone and then no one has jobs.

Apparently there's a Platonic ideal price for gas, just no one can tell me what that is.

Also with various shootings. Right after, it's too soon to talk about current gun laws. Too long after, it's pointless to talk about because there hasn't been an incident in so long. We missed the window yet again. But no one will tell us when that window opens.

Same thing here, apparently there's a perfect amount of time for charges. The Goldilocks zone, the golden hour, when the planets align and you can charge criminals for crimes and you'll magically have enough evidence and not too much time has passed. But try to pin down anyone on a concrete time frame and you'll get almost as much deflection as SBF tried to give the world.

ethanbond4• 4 years ago

It won’t, just like even in this thread you see the perennial “this is good, actually.”

At rock bottom the crypto world is held up by unadulterated greed and it shows on both ends: I am willing to make too-good-to-be-true “investments” because greed; when that unfolds the obvious way it was going to then it’s someone else’s fault and they’re not moving fast enough — also greed.

In short: “Why aren’t I rich yet, I’ll speculate” -> “why aren’t I whole yet, I’ll speculate again!”

Majromax• 4 years ago

It won’t, just like even in this thread you see the perennial “this is good, actually.”

That's not quite what the grandparent poster was talking about.

One strain of thought on FTX/SBF has been conspiratorial. Allegedly, SBF was "a big Democratic donor" with connections in high places, so he would evade any serious US-based law enforcement action.

This view is likely related to FTX's (previous) attempts to present itself as the lawful-good crypto exchange, actively lobbying for US regulation. Such efforts necessarily come with a lot of political deal-making, making the idea of a corrupt bargain more superficially plausible.

guardiangod• 4 years ago

diminish all these voices that keep repeating everywhere that 'the man' is on it with him, that the media defend him etc.

Nah. Now they switched to "doing this fast to protect the big names/rich people".

You never win.

paganel• 4 years ago

that the media defend him etc.

I don't any have any cent invested in all this crypto madness, but I would have expected bigger fish to fry as a result of all this shitshow.

For example the head of SEC itself to fall [1]. Or maybe the VC industry itself to see material consequences of its amateur-hour due-diligence, and I'm not talking about the couple of hundred million of not their money that Sequoia lost on this, but of withdrawals worth tens of billions out of an industry that is run by know-nothings (and who know-nothings bring our industry down as a whole as a result of their shitty resource allocation).

[1] https://twitter.com/EpsilonTheory/status/1591182630942539776

lajosbacs2• 4 years ago

Not defending Sequoia, but I'm pretty sure that they have lost their money as well -- private equity always invests along with their investors.

bouk• 4 years ago

Ah yes of course, as Matt Levine would say: everything is securities fraud

perihelions• 4 years ago

Note that the SEC's is merely a civil action. The federal criminal indictment hasn't been unsealed yet (but should be soon, today [0]).

[0] https://apnews.com/article/technology-business-bahamas-unite... ("We expect to move to unseal the indictment in the morning and will have more to say at that time")

insaneirish• 4 years ago

Note that the SEC's is merely a civil action.

The SEC can only bring civil action, for those wondering why it's a civil action.

arcticbull3• 4 years ago

I believe the federal criminal indictment is public now. [1]

- First count: Conspiracy to commit wire fraud to defraud customers.

- Second count: Wire fraud on customers.

- Third count: Conspiracy to commit wire fraud on lenders.

- Fourth count: Wire fraud on lenders. (again, specifically lenders to Alameda)

- Fifth count: Conspiracy to commit commodities fraud.

- Sixth count: Conspiracy to commit securities fraud.

I believe there's more, I quoted the above text from a thread by Frances Coppola [2].

[1] https://www.johnreedstark.com/wp-content/uploads/sites/180/2...

[2] https://twitter.com/Frances_Coppola/status/16026873331696025...

etimberg• 4 years ago

https://www.bbc.com/news/live/world-us-canada-63953033 shows counts 7 and 8 as

- Conspiracy to Commit Money Laundering

- Conspiracy to Defraud the United States and Violate Campaign Finance Laws

Finbarr• 4 years ago

Imagine reading a document like this with "United States of America v Your Name" at the top. It would be terrifying. These charges are serious and SBF is going to go down for a long time if convicted.

There's also a forfeiture section in the federal indictment that demands forfeiture of all any and all property that is traceable to the commission of the offences.

dang2• 4 years ago

It's now being discussed here:

The United States of America vs. Samuel Bankman-Fried Indictment [pdf] - https://news.ycombinator.com/item?id=33969896

I suppose we could merge these threads since it's not as if they're partitioned along the lines of "this thread for the civil complaint, that one for the criminal charges".

c0m• 4 years ago

The SEC's complaint. It's a brutal read if you're Sam:

https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...

clintonwoo• 4 years ago

I read the whole thing, it's a damning account and he's never going to work in finance again.

dereg• 4 years ago

This is the biggest understatement of the century.

Bayko• 4 years ago

I highly doubt Sam needs to worry about his career prospects sir. But if he is would love to see solve some LC hards

blitzar9• 4 years ago

31. From the inception of FTX, Bankman-Fried diverted FTX customer funds to Alameda, and he continued to do so until FTX’s collapse in November 2022

I assume they have the evidence, and while what SBF was saying (we never touched customer funds etc.) was never particularly credible - it blows up the narative that he has maintained to date. Indeed much of the case is built on his public statements (and testimony) being false.

lovehashbrowns• 4 years ago

They have SBF’s own idiot mouth as evidence when he claimed, multiple times, that Alameda was created first, got its bank account, and FTX used that Alameda bank account when FTX was created.

He alludes to it here: https://youtu.be/4o_jPzBZSIo at 11:58 or so, where he mentions “before FTX had its own bank account.”

I know there’s a longer explanation, but that’s the best citation I can come up with off the top of my head. In the longer explanation, he specifically says that creating a bank account for a new company can be difficult, so they used Alameda’s bank account as they waited for a bank account specifically for FTX.

This goes specifically with point 31 in the document. Of course, they’ll have better evidence once they go through discovery, but this moron has been on a self-incrimination tour. I’d call it a wild success!

heurisko• 4 years ago

Just a few days ago, he was hoping to "make people's money back". [1]

It's a bit sad, as he appears delusional. A less forgiving viewpoint would be that his background cultivated his sense of being untouchable; that it was just a case of having another go.

But not as sad as the people who lost money they couldn't afford to lose.

[1] https://www.bbc.co.uk/news/technology-63911363

tehwebguy• 4 years ago

he appears delusional

Yeah, he thinks he'll look better as delusional than criminally greedy and apparently he's right

dang2• 4 years ago

Thanks - we've changed the URL from https://www.sec.gov/news/press-release/2022-219 to the actual complaint, which has more information.

jpgvm2• 4 years ago

a16z and Sequoia deserve their losses.

They both went all-in on this crypto bullshit in their latest funds and convinced otherwise healthy companies to pivot into it also. Their returns for these latest funds will be decimated and I couldn't be happier.

misiti37803• 4 years ago

a16z didnt invest in FTX did it ? ( i agree with your thesis nonetheless)

jpgvm2• 4 years ago

I don't think so no, but they were the other VC that all-in'd on crypto.

srj• 4 years ago

They will probably be the only ones who get some of their money back.

LatteLazy• 4 years ago

The best time for regulators to act would have been >1y ago before everyones money was lost when they were too busy going after Kim Kardashian.

The second best time is now.

UltraViolence• 4 years ago

I hope he rots in jail like that other fraudster Madhoff.

I'm pretty sure he already saw this coming and moved his assets into his family circle. In addition he probably also set out to destroy incriminating evidence and contacting political proponents to call in favors.

rootusrootus• 4 years ago

I'm pretty sure he already saw this coming and moved his assets into his family circle.

That's a mean thing to do. Just ask Madoff's family how that works out.

cs7022• 4 years ago

The most interest aspect in the FTX saga, for me, is that SBF was treated very gently by major news outlets (and maybe by government regulators too)... until regular individuals in social media started asking: Why is SBF being treated so kindly? Why would journalists (and regulators) assume that SBF meant well?

A possible answer that no one ever mentions is that SBF possesses many qualities that are valued and admired in elite circles. Consider:

* SBF attended MIT, an institution that is valued and admired in elite circles.

* At MIT, SBF majored in Physics and Math, two difficult subjects that require hard work, academic rigor, and high intelligence -- all qualities that are valued and admired in elite circles.

* Both of his parents are prominent professors at Stanford, so they are also valued and admired in elite circles. Presumably, over the years they tried to instill in SBF the values and behaviors that are most prized by other members of the elite -- including honesty.

* By all accounts, SBF truly could understand and could explain the distributed consensus protocols and algorithms that enable crypto-assets -- abilities that are valued and admired in elite circles.

* By many accounts (before FTX's implosion), it seemed that SBF actually believed in his own slogan, "effective altruism" -- the kind of inspiring idea that is valued in elite circles.

rhaway84773• 4 years ago

SBF didn’t believe in his effective altruism slogan. He basically admitted in the texts to the reporter he thought would be private that the EA stuff was BS.

Also, I’m not sure what you mean by “treated kindly”.

If you’re talking about why he wasn’t arrested yet, it’s obvious because the SEC was building its case, and more so because he was voluntarily going on public forums and publicly admitting increasing levels of guilt.

I never understood the people complaining about why he wasn’t arrested yet. If you’re a prosecutor making a case against someone, why would you stop them from going to the media and publicly boasting about new crimes?

misiti37803• 4 years ago

they are referring to this: https://www.coindesk.com/layer2/2022/11/15/lets-talk-about-t...

cs7022• 4 years ago

SBF didn’t believe in his effective altruism slogan.

That's not what I meant.

What I meant is that before FTX's implosion, anything you would read, hear, or see about SBF would make it seem as if he actually believed in it!

hammock2• 4 years ago

He basically admitted in the texts to the reporter he thought would be private that the EA stuff was BS.

interested, source?

blitzar9• 4 years ago

The most interest aspect in the FTX saga, for me, is that SBF was treated very gently by major news outlets (and maybe by government regulators too)...

He wasnt

until regular individuals in social media started asking

And there is the crux ... until blah blah. "twitter" didnt get them over the line to arrest him. Neither I nor "twitter" can prove a counter factual but it is just a fantasy of people who have read and written too much shitty fan fiction that SBF was never going to get investigated

slibhb• 4 years ago

A lot of people have made this argument -- that he was treated gently -- but to me that looks like good old-fashioned journalism. People have become so acclimated to the decline of objective journalism that when they see it, something seems off.

notahacker• 4 years ago

Yeah. People seem to be bizarrely fixated on the bits of stories where they mention what SBF was famous for and quote his excuses and don't state that he's definitely guilty of this crime that we were waiting to see if he'd be charged with, and miss the point that the headline is that the guy is accused of a serious crime and articles on famous people accused of crimes usually mention what they're famous for even if that's good, quote a denial/excuse if there is one and don't announce what they're guilty of before they've even been charged with anything.

Sure, he did more full-blown interviews than most people accused of serious crimes, but that's mainly because most of them listen to their lawyers.

If media outlets actually felt particularly kindly disposed towards SBF, they'd be deploying the rhetorical tricks used to defend their favourite politicians (can we trust the investigators? aren't the big losers in FX the sort of financial institutions that were taking calculated risks anyway? and how many of them go to jail when they lose their customers' money? aren't other crypto institutions much worse and what's their role in Alameda's collapse? maybe he actually he could win all that money back, he's made billions before?) not talking about how a one time darling of the Effective Altruism movement and former billionaire is under investigation after his brokerage collapsed after he allegedly transferred its customers' funds to prop up his other failing company. No matter how much biographical detail gets included beforehand, that's not a rosy picture.

bnralt• 4 years ago

The most interest aspect in the FTX saga, for me, is that SBF was treated very gently by major news outlets (and maybe by government regulators too)... until regular individuals in social media started asking: Why is SBF being treated so kindly? Why would journalists (and regulators) assume that SBF meant well?

I went through a few examples people brought up of journalists supposedly treating Bankman-Fried kindly the other day[1]. When I read what journalists were actually saying, they were quite negative about Bankman-Fried (saying he was "betraying his clients" or saying FTX "didn’t crumble due to bad luck, but what now appears to be unsustainable layers of deception").

The crypto community seems to be trying really hard to deflect from the fallout of yet another major crypto scam, and spinning whatever they can to make this seem like this is the fault of establishment non-crypto folks. Remember that just a few days ago people were claiming that Bankman-Fried hadn't been charged because he had paid off U.S. politicians.

[1] https://news.ycombinator.com/item?id=33811681

reaperducer• 4 years ago

crypto community seems to be trying really hard to deflect from the fallout of yet another major crypto scam

For the last few months, any time something bad happens with FTX, there are dozens of people who show up complaining that the media went easy on SBF. They most often use the word "puff" or the phrase "puff piece," as if the comments were all written by the same bot farm.

Then when someone calls them out on it, they're suddenly silent. Which makes me agree with you that this is people trying to deflect from the greed at the root of this, trying to portray themselves as victims, and if the big media had just given them some warning, they wouldn't have lost billions of dollars.

zeven75• 4 years ago

Several months ago, I found myself having a few mocktails and splitting vegan snacks with Sam Bankman-Fried at a restaurant near my house. We touched on, among other things, his proposal to create a new publication featuring writers he liked, including me.
I declined, which obviously in retrospect was the right choice. I told him that I like my Substack just fine and make plenty of money, though he was happy to offer more. But I also told him that given the extent to which we agree on a lot of important issues, I thought it was a lot more valuable to these causes for me to maintain credibility by not accepting any of his money.

Meanwhile the CEO of The Block received a $43M "loan" from SBF[1].

[1] https://www.coindesk.com/podcasts/the-breakdown-with-nlw/sbf...

sifar3• 4 years ago

> When I read what journalists were actually saying, they were quite negative about Bankman-Fried

I think the issue was there was no pressing follow up to his evasive replies. e.g Sorkin's interview. He was basically allowed to get away with "I didn't knowingly do it."

yterdy2• 4 years ago

Your definition of "quite negative" and mine are very different. When it comes to situations like this (regarding a young man, his criminal misbehavior, and insitutional response to that behavior e.g., mass shooters), I generally go back to the New York Times' infamous characterization of Michael Brown - a black teenager shot dead in the street and in broad daylight, over a box of cigarillos, by a police officer with a checkered professional history - as "no angel" (among other declarations). If you can't muster something perhaps at least as critical for an older young man who has nuked a measure of wealth equivalent to about half the GDP of the country where his company was based (or, the total wealth of ~50,000 Americans at the median net worth; or, a few hundred million boxes of cigarillos), well... Maybe you're going easy on him.

It's naive to think that affinity is not influencing, if not driving, the way that journalists regard and write about their subjects.

rax0m• 4 years ago

Arthur Hayes has written extensively [0] on these points.

[0] https://blog.bitmex.com/white-boy/

BogdanPetre• 4 years ago

Really enjoyed reading that, thanks!

jwmoz2• 4 years ago

I hate the title. What if this was the other way round?

JeremyNT• 4 years ago

The most interest aspect in the FTX saga, for me, is that SBF was treated very gently by major news outlets (and maybe by government regulators too)... until regular individuals in social media started asking: Why is SBF being treated so kindly? Why would journalists (and regulators) assume that SBF meant well?

This wasn't universally true. See the VICE coverage for example.

The "old" media bought into SBF in exactly the same way it bought into Elizabeth Holmes, presumably for some of the same reasons. They have a strong bias/gravity towards covering "wunderkind" entrepreneurs, and they do "access journalism" with these people. It's more about their personal lives and personalities, because that's the story that always sells.

In addition, most outlets (including the NYT) have had a massive blind spot into how shady everything in the crypto space really is. They've long bought the bullshit, and many of their "crypto reporters" are unquestioning crypto bros who basically are industry mouthpieces rather than real journalists. So in a sense they're actually complicit in all the scams and losses, because they've boosted the fiction that "crypto" is somehow legitimate.

One has to hope that a corner has finally turned here, and SBF's highly visible fall will cause these "old" outlets to start doing actual real journalism on the whole "industry" rather than just fluff pieces and boosterism.

PhasmaFelis2• 4 years ago

Most of these seem to boil down to "he seemed like a smart guy who knew what he was doing and wanted to help people." That's basic grifting. It seems odd to say that it only works on elites.

Particularly the last. Elites love to help people, unlike common folks who are too selfish to fall for a con like this? That's the opposite of the usual stereotype.

EamonnMR• 4 years ago

The only thing gentle about how he was treated pre-collapse is that they didn't preface every article with a comparison to MtGox and a disclaimer to avoid the scam.

Gareth321• 4 years ago

To me this is just one more nail in the coffin of institutional media. There is clearly bias baked into reporting at the institutional level now, and no desire to uproot it. This is what makes independent media so important today.

LarryMullins3• 4 years ago

Agreed, I think it's institutional. Particularly, the reporters at the big news firms come from privileged backgrounds, are biased towards their own, and use the access that comes with their privilege to further their careers. Those who come from modest backgrounds aspire to join the ranks of the privileged, necessary to further their careers, by sucking up to those above them. "Access journalism" intrinsically favors privileged journalists and incentivizes journalists from less fortunate backgrounds to play along.

yonaguska2• 4 years ago

You keep using the phrase "valued in elite circles". I honestly don't think many of these traits are actually valued in elite circles. The perception of these traits is valuable. The values...I'm not so sure. Quite a bit of energy in elite circles is spent on curating an image, rather than actually being decent. You have a whole set of social rules that you follow to distinguish you from the lesser people, and it's all about following the rules, not actually being genuine. Actually being genuine- well, you're kind of a naïve sucker, and even worse- you're unpredictable. Honesty is only valued so far as you follow the rules, and are honest about your own rational self interest when doing business. Hard work and high intelligence are definitely valued, but even more valuable is the person that is intelligent enough to not work hard.

In my armhchair opinion, the Illusion of these values is simply a descendant of the feudal concept of Chivalry- it's important to have rules and social norms to establish an in-group of trust, and just as important for the non-elite to know that the elites have their best interest in mind, via "effective altruism"- because the elites are also honest, hard-working people, that got there through their honest hard work. And hey, maybe you can join that club if you invest in the right trustworthy person.

zeven75• 4 years ago

I'll guess the word "elite" here is not really the best term to convey what parent meant. The phrase "valued in elite circles" at first made me think of George Soros types, in which case the values don't fit. But I think parent meant more of the avocado toast NPR/NYT column writer types when he said "elites", in which case the values described make more sense.

I'll disagree on the point about ability to explain crypto protocols/algorithms. You're either in tech and have a body of knowledge that preps you to understand the details and then you might care about it, or you don't really care about how it works. I don't think there's a group of "elites" of any kind that care too much about you explaining how crypto works.

waylandsmithers• 4 years ago

I would guess some number of people in these newsrooms either:

1) Don't understand anything about bitcoin 2) Own bitcoin and don't want to do something that would push the price lower

grappler• 4 years ago

I think it just took some parts of the media a few days to sort through the noise and pick up what the most important developments actually were, and perhaps get the necessary confirmations on the meaningful developments (and lack of confirmation on the wrong ones).

It takes any profession time to correct mistakes and get the story right, but the media have the unenviable task of trying to do that very very quickly.

nullcaution• 4 years ago

Occam's razor. I think the explanation for this treatment is much simpler, investment. Lots of these mainstream media corps probably have some interest in dammage control in crypto's price.. or they were being persuaded to be gentle by influential contacts in finance with intrest in stability. For instance, we know now Black Rock had a very significant stake in FTX. Its not totally crazy to think they might have reached out to Bloomberg or the Financial Times to keep the pressure off SBF.

Consider the alternative where the media "slammed" SBF on the daily, it would further discredit crypto and lead to a faster decline in value, therefore it would be harder for financial institutions to efficiently devest from crypto without significant losses.

Sorry, typed this on my phone.

jwmoz2• 4 years ago

From what I can see money, wealth and power are valued in elite circles, not sure about what else.

onos• 4 years ago

Impressed no discussion here of his large donations to the Democratic Party. That’s the main talking point in conservative circles, whether accurate or not.

hammock2• 4 years ago

The most interest aspect in the FTX saga, for me, is that SBF was treated very gently by major news outlets (and maybe by government regulators too)... until regular individuals in social media started asking: Why is SBF being treated so kindly? Why would journalists (and regulators) assume that SBF meant well?

More interesting to me is that the DoJ moved to arrest SBF the night before he was set to testify in Congress. When else have prosecutors moved so aggressively to stop a defendant from making self-incriminating statements? His testimony would be admissible and likely devastating at trial

99_00• 4 years ago

The establishment protects its own.

freejazz2• 4 years ago

Or it just took some time to put the indictment together... I wonder which one is a simpler explanation...

Animats• 4 years ago

Madoff was treated very gently for decades.

Incidentally, here's the list of real estate in the Bahamas purchased with FTX funds.[1] Here's the "Albany resort", where most of those properties are.[2]

There was discussion earlier about prosecutors having to prove criminal intent. Did this happen by accident, or were those guys stealing the money for their own benefit? It doesn't matter much what Bankman-Fried has been saying. When the prosecutors have to convince a jury of criminal intent, expect those pictures of the Albany resort to be shown. They didn't buy all those luxury condos with FTX funds by accident.

[1] https://restructuring.ra.kroll.com/FTX/Home-DownloadPDF?id1=...

[2] https://www.albanybahamas.com/

lilsoso• 4 years ago

There are more curious details surrounding his parents. And you've neglected to point out the SEC connections.

Also, how many lawyers has Sam had now? Who are they? Who have they previously represented?

There's more to the story.

hintymad2• 4 years ago

Why would journalists (and regulators) assume that SBF meant well?

On "meant well", this seems the mirror of attacking one's motive. I noticed that journalists loved to assume the worst of the people they don't like and assume the best of those they do like. Attacking one's motive is really a malicious logical fallacy, as it's practically impossible to defend against such attacks. I really hope journalists focus on what people do instead.

slim• 4 years ago

* His last name is Bankman which suggests he descends from a bloodline of bankers -- bankers are trusted, valued and admired in elite circles

pigtailgirl• 4 years ago

-- relevant: https://www.sec.gov/news/press-release/2018-41 --

Theranos and Holmes have agreed to settle the fraud charges levied against them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares.

pseingatl• 4 years ago

Will the SEC claw back the political donations made with stolen funds?

mlissner• 4 years ago

The whole case is here:

https://www.courtlistener.com/docket/66631003/securities-and...

And if you want to get free email updates as it develops, you can sign up here:

https://www.courtlistener.com/alert/docket/new/?pacer_case_i...

hintymad2• 4 years ago

Can SBF still leetcode his way into FAANG after serving his terms?

blitzar9• 4 years ago

‘I Don’t Even Know How To Code,’ SBF Declares in Latest Interview

Sporktacular4• 4 years ago

It's infuriating how incredulous he acts.

It would be like giving a microphone to a nabbed thief who says 'I can understand why someone might construe breaking into a safe as a reason for concern. That's a reasonable criticism'.

Oh, you think?

rkagerer2• 4 years ago

A key allegation: In or around May 2020, Bankman-Fried directed that Alameda be exempted from the “auto-liquidation” feature of FTX’s spot margin trading services.

SEC Charges Samuel Bankman-Fried with Defrauding Investors in FTX [pdf]

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