Sam Bankman-Fried with U.S. Congress Woman Maxine Waters, Chairwoman of the House Financial Services Committee.
Comments by Brian Shilhavy Editor, Health Impact News
Within one day the entire narrative surrounding the downfall of Billionaire Crypto King Sam Bankman-Fried has gone from “why hasn’t this guy been arrested yet,” to “what is the government afraid he is going to reveal?”
Who all is this guy connected to, and just how far does the corruption spread?
Sam Bankman-Fried with former UK Prime Minister Tony Blair and former U.S. President Bill Clinton at a conference held in the Bahamas.
Bankman-Fried – the second biggest donor to Democrats behind George Soros – has all but admitted that he squandered billions of dollars of other people’s money carelessly, writing “I fucked up” on Twitter in a mea culpa about two weeks ago, days after a run on his exchange exposed it to be a shell of what many perceived it to be.
Institutional investors in FTX have written their stakes in the firm to $0.
The $5 billion bank-run on FTX that started it all has many everyday crypto investors worried that their “investments” with FTX are total losses. For many, it was their life savings.
Since then, Bankman-Fried’s former company continues to be at the center of extremely shady circumstances. It has seen[2] a “substantial amount” of its assets go missing in the days after its blowup.
The lawyer hired to oversee the liquidation of FTX, who also was in charge of the same task for Enron, has said[3] “he’s never seen a company in worse shape than FTX.”
“I have over 40 years of legal and restructuring experience. I have been the chief restructuring officer or chief executive officer in several of the largest corporate failures in history. . . . Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
To add insult to injury, Bankman-Fried has also admitted that his entire persona of being an altruist was a ruse, calling[4] it a “dumb game we woke westerners play.”
Now widely accepted by the public and most in the financial industry to have committed a massive $30 billion fraud that has spawned innumerable comparisons to Madoff and Enron, it’s unclear to me what more of an admission of guilt is needed to extradite Bankman-Fried to the United States and place him under arrest.
I know I’m not the only one who can hear the drumbeat of potentially covering up for Bankman-Fried beating a little louder with every day that goes by and he isn’t shown being paraded off somewhere in handcuffs.
Instead, the only photo I have seen of Bankman-Fried since his firm’s blowup has been one of him meandering around a grocery store[5] in the Bahamas.
For historical reference, Bernie Madoff was arrested[6] on December 11, 2008.
On December 11, 2008, financier Bernard Madoff[7] is arrested at his New York City apartment and charged with masterminding a long-running Ponzi scheme later estimated to involve around $65 billion, making it one of the biggest investment frauds in Wall Street history[8].
His arrest came two daysafter he admitted[9] to his brother that he was running a fraud.
“On December 3, he told longtime assistant Frank DiPascali[10], who had overseen the fraudulent advisory business, that he was finished. On December 9, he told his brother Peter about the fraud.”
Between the beginning of December and his arrest on the 11th, he also confessed to his sons, who[11] “turned him in”.
This means, at the maximum, it was 11 days between Madoff being “turned in” and being arrested. (Full article[1].)
FTX filed for bankruptcy in Delaware, but the names of the creditors were allowed to be redacted which resulted in an outcry by many in the media. Pam Martens of Wall Street on Paradereported yesterday[12]:
No One Trusts the FTX Bankruptcy Case: News Outlets Intervene; Justice Department Trustee Demands Independent Examiner; SEC Orders Disclosures
Two days after the disgraced crypto exchange, FTX, filed its bankruptcy petition in Delaware bankruptcy court, Wall Street On Parade published an article[13] explaining why it was problematic that the Big Law firm of Sullivan & Cromwell somehow managed to become the legal advisor on the FTX bankruptcy process despite its prior engagements with FTX and Alameda Research, the hedge fund owned by Sam Bankman-Fried, the co-founder and ousted CEO of FTX. We wrote at the time:
“The General Counsel of FTX.US, the FTX exchange serving customers in the U.S., is former Sullivan & Cromwell partner, Ryne Miller, who had co-chaired the law firm’s commodities, futures and derivatives group and worked at the law firm for eight years prior to joining this speculative, upstart crypto exchange…
“Another Sullivan & Cromwell partner involved with FTX is Ken Li, who represented FTX.US last year in its acquisition of crypto derivatives firm, LedgerX, which provides trading in crypto futures, options and swaps to both retail and institutional clients.
“But of greatest significance was Sullivan & Cromwell’s representation of both Alameda Research and FTX in their joint bid to purchase the assets of bankrupt crypto exchange, Voyager Digital Holdings, last year. While Sullivan & Cromwell’s website states that it represented FTX.US in its winning bid, the filings in the court case indicate that Sullivan & Cromwell lawyers Andrew G. Dietderich, Brian D. Glueckstein, and Benjamin S. Beller were also representing Alameda Research, Bankman-Fried’s hedge fund that is alleged to have misappropriated customers’ funds from the FTX exchange….”
Now, lots of other folks are sharing Wall Street On Parade’s skepticism of what’s happening in the Delaware bankruptcy court involving the FTX bankruptcy proceedings.
Just last Friday, December 9, four major news outlets filed an emergency motion[14] with the court asking for transparency in the proceedings. The news outlets are Bloomberg News, Dow Jones (parent of the Wall Street Journal), the New York Times and the Financial Times. The news outlet intervenors wrote as follows in their court filing:
“Debtors [FTX and its more than 100 affiliates incorporated in secrecy jurisdictions like the Bahamas and Antigua] have been accused of lack of transparency in their business. That mindset appears to have carried over to this bankruptcy, as they have taken the extraordinary step of seeking to keep under seal their list of creditors, a document which, with very few exceptions, has historically been open to the public. Intervenors object to the continued sealing and redaction of information that historically has been quintessentially public in nature.”
And this:
“Redacting the names of the creditors will have far-reaching impact as the case progresses. Will any creditor who wants to file a motion or an adversary proceeding be entitled to do so anonymously? Would preference actions redact the names of defendants who are creditors? This will turn the entire proceeding into a farce, with only the Debtor’s name publicly spoken. This would be contrary to Congress’s ‘strong desire to preserve the public’s right of access to judicial records in bankruptcy proceedings.’ Video Software Dealers Ass’n, 21 F.3d at 26 (quoted in In re Alterra Healthcare Corp., 353 B.R. at 75). The Court has indicated that proofs of claim will not be submitted anonymously. If disclosure it inevitable, there is no point to keeping the names anonymous now.”
That action by major news outlets followed a filing on December 1 by the U.S. Trustee[15], who is the watchdog for the U.S. Department of Justice in bankruptcy cases. The U.S. Trustee’s filing requested the appointment of an independent examiner in the FTX matter. (Full article[12].)
Sam Bankman-Fried was finally subpoenaed to appear before Congress this week, at two different hearings, but his attorneys apparently decided he would only attend one of the hearings.
Having been asked so nicely by Maxine Waters (a recipient of his donations), and agreed, to virtually-attend tomorrow’s Congressional hearing about the collapse of FTX, Sam Bankman-Fried has made it clear he will not be attending Wednesday’s Senate Banking Committee hearing on the same topic[17].
Senators Brown and Toomey are not pleased with Bankman-Fried’s refusal to attend their hearing and have just issued the following statement:
“Virtually every CEO, financial regulator, and administration official for Republicans and Democrats has agreed to testify in front of both the Senate and House when called upon – that is how congressional oversight works. We have offered Sam Bankman-Fried two different dates for providing testimony before the Senate Banking, Housing, and Urban Affairs Committee, and are willing to accommodate virtual testimony. He has declined in an unprecedented abdication of accountability,” said Senators Brown and Toomey.
“Given that Bankman-Fried’s counsel has stated they are unwilling to accept service of a subpoena, we will continue to work to have him appear before the Committee. He owes the American people an explanation.”
Forgive us for our ignorance here… but since when do you get to decide if you accept a subpoena… it’s punishable as contempt… just ask Steve Bannon?
And then yesterday, one day before he was scheduled to appear with Maxine Waters, the DOJ issues an arrest warrant and authorities in the Bahamas, finally, arrest Bankman-Fried. But now he can’t testify before Congress.
According to criminal defense attorney Jonathan Turley[19], this is unprecedented. Never before has the plaintiff in a criminal case, in this case the U.S. Department of Justice, intervened to prevent a defendant from testifying before Congress where he would have undoubtedly incriminated himself and made their case a slam dunk.
I think this bizarre story has now gone from “will he be arrested” to “will he be suicided away, like Jeffrey Epstein, to protect the guilty?”
The Justice Department Faces Questions After Effectively Preventing Bankman-Fried from Testifying in Congress
The arrest[20] of Sam Bankman-Fried yesterday was sudden and unexpected in light of Bankman-Fried’s plan to testify before Congress. As a criminal defense attorney, my reaction to the arrest last night remains unchanged: this is the first time that I can recall where prosecutors moved aggressively to stop a defendant from making self-incriminating statements. His testimony would have been entirely admissible and likely devastating at trial.
I previously wrote how Bankman-Fried was doing harm to his case by speaking in the media and to Congress. So why would the Justice Department move to stop the self-inflicted damage? You have a major target who was about to voluntarily testify for hours.
That is ordinarily a dream for prosecutors, but the Justice Department moved quickly to prevent that from happening. At that stage, Bankman-Fried was not charged or in custody. He was not protected by Miranda or other constitutional rules from self-incriminating statements.
Indeed, some of us had already warned that he was causing himself considerable damage in making such statements. This was a defendant with a large legal team facing possible criminal charges who seemed eager to speak about his actions and motivations. Most prosecutors would sit back, make popcorn, and watch this unfold.
The curious move led many to question whether the Biden Administration was eager to prevent questions on Bankman-Fried’s political contributions and associations. He was the second highest donor to Democratic causes in the last election cycle. His mother, a law professor at Stanford also heads a major Democratic campaign fund[21].
It is also possible that the Justice Department simply wanted to show the public that it was moving aggressively despite his close Democratic ties. It may have secured sufficient evidence (including possible cooperating witnesses) to satisfy the basis for charges and an extradition request. Moreover, the charges are likely to make some Democratic figures uncomfortable as this matter enters the criminal process.
Yet, that still does not explain why the Justice Department would not want to hear a full account from Bankman-Fried before effectively shutting him down as a criminal defendant. This is the first time that I can recall where the prosecutors, rather than defense counsel, moved effectively to muzzle a defendant.
Whatever the motivation, the timing of the charges effectively stopped the windfall of information coming from Bankman-Fried.
Bankman-Fried is accused of diverting customer funds from the start of his cryptocurrency exchange to support his hedge fund[22], Alameda Research. He is also accused of using his fraudulent practices to fund a lavish lifestyle, buy real estate, make venture investments, and fund Democratic causes. The range of charges includes wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.
Notably, the eight counts include violating campaign finance laws, a charge that could prove embarrassing for some powerful political interests.
The charges are on top of charges announced earlier Tuesday by the Securities and Exchange Commission, which alleged Bankman-Fried defrauded investors and used proceeds from investors to buy real estate on behalf of himself and family.
The details of those transactions might have been voluntarily disclosed under intense cross examination if the Administration allowed him to appear as a witness. Moreover, Bankman-Fried was already causing himself considerable harm in media interviews.
Bankman-Fried’s parents have left Stanford and are reportedly in the Bahamas with their son. They could themselves face questions. His father, Joseph Bankman, is a tax professor and was a paid employee[21] of his son’s company. His mother reportedly worked with him on some of these massive donations to Democrats.
The parents are reportedly[23] now concerned that the legal costs in the case could “wipe them out.”
Bankman-Fried has admitted that only a few hours of efforts a day might have avoided these losses. It sounds like a “my bad” defense. That will not fly in court and building on that defense might have sealed his fate.
The question is why the Justice Department moved to stop Bankman-Fried as he worked so hard to make the criminal case against himself. He comes across badly in these past interviews like a trophy-laden millennial who believes that he just needs to play to win. It is not quite that easy in a criminal case.
If he testified, Bankman-Fried could not only have made any criminal defense more difficult but he could have potentially tripped the wire for allegedly false or misleading statements under oath. It was a target-rich environment for Congress — and a potential bonanza for prosecutors.
Bankman-Fried was in a dangerous free fall. Despite his legal team, Bankman-Fried seemed to be praying for someone to “stop me before I speak again.”
Someone just did.
The Biden Administration’s move seemed to bring a more positive meaning to Ronald Reagan’s “top 9 most terrifying words in the English Language”: “I’m from the government, and I’m here to help.”
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