Sam Bankman-Fried
The legal issues surrounding the bankruptcy of FTX became instantly newsworthy because of the apparent Department of Justice involvement in the criminal aspects of the disappearance of hundreds of millions of dollars, the substantial “donations” — the term used by the founder Sam Bankman-Fried and his compatriots — to President Biden and other members of his political party, and the political connections of Mr. Bankman-Fried’s family to that same party.
That virtually guaranteed that Mr. Bankman-Fried’s group would receive special treatment from our government and mainstream media.
The special treatment began immediately when the New York Times paraphrased the labeling of Mr. Bankman-Fried by proclaiming “mismanagement of a charitable entrepreneur,” to describe the activities of SBF and his potential co-conspirators.
This author labeled this “FTX’s Second Act” (in the Dec. 16 News-Press). “FTX’s First Act,” discussed in “Post-Election Questions” (Dec. 3 News-Press), was the creation and operation of the cryptocurrency firm FTX, and related companies, first in Hong Kong and then in the Bahamas.
The Third Act began when the press, after Mr. Bankman-Fried was in jail in the Bahamas, dutifully followed his publicity campaign by reporting the “harsh” conditions in the unairconditioned jail where Mr. Bankman-Fried only ate toast for breakfast after they “harshly” rejected his request for a special diet. The only other prisoner that had such a publicity campaign was the basketball player Brittany Griner where the Russians even permitted photos from their gulag. Were the Bahamas hoping for favorable trade for Mr. Bankman-Fried?
The next fable was the DOJ claiming it was being tough by demanding a $250 million bail for Mr. Bankman-Fried.The truth is they accepted as security “the largest asset of his parents,” their house in Palo Alto, which they said was valued at $3.5 million.
The truth is this house, being on land owned by his parents’ employer Stanford University, meant the market value estimate is less than a million. Silence was the rule. His parents’ actual “largest asset” is a $16 million condo in the Bahamas, paid for by FTX.
Another abnormality is that the names of the two others who allegedly guaranteed his bail remain under seal although the rumors are that they are a couple related to Mr. Bankman-Fried’s mother.
Under this “flexible” bail, Mr. Bankman-Fried is permitted to spend his pre-trial days at his parents’ house and, according to reports, with access to the internet.
On Feb. 1, it was disclosed that Mr. Bankman-Fried had sent a text to the former general counsel of FTX, who has been identified as “Witness-1” in the criminal case against SBF, of “I know it’s been a while since we talked … I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible or at least vet things with each other.”
Judge Lewis Kaplan, who was appointed by President Bill Clinton and now as a senior judge chooses his cases, held that it appeared to be a “material threat of inappropriate contact with prospective witnesses.”
Unlike Mr. Bankman-Fried, whose alleged crimes are far greater than those alleged for Paul Manafort, Mr. Manafort was sentenced by Obama-appointed Judge Amy Berman Jackson to spend his pre-trial time, while he was presumed innocent, in solitary confinement while they attempted to connect him to President Trump.
Prosecutors allege Mr. Bankman-Fried was in touch with not only Witness-1, but current and former employees of FTX and Alameda, including Ryne Miller, FTX current general counsel, and John Ray, who was appointed CEO of FTX by the Delaware bankruptcy judge John Dorsey.
On Feb. 3, it was reported that Mr. Bankman-Fried’s counsel Mark Cohen was in talks with Andrew Vara, U.S. trustee in the DOJ branch responsible for bankruptcies, to “resolve the outstanding issues related to SBF’s bail conditions.” Mr. Cohen deserves a Pulitzer for calling Mr. Bankman-Fried’s violations “outstanding issues.”
Mr. Cohen argued that Mr. Bankman-Fried “needs to be in touch” with former employees, including FTX’s therapist George Lerner,” for an “important source of personal support” support from a potential witness? Compare to Mr. Manafort, whose solitary confinement even denied him even the “support” of visitors or other prisoners.
Mr. Cohen asked that Mr. Bankman-Fried be permitted to transfer his crypto assets. Mr. Manafort had his assets seized.
The triggering events were on Nov. 11, 2022, when FTX filed for bankruptcy in a Delaware court. Mr. Bankman-Fried resigned, and an estimated $687 million went “missing.”
The bankruptcy expert, John Ray, immediately criticized the lack of financial controls and the fact that the books, using the term loosely, were meant for the type of small businesses run from kitchen tables. He said the bookkeeping could not possibly be used to successfully track the billions of dollars passing through FTX, Alameda and their 130 subsidiaries.
Mr. Ray attempted to supplement the records by subpoenaing the people with knowledge of the transactions. Certainly, the DOJ would agree, particularly after the Mueller group of the DOJ issued 3,000 to 5,000 subpoenas primarily to Trump supporters.
But not this DOJ who, through Andrew Vara, is opposing proposals to subpoena Mr. Bankman-Fried and his family members.
Mr. Bankman-Fried’s father, Sam Bankman, was an employee of FTX, is a professor of taxation in the Stanford University law school, a certified psychological counselor and a big-time contributor to the Democratic Party. He accompanied his son on his visits to the White House. Mr. Bankman-Fried’s mother, Barbara Fried, is a professor in Stanford’s Law school, an expert on the redistribution of wealth, and a big-time contributor to the Democratic Party.
Mr. Bankman-Fried’s brother, Gabriel Bankman-Fried, worked for the Democratic committee in the U.S. House that regulated cryptocurrencies, ran a nonprofit funded by Mr. Bankman-Fried in D.C. that hosted political events, and may have accompanied Bankman-Fried to the White House.
Co-founder of FTX Gary Wang, and Caroline Ellison, Mr. Bankman-Fried’s sometimes girlfriend and the head of Alameda Research, have declined to provide the requested information.
Andrew Vara also opposed a request for information related to a hack and subsequent laundering of over $300 million worth of digital assets that took place on Nov. 11-12 because, he said, these subpoenas might duplicate an examination of a not yet appointed, and may never be appointed, examiner. This Pulitzer goes to Mr. Vara because the responsibility for criminal matters rests with the DOJ: not an examiner.
Judge John Dorsey is permitting the subpoenas.
There certainly will be a Fourth Act for FTX, as we progress toward the ever increasingly uncertain scheduled trial in October. Imagine what would happen if someone “leaked” that Mr. Bankman-Fried was involved with Donald Trump?
Brent E. Zepke is an attorney, arbitrator and author who lives in Santa Barbara. His website is OneheartTwoLivescom.wordpress.com. Formerly, he taught law and business at six universities and numerous professional conferences. He is the author of six books: “One Heart-Two Lives,” “Legal Guide to Human Resources,” “Business Statistics,” “Labor Law,” “Products and the Consumer” and “Law for Non-Lawyers.”
