The US Department of Justice is investigating the founder of crypto exchange FTX. What can he be charged with?
The high-profile failure of Sam Bachmann-Fried and his FTX exchange is being hotly debated outside of the crypto industry: the day before, he was even invited to the next session of Congress this week to testify about the implications of the trading platform’s collapse. Sam has also taken an interest from the US Department of Justice. Sam is under investigation for allegedly siphoning off huge amounts of capital just before the bankruptcy of FTX was announced. We tell you more about what’s going on.
As a reminder, for now Bancman-Fried is based in the Bahamas, where his exchange was headquartered. Sam's involvement in the loss of billions of dollars of investors and customers is obvious to most in the crypto community, but he himself is unlikely to go to jail in the near future. Still, the bankruptcy trial of such a large company could drag on for years.
Sam himself is still working on his reputation. In particular, over the weekend, BBC sources reported Sam Bankman-Friede’s desire to start a new case and make enough money to compensate former FTX users. Here’s a relevant rejoinder.
I’m going to think about how we can help the world. Obviously, at least I have a duty to FTX users to do what I can for them.
Ex-CEO of FTX Sam Bankman-Fried
Apparently Sam either hasn’t realised his guilt or has a clear strategy on how to avoid prison. However, given the tens of billions in lost user funds, this is hard enough to believe.
What is Sam Bankman-Fried being accused of?
According to Cointelegraph sources, a federal investigation is looking into Sam’s potential involvement in the wrongful transfer of FTX funds to the Bahamas in the final moments of the exchange’s life before it officially declared bankruptcy.
In an anonymous interview with reporters, an insider said that MoJ representatives have met with court-appointed FTX probation officers to discuss the scope of information needed for further investigation. The DOJ also plans to investigate whether Sam has illegally transferred FTX funds to Alameda Research, the trading firm he founded.
It should be noted that sources have previously repeatedly confirmed the transfer of FTX users' funds to Alameda. Moreover, Sam's colleague had previously created a backdoor, i.e. a vulnerability in the overall system that allowed crypto-assets to be transferred unnoticed by the trading company. Accordingly, it is now up to legal representatives to verify this.
Former FTX executive Sam Bankman-Fried
Analysts speculate that the latter is likely to be ascertained by the Justice Department’s experts. There was indeed a close relationship between FTX and Alameda, which has previously been disclosed on blockchain transactions. Both companies were also involved in insider trading – and it is possible that this could add gravity to the Bankman-Frieda charge in upcoming court hearings.
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The legal battle for compensation justice is not just unfolding in the US – lawyers representing the Bahamas Securities Commission are seeking access to the FTX database of international client information.
They had earlier filed a petition with a Delaware bankruptcy judge asking for access to FTX’s client database to assist them in their investigation. The motion refers to previous failed attempts to gain access to the bankrupt crypto-exchange’s database. Lawyers said FTX employees and lawyers had prevented authorities from obtaining important financial information.
The information is stored in Amazon Web Services (AWS) and Google Cloud Portal databases. It contains wallet addresses, customer balances, records of deposits and withdrawals, as well as transactions and accounting data. Bahamian lawyers argue that FTX’s US bankruptcy proceedings “will suffer no harm or hardship if this assistance is provided”.
More specifically, the AWS platform was used to store customer information, while Google's services stored data separately on other customers who are residents of countries outside the US.
Expected outcome for Sam
The FTX CEO chair is now held by John Ray III, a lawyer with extensive experience who once handled the bankruptcy case of US giant Enron. Ray has previously said that FTX’s management has been marked by an unprecedented level of negligence in the running of its accounts. It is likely that this factor too could complicate the current lawsuit.
It is worth noting that the former management of Alameda Research is actively preparing its legal defence. In particular, Caroline Ellison, former head of Alameda Research, has already hired Stephanie Avakian, former head of law enforcement services at the US Securities and Exchange Commission. Accordingly, the latter will represent Allison going forward.
Ex-CEO of Alameda Research Caroline Ellison
We believe Sam is unlikely to escape justice, well the scheme with the new case to pay out funds to former clients doesn't work that easily. Bankman-Fried will be taking part in a congressional hearing as early as this week, so we're in for more details on the case. It will also be interesting to see what politicians' behaviour will be, given the evidence of Sam's serious political donations. Perhaps it won't end as well for the entrepreneur as it may have seemed.
Stay tuned to our millionaire cryptochat. There, discuss other important developments related to the blockchain and decentralisation industry.
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