According to a new filing in the bankruptcy case of cryptocurrency exchange FTX, it was an insider who spilled the beans on the company’s disgraced founder, Sam Bankman-Fried.
CNBC reported that Wednesday’s filing contained a letter from the Bahama’s Securities Commission to the commissioner of police which said they’d been informed of potential fraudulent activity within FTX by the company’s co-CEO, Ryan Salame.
Salame warned the Commission about the “possible mishandling of clients’ assets” by Bankman-Fried, the report said.
The letter, dated Nov. 9, was sent one day after the crucial midterm elections in the U.S. and just two days before FTX declared bankruptcy.
Salame told authorities the possible fraud involved the illegal transfer of funds between FTX and sister company, Alameda Research.
According to CNBC, “Salame told regulators that only three individuals at FTX — Bankman-Fried, Nishad Singh and Gary Wang — had the kind of access and authority to engineer the possibly fraudulent transfers to Alameda, a hedge fund and trading firm. Commissioners understood Salame to have said the fund movements and commingling allegedly authorized by Bankman-Fried were contrary to “normal corporate governance” practices.”
After contacting the Securities Commission, Salame returned to the U.S. where he owns homes in Massachusetts, Washington, D.C., and New Jersey, the report said. Additionally, CNBC noted that Salame had donated $20 million to the GOP.
Wednesday’s filing was the “first public acknowledgment” that an insider had turned on the crypto king. Salame’s cooperation with authorities will provide prosecutors with invaluable information and may trigger other insiders to turn against Bankman-Fried.
There is wide speculation that Bankman-Fried’s ex-girlfriend and the former CEO of Alameda, Caroline Ellison, 28, is a likely candidate. The New York Post reported on Wednesday that she may already be cooperating with prosecutors.
Former Securities and Exchange Commission lawyer Howard Fischer told The Post, “She would have among the greatest incentives to cooperate, as it was seeming likely that in his effort to exculpate himself, Bankman-Fried would try to finger her.”
According to Fischer, “The speed of the indictment and the breadth of the charges” against Bankman-Fried could indicate that “someone relatively senior is cooperating with the federal authorities in exchange for leniency for their own potential misconduct.”
Fischer added, “It is possible Bankman-Fried’s publicity tour, in which he repeatedly disclaimed either knowledge of — or responsibility for — mishandling or theft of customer assets, spurred senior officers to fear that he would specifically blame them.”
Bankman-Fried was arrested on Monday evening in the Bahamas after regulators had received a sealed indictment prepared by the U.S. Attorney’s Office for the Southern District of New York. During a hearing the following day, he was denied bail by a Bahamian judge who considered him to be a flight risk.
According to a news release from SDNY, the eight charges against Bankman-Fried include “two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering, each of which carries a maximum sentence of 20 years. … [one count of] conspiracy to commit commodities fraud, [one count of] conspiracy to commit securities fraud, and [one count of] conspiracy to defraud the United States and commit campaign finance violations, each of which carries a maximum sentence of five years.”
Bankman-Fried has indicated he will fight extradition to the U.S., according to a Bloomberg report.
Today we charged FTX Trading Ltd CEO and co-founder Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors. Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
— U.S. Securities and Exchange Commission (@SECGov) December 13, 2022
Curiously, his arrest came the day before he was scheduled to appear at a House Financial Services Committee hearing about the stunning collapse of his company on Tuesday.
Given Bankman-Fried’s close ties and his status as the second largest donor to the Democratic Party, some are questioning the timing of the arrest. Was it intended to prevent his testimony to Congress?
It will be fascinating to see how it all plays out.
All in all, it’s not a great time to be Sam Bankman-Fried.
A previous version of this article appeared in The Western Journal.
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