Bankman-Fried Coming to America

Sam Bankman-Fried to reverse decision on contesting extradition

Former FTX Chief Executive Sam Bankman-Fried is expected to appear in court in the Bahamas on Monday to reverse his decision to contest extradition to the United States, where he faces fraud charges, a person familiar with the matter said on Saturday.

The 30-year-old cryptocurrency mogul was indicted in federal court in Manhattan on Tuesday and accused of engaging in a scheme to defraud FTX customers by using billions of dollars in stolen deposits to pay for expenses and debts and to make investments for his crypto hedge fund, Alameda Research LLC.

His decision to consent to extradition would pave the way for him to appear in U.S. court to face wire fraud, money laundering and campaign finance charges.

Upon arrival in the United States, Bankman-Fried would likely be held at the Metropolitan Detention Center in Brooklyn, though some federal defendants are being held at jails just outside New York City due to overcrowding at the facility, said defense lawyer Zachary Margulis-Ohnuma.

"The 'runway' no longer runneth over"

Here is an interesting video clip from the "Digital Assets and Cryptocurrency" panel at Securities Enforcement Forum 2022 (Nov. 15, 2022) moderated by Luke Cadigan. The panel was quite timely, taking place just a few days after the FTX scandal broke.  One of the panelists was David Hirsch, Chief of the SEC's Crypto Assets & Cyber Unit, and his comment at the conference was closely in line with what we have heard more recently from SEC Chair Gary Gensler. Hirsch said that there is a "runway" for crypto intermediaries and exchanges to come in and get registered but that runway is growing shorter. "If people are not going to come in ... and honor their compliance obligations then that's what our enforcement division is is there to help assist with and to bring enforcement actions as appropriate."

The Busiest Lawyer in Crypto is Turning His Attention to FTX

“What is Voyager Digital, and what do you do?” Sussberg said he asked. “I got a crash course in crypto.”

That was the start of an education that at this point might give Sussberg enough credits for an advanced degree in the murky world of cryptocurrency. In an industry swarming with lawyers, Sussberg has emerged as one of the busiest and potentially most important.

He represents three of the four major crypto exchanges that have filed for bankruptcy protection—Voyager, Celsius Network, and BlockFi—which together held billions of dollars in customer assets before they halted withdrawals. Sussberg’s work will help answer tricky first-time legal questions while determining how much, if anything, customers get back.

He’s also gunning to represent creditors of FTX, the failed exchange whose founder, Sam Bankman-Fried, now faces criminal charges. The committee is set on Monday to hear pitches from lawyers who will help a judge shape payout plans.

FTX Founder Sam Bankman-Fried Needs New Defense Besides ‘Sorry,’ Lawyers SayFor weeks, FTX founder Sam Bankman-Fried has been previewing a possible defense to criminal charges over the cryptocurrency exchange’s collapse: I made mistakes but I didn’t mean to do it.

But that’s probably not going to cut it now that he’s been arrested in the Bahamas and charged by federal prosecutors in New York, several lawyers not involved in his defense said. According to the indictment unsealed Tuesday, Bankman-Fried, 30, defrauded FTX customers and investors by using at least $1.8 billion of their money for personal expenses and risky bets by its sister trading firm, Alameda Research.

“‘I wish things worked out in the end’ is more of a (guilty) plea allocution than a defense,” said former federal prosecutor Harry Sandick. “It’s hard to see that being a triable defense. It’s hard to know what the whole thinking was in terms of those public statements, or if there was very much thinking.”

Is Crypto Insider Trading Really “Insider Trading”?

U.S. law currently does not statutorily define insider trading. But it’s understood to take place when someone with a fiduciary duty executes trades on the basis of material, non-public information. Those who engage in insider trading most frequently face civil penalties pursued by the SEC and/or criminal prosecution by the Justice Department. Section 10(b) of the Securities Exchange Act of 1934 and the SEC-promulgated Rule 10b-5 provide the basis for most enforcement actions and prosecutions of insider trading. But these require that a “security” be involved. And there’s the rub: Are certain cryptocurrencies securities?

Given this uncertainty, how can two recent crypto insider trading cases brought by the U.S. Attorney’s Office for the Southern District of New York be explained? The Justice Department billed one as the “first ever digital asset insider trading scheme” prosecution and the other as the “first ever cryptocurrency insider trading tipping scheme” prosecution. Of course, prosecutors must prove any charges they bring beyond a reasonable doubt. So will these cases resolve whether the cryptocurrencies involved are securities? No, not by a country mile. Here’s why: While insider trading cases today typically involve a securities fraud allegation, they don’t necessarily have to. One white-shoe law firm notes, “there is precedent for the stand-alone use of the wire and/or mail fraud statute to prosecute insider trading.” And in some ways, removing the securities fraud component makes the government’s case easier to prove.

‘Crypto winter’ has come. Will it become an ice age?

The crypto industry is calling this moment its “crypto winter.” They say it’s cyclical, much like a bear market for Wall Street — something that has happened before and will eventually blow over.

But experts say the ferocity and scale of this downturn could end up leading to more of an ice age.

“Where we are is at a deeply existential point for the industry,” said Yesha Yadav, a law professor at Vanderbilt University who closely follows cryptocurrency regulation.

A major determining factor: “How deep is the rot?”

Former FTX spokesman Kevin O’Leary defends endorsement of crypto firm

Kernen minced no words with the Canadian businessman. “Are you still calling yourself a venture investor?” the Squawk Box host asked O’Leary. “Your venture investing was your name being able to used as a spokesperson?”

“Joe, bad news. I have a very large advisory business,” O’Leary retorted. Kernen continued to press O’Leary. “Are you still conflating money you got paid by FTX that you lost, or did you actually invest some of your own funds?”

“Money is fungible,” O’Leary replied.

“So you didn’t. Once again, you’re a venture investor who ventured your name,” Kernan said. “You didn’t even pay your own money on the taxes.”

The Pressure Increases on Sam Bankman-Fried

What happened this week represents the beginning of a complex and costly process that will proceed on multiple tracks. The one that will likely garner the most attention is the fate of Bankman-Fried himself. “An extradition package will be delivered to the Bahamian government, and there will be a legal process in the Bahamas to assess the arguments,” Sandra Hanna, who leads the securities-enforcement practice at Miller & Chevalier, told me. “If he continues to contest extradition, it could take years.”

While that process drags on, the FTX bankruptcy, civil and criminal cases, shareholder lawsuits, and possibly cases involving others at FTX or Alameda will continue to work their way through the legal system, which could stretch out over a decade or more. As more time goes by, Bankman-Fried’s disadvantages in U.S. criminal court will increase as his former colleagues and employees consider whether to coöperate with the government investigation and potentially testify against him. “I think they’re going to take a meticulous look at each and every one of these people, and, assuming that the allegations are true, a large number of these people are going to want to plead out and coöperate,” Alex Lipman, a defense lawyer and former branch chief at the S.E.C., where he worked on the Enron case, told me. “The people who are first in the door get better terms."