Caroline Ellison: Bankman-Fried "Directed Me to Commit These Crimes”

Caroline Ellison Testifies Against Sam Bankman-Fried, Blaming Him for Crimes

Ms. Ellison, 28, took the stand for about four hours on the fifth day of Mr. Bankman-Fried’s fraud trial in federal court. She began by taking more than 10 seconds to identify Mr. Bankman-Fried when a prosecutor asked her to point him out.

Then within the first 15 minutes of her testimony, Ms. Ellison repeatedly blamed Mr. Bankman-Fried, 31, for crimes that led to FTX’s implosion. She testified that he instructed her to use FTX customer deposits to finance venture investments and loan repayments by Alameda Research, a crypto hedge fund that she oversaw for him. She said Alameda took around $14 billion, only some of which it was able to repay.

“He directed me to commit these crimes,” Ms. Ellison said, as Mr. Bankman-Fried sat across the room flanked by his lawyers.

Crypto Sector Seeks Lawyers, Compliance Officers After Reputational Hits

To attract talent, some crypto firms are trying hard to distinguish themselves from the bad actors in the sector by promoting their approach to compliance. But it isn’t easy.

“There’s such a stigma to the industry right now,” said Jorge Pesok, who is hiring people for the legal team at the nonprofit HBAR Foundation, which awards grants to crypto projects.

“[The candidates] are just more hesitant to join now, because they are thinking about their long-term career moves, if it’s a smart idea, because some people have gotten burned,” said Pesok, who serves as chief legal officer at the foundation. He made the jump to crypto full-time in 2021, serving as the general counsel and chief compliance officer at crypto exchange platform Tacen.

The SEC’s WhatsApp Fines May Do More Harm Than Good

“Very strict enforcement” is a euphemism used by the American Automobile Association to warn motorists of places where even minor traffic violations will likely be caught and punished with heavy fines. The designation “speed trap” is reserved for very strict enforcement places that appear to be using fines to fund local budgets rather than to improve traffic safety.

The Securities and Exchange Commission has always been known for very strict enforcement, as is appropriate given the vast amount of money that flows through US securities markets, their importance both to the financial well-being of individual investors and the economy, and the gigantic rewards that can be harvested via dishonesty that might seem trivial in other contexts. However, the SEC may be crossing the line from very strict enforcement to speed trap with its fines for the use of WhatsApp and other messaging services by financial industry professionals.

Inflation Weighs on Company Performance, Leads to Securities Suit

A host of macroeconomic factors continue to weigh on the U.S. economy, including rising interest rates, economic inflation, and supply chain and labor supply disruption. Geopolitical factors such as the War in Ukraine and now the Gaza war in Israel further complicate the picture. These various factors have serious ramifications for the operations of many businesses and for their financial performance. In some cases, the impact of these factors on companies can also translate into securities litigation. In the latest example of this phenomenon, the auto parts company Advance Auto Parts has been hit with a securities class action following a decline the price of the company’s share price after the company announced that its “strategic pricing initiative” was not sufficient to avert the impact of inflation and other macroeconomic factors on the company’s financial performance. A copy of the October 9, 2023, complaint filed against the company can be found here.

Binance CEO CZ, Three Local Leaders Face Brazil Indictment Recommendation

In the latest blow to Binance’s global ambitions, a Brazilian congressional committee has recommended the indictment of four of the company’s senior leaders, including its founder and CEO Changpeng Zhao.

The committee, which had been conducting a probe into crypto-related ponzi schemes in Brazil, can only make suggestions. Brazilian police will decide whether to proceed with actual indictments.

The committee accused Zhao and three local Binance employees of fraudulent management, of offering or trading in securities without prior authorization, and of operating a financial institution without authorization.

Coinbase-SEC Unregistered Securities Case Sees New Amicus Briefs

Coinbase’s legal fight over the status of crypto met a new hurdle Tuesday, as U.S. state authorities and legal experts joined a campaign by federal securities regulators to argue the company unlawfully operated an unregistered exchange.

The Securities and Exchange Commission’s action against one of the country’s biggest crypto exchanges has been seen as existential for the future of crypto, with the sector accusing the agency of regulating by enforcement in the absence of new laws from the U.S. Congress.

Now, three new amicus briefs, which allow parties who are interested but not directly affected by the case to aid the court’s reasoning, argue crypto is neither significant nor special, and that the SEC can take on digital assets under existing law.

SBF Stuff: Elsewhere in Bets

Isn’t it risky for him to testify? Won’t he be subjected to withering cross-examination from well-prepared prosecutors who will trap him in lies? Well! I mean, sure, probably. But if he does not testify, all the jury will have is (1) the testimony of FTX customers who are like “all our money is gone,” (2) the testimony of all of his closest friends and colleagues testifying “yeah we stole all the money because Sam told us to” and (3) screenshots of FTX computer code that is like “IF you_feel_like_it THEN steal(all.the.money).” His testimony just cannot make things worse! The jury is going to get the prosecutors’ story and it is really, really, really, really bad for Bankman-Fried. He needs to tell his side of the story to have any shot at all. If his testimony has a 10% chance of being compelling and a 90% chance of being disastrous, that is all upside. If he does not testify, that is 100% disastrous.

California Climate Disclosure Rule Spurs Supply Chain Overhaul

The law, which California Gov. Gavin Newsom (D) signed Oct. 7, will go beyond California’s borders by requiring public and private companies with annual revenues over $1 billion that do business in the state to disclose their direct and indirect greenhouse gas emissions. Companies are getting ready by talking to auditors, lawyers and contractors in their supply chains to set their annual reporting in motion.

For some businesses starting from scratch—unlike Patagonia—there’s a long road ahead in both seeking pertinent data and determining how they can use those disclosures to showcase or make changes to their business.