Debunking Bankman-Fried's "$250 Million Bond"

Bankman-Fried’s $250M Bail Bond Isn’t What It AppearsSam Bankman-Fried walked out of federal court on Thursday essentially a free man.

News outlets all around the globe reported that Bankman-Fried got out of jail by posting a gargantuan, unprecedented “$250 million bond.” In court, Assistant U.S. Attorney Nicholas Roos described it as the “largest ever” pretrial bond.

But, as it turns out, there is less than meets the eye in this “$250 million bond.” In fact, a lot less.

Sam Bankman-Fried, Crypto Face Reckoning After FTX Failure

Even if you don’t know much about crypto, the flameout of FTX and the subsequent arrest of founder Sam Bankman-Fried, accused of orchestrating a years-long fraud that diverted billions in customer funds from FTX to Alameda, is juicy stuff. Last week, SBF was extradited to the US after spending time in jail in the Bahamas; two of his associates have pleaded guilty to fraud charges. In the long run, the FTX disaster promises to reshape the future of crypto. Unfortunately, investors aren’t going to find much comfort in the immediate aftermath, as Alexis Leondis writes. They, and other crypto advocates, will have to suffer through their own stages of grief.

Step 1: Denial.

Jury Convicts Fremont Man Of Insider Trading Scheme That Generated $7 Million In Illicit ProfitsAccording to evidence presented at trial, Barama formerly worked as a contractor at Palo Alto Networks. During that time he met an employee who worked in the company’s information technology department. From at least October 2016 through September 2017, the employee learned confidential inside information about the company’s quarterly revenue and financial performance through his employment.

Trial evidence demonstrated that the Palo Alto Networks employee traded on that confidential information himself in nominee accounts and also provided Barama with the information along with trading instructions. Barama used the confidential information and trading instructions to purchase Palo Alto Networks stock options. Once the company publicly announced its earnings for a prior quarter, the stock price reacted to the public disclosure and Barama’s earlier option trades promptly became highly profitable. Barama’s trades based on confidential inside information at times resulted in profits of more than five times the amount he invested. Barama ultimately made profits of $7.3 million on his options trades based on confidential information obtained ahead of four different Palo Alto Networks earnings announcements.

Sam Bankman-Fried’s Blame Alameda’s Ellison Defense Halted by FTX’s Gary Wang

Sam Bankman-Fried for weeks seemed to be trying to get ahead of former Alameda Research CEO Caroline Ellison’s widely expected cooperation deal with prosecutors, subtly casting blame on her for FTX’s collapse.

But when Manhattan US Attorney Damian Williams finally announced Ellison’s plea agreement Wednesday night, it came with a brutal stinger for Bankman-Fried: federal prosecutors also had a deal with Gary Wang, his FTX co-founder. Wang was far more integral to FTX than Ellison, making him a more dangerous witness for Bankman-Fried.

Caroline Ellison Apologizes for Misconduct in FTX Collapse

FTX executives had enacted special settings that granted Alameda access to an unlimited line of credit without having to post collateral, pay interest on negative balances or be subject to margin calls, she said.

“I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion,” she said.

Ms. Ellison also said she and Mr. Bankman-Fried worked with others to conceal the arrangement from lenders, including by hiding on quarterly balance sheets the extent of Alameda’s borrowing and the billions of dollars in loans that the firm had made to FTX executives and associates. Mr. Bankman-Fried was among the executives who received loans from Alameda, she said.

Under questioning from the judge, Ms. Ellison said she knew what she was doing was illegal.

FTX Friends Flip on SBF

Of course there will be several FTX movies, and maybe the most cinematic scene in the whole story is the meeting that Caroline Ellison, the chief executive officer of Alameda Research, FTX’s affiliated trading firm, held to tell her employees that they’d been stealing FTX customer money. Imagine! Imagine coming into the company all-hands meeting at the lucrative trading firm you work at, in the Bahamas, far away from your friends and family and competitors, in a slightly cult-like environment where your every need is catered to out of the firm’s enormous profits. And then your 28-year-old boss is like “so guys, a little bad news, actually we’re a Ponzi? Sorry if I didn’t mention that earlier.” Everyone quit immediately, but much too late.

That meeting happened on Nov. 9, the day after FTX death-spiraled and tried to sell itself to Binance, and has been reported before. But now Ellison is cooperating with prosecutors and regulators, so we have their version of her version of the meeting and, oof. Here is how the US Commodity Futures Trading Commission describes it….

SPAC Boom Ends in Frenzy of Liquidation

During the boom in blank-check companies, their creators couldn’t launch them fast enough. Now they are rushing to liquidate their creations before the end of the year, marking an ugly conclusion to the SPAC frenzy.

With few prospects for deals soon and a surprise tax bill looming next year, special-purpose acquisition companies are closing at a rate of about four a day this month, nearly the same pace they were being launched when the sector peaked early last year.

Roughly 70 special-purpose acquisition companies have liquidated and returned money to investors since the start of December. That is more than the total number of SPAC liquidations in the market’s history, according to data provider SPAC Research. SPAC creators have lost more than $600 million on liquidations this month and more than $1.1 billion this year, the data show.

Speech: PCAOB’s Ballooning Budget

The Public Company Accounting Oversight Board (“PCAOB”) is requesting $349.5 million for its 2023 budget and a $329.4 million accounting support fee to fund it. Sarbanes-Oxley gave the Securities and Exchange Commission (“SEC”) responsibility for approving the PCAOB’s budget, and the associated accounting support fee levied on companies and SEC-registered broker-dealers to fund the budget. I cannot support the PCAOB’s 2023 budget and accounting support fee, which—continuing the PCAOB’s budget expansion—are substantially higher than the 2022 numbers and may facilitate mission-creep at the PCAOB.

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The PCAOB budget process is a clunky accountability tool, one ill-suited to assess the appropriateness of a tax that now tops $300 million. As the PCAOB’s budget and the accounting support fee continue to creep higher, a structure that would afford Congress more direct oversight of the audit regulator could enhance its efficacy and accountability.