After Rough Cross-Examination of Bankman-Fried, Closing Arguments Begin Today

Sam Bankman-Fried defense rests in criminal trial, jury decision nears

FTX founder Sam Bankman-Fried’s fate is now in the hands of the 12 jurors who have spent the past four weeks sitting just feet away from the former crypto billionaire in a lower Manhattan courtroom.

After three days on the stand, Bankman-Fried’s testimony wrapped up Tuesday morning and the defense rested its case shortly before noon. The jury was sent home, so the judge can decide in the charging instructions what’s admissible before jurors begin their deliberations. Closing arguments will start on Wednesday.

Bankman-Fried, 31, faces a potential life sentence if convicted on fraud charges tied to the collapse of crypto exchange FTX and sister hedge fund Alameda Research late last year. He pleaded not guilty.

Sam Bankman-Fried Denies Knowing FTX Money Was Missing, as He Concludes Testimony

Ms. Sassoon, the federal prosecutor, was relentless, asking Mr. Bankman-Fried about the failure of FTX, including if some of the cooperating witnesses had not told the truth about Alameda, the trading firm, owing billions in customer money to the exchange. Mr. Bankman-Fried previously testified that he did not learn about the missing funds until about October 2022, while other witnesses testified that he knew much earlier.

At one point, Ms. Sassoon asked Mr. Bankman-Fried if Adam Yedidia, a former FTX developer who testified at the trial, was lying when he said in court that Mr. Bankman-Fried had told him in the summer of 2022 that Alameda owed $8 billion to FTX customers.

“I don’t remember him saying it in that way,” Mr. Bankman-Fried replied.

An up to $1 billion fine may end the scandal that has captivated Wall Street

Authorities have spent more than four years investigating whether Morgan Stanley improperly tipped off favored hedge-fund clients to big blocks of stock coming on the market. The bank fired several employees and pulled back from the block trading business, losing market share to rivals.

A possible settlement with Justice Department and Securities and Exchange Commission would involve a fine of between $500 million and $1 billion, people familiar with the matter said. Morgan Stanley would also admit that it didn’t properly oversee its employees and commit to specific compliance changes, but likely wouldn’t have to plead guilty to a crime, avoiding a major black mark on a record that’s been cleaner than rivals’.

Bad Passwords Are Securities Fraud

If you are a publicly traded software company, and your customers access your product through a server, and you provide them with a default password to log into the server, and the default password is “password,” is that securities fraud? You know the answer!

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Is that right? It feels not quite right, in the sense that you rarely see equity research notes about public companies that are like “upgrading this company to a Buy based on its strong password policies.” The claim here is not really, not seriously, that investors read SolarWinds’ password policy, and decided to invest based on that policy, and then lost money when the password policy turned out to be fake. The more likely story is that investors blithely assumed most companies have good practices across a range of domains and figured that, if SolarWinds really was just letting anyone into its software, someone would tell them.

SEC Files Cybersecurity Disclosure Suit Against SolarWinds and Exec

The SEC’s action is noteworthy in a number of respects, not least of which because it not only targets the company, but also targets the company’s Chief Information Security Officer (CISO). The SEC’s action in that regard is sure to send a shiver down the collective spines of the CISO community. The Journal article notes that it “unusual’ for the SEC to target public company officials “who don’t directly oversee or prepare the company’s financial statements.”

The SEC’s allegations concerning the company’s December 2020 disclosure of the hack are also interesting. The fact that the agency targeted the company’s incident disclosure is particularly significant in light of the incident disclosure requirements in the agency’s recently issued cybersecurity disclosure guidelines; the agency is clearly signaling that it will be policing the adequacy of cybersecurity incident disclosures.

The bottom line is that cybersecurity disclosure is clearly at the center of the agency’s radar screen. The agency wants companies to know that companies’ disclosures about their cybersecurity risks are material, and are being monitored and policed.

3rd Circuit Banks Opinion Leads Fraudsters to Seek Shorter Prison Terms

US prosecutors described Gary Frank as “nothing but a con man” when he was sentenced to more than 17 years behind bars for scamming Prudential Insurance and others out of tens of millions of dollars.

But the Philadelphia-area businessman is expecting to find out this month if his sentence will be reduced under a US appeals court ruling that’s generated waves across the country. The opinionupended a long-standing practice of lengthening sentences for white-collar criminals based on how much they intended to defraud victims — versus the amounts they actually stole.

How Does the World’s Largest Hedge Fund Really Make Its Money?

After hearing Mr. Markopolos’s talk, Mr. Einhorn said it tracked with his suspicions, too.

That was all the encouragement Mr. Markopolos needed.

Bridgewater, he wrote to the S.E.C., was a Ponzi scheme.

Bridgewater was not a Ponzi scheme.

Which is not to say that all was as Mr. Dalio so often described it.

The S.E.C. and other regulators dutifully took meetings with Mr. Markopolos and his team. The whistle-blowers’ report was passed through the organization, and a team at the agency looked into it. (The S.E.C. declined to comment.)

According to a person briefed on the investigation, what they concluded, in part, was that the world’s biggest hedge fund used a complicated sequence of financial machinations — including relatively hard-to-track trading instruments — to make otherwise straightforward-seeming investments. It made sense to the S.E.C. that rivals couldn’t track them.

Satisfied, the S.E.C. stopped responding to requests from Mr. Markopolos and his crew for updates. Regulators raised no public accusations about Bridgewater. Mr. Markopolos moved on.

SEC Charges Four Long Island Men with Perpetrating $2 Million “Free-Riding” Scheme

The Securities and Exchange Commission today announced fraud charges against Eduardo Hernandez, Christopher Flagg, Daquan Lloyd, and Corey Ortiz, all currently or formerly of Long Island, New York, for perpetrating a multi-year “free-riding” scheme that generated more than $2 million in illicit profits.

The SEC alleges that, from approximately November 2018 through January 2022, the defendants opened brokerage accounts (the victim accounts) that provided the defendants an instant deposit credit once the defendants initiated a transfer of funds to those accounts from related bank accounts, but before the fund transfer was completed. The complaint alleges that, during this short window of time between initiating the transfer and when the bank funds reached the victim accounts, the defendants took advantage of the instant deposit credit feature to purchase illiquid securities from other brokerage accounts that they controlled, for prices at which no rational investor would have purchased them, thereby generating profits in the other brokerage accounts. Later, usually on the same day, the defendants caused those other brokerage accounts to repurchase the same securities from the victim accounts at or near the much lower market price, thereby closing out the positions and leaving the victim accounts with trading losses close to the amount of the instant deposit credits extended to the victim accounts….

Texting: Wall Street’s Latest Dilemma

“Given this kind of zero-tolerance policy, every component of e-communications, every kind of platform is going to be relevant,” said Marc Gilman, general counsel and vice president of compliance at electronic communications compliance provider Theta Lake. “They need to rely on technical support to capture these off-channel business communications.”

In addition, the various communication tools and features that became more popular during the pandemic—including whiteboards, screen-sharing tools and chat in videoconferencing platforms such as Zoom and Microsoft Teams—are also subject to the record-keeping rules in most circumstances, Gilman said, which means that interactions on these platforms need to be captured and stored for regulators.