Notes on SBF’s Indictment and SEC/CFTC Civil Suits, Incarceration, Meetup with Reality

Because I was traveling yesterday, your truly is giving only a starter post on the accelerating fall of former crypto king Sam Bankman-Fried. As nearly all of you likely know, SBF was indicted a month after his FTX crypto exchange entities and his hedge fund Alameda Research filed for a Chapter 11 bankruptcy.1 The criminal filing, made in the Southern District of New York, was unsealed yesterday. The same day, the SEC and CFTC each filed a civil suit.

Needless to say, this is lightening speed for a complex case, confirming out theory that the officialdom could not ignore a “sure looks rotten” money sinkhole this big and high profile, particularly since SBF kept it on the front pages of the business press with his ongoing ‘splaining tour.

However, the FTX fraud may not be hard to unpack. Tuesday in testimony before the House Financial Services Committee, new FTX CEO John Ray said:

This is really old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose” and there’s nothing sophisticated about it.

Nevertheless, there is a bit to unpack. Here are links to the three filings:




The Department of Justice filing is extremely spare on statements of facts and substantially cites the provisions of law SBF allegedly violated. One might view that as evidence of haste; some have argued one reason for the quick legal action was concern that SBF might flee. Recall former Nissan-Renault chairman Carlos Goshn escaped Japan while under house arrest and having posted a $9 million bond. It’s even easier to skedaddle if you haven’t been charged.2

The eight criminal charges, as recapped by Bitcoin Magazine:

Conspiracy to commit wire fraud on customers
Wire fraud on customers
Conspiracy to commit wire fraud on lenders
Wire fraud on lenders
Conspiracy to commit commodities fraud
Conspiracy to commit securities fraud
Conspiracy to commit money laundering
And conspiracy to defraud the United States and violate the Campaign Finance Laws.

Note that the money laundering charges relate to the second count, wire fraud on customers. So this is an allegation that SBF laundered purloined funds, not that SBF laundered money for customers. With FTX’s terrible “Know Your Customer” policies, it’s just about certain they also laundered money for customers. For instance, I have read that customers could set up accounts using a VPN as part of hiding their real address and nationality. However, these eight charges, if the DoJ prevails, are more than enough to put SBF behind bars for a very very long time. Hence prosecutors are unlikely to want to overegg the pudding by adding more causes of action unless they tie closely into the basic plot line.

One rule of criminal cases is confused juries tend not to convict. So while a comparatively focused case may frustrate crypto experts, it’s the best shot at winning. And remember other players (state attorneys general, private plaintiffs, the IRS) can also have a go.

Some experts argue that the DoJ must have an overwhelming amount of evidence and therefore doesn’t have a strong need to present it in the filing. Others contend that since SBF will have to be extradited, the broadest and most general complaint gives the prosecutors maximum latitude in responding to challenges. Keep in mind that if at some point, procedurally, it becomes advantageous to plead more facts, the DoJ can always file an amended complaint. Note also the SEC (and CFTC) filed in parallel with the DoJ, when the SEC often waits till the criminal case is well along (as in they can leverage discovery) before they file an action. Again this speaks to the perceived need to get moving as well as the presumption that the existing evidence is plenty strong.3

For instance, the Bahama prosecutors, in arguing that SBF be remanded (incarcerated rather than allowed to post bail) pursuant to an expected US extradition filing and separate filings by the Bahamas, stated per the Daily Mail:

They [Bahama prosecutors] claimed he hid $300million in a Brazilian fund in September, months before the collapse of his crypto trading platform, as a means of setting himself up for an escape when the inevitable happened.

By contrast, the SEC lodged a more conventional filing, with a lot of factual claims tied together in a not-overwhelming storyline. The SEC contends SBF was defrauding both investors in FTX Trading as well as customers of the crypto exchange, “from at least May 2019,” as in the inception of FTX:

Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations…

He told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. These statements were false and misleading. In truth, Bankman-Fried had exempted Alameda from the risk mitigation measures and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited “line of credit” funded by the platform’s customers.

The CFTC filing tracks the SEC on the time frame of SBF’s alleged misdeeds.

The SEC filing describes how SBF persistently misrepresented FTX’s operations and controls to investors in the course of raising $1.8 billion over several funding rounds. And of course this was bad for customers too! For instance:

From the start of FTX’s operations in or around May 2019 until at least 2021, FTX customers deposited fiat currency (e.g., U.S. Dollars) into bank accounts controlled by Alameda. Billions of dollars of FTX customer funds were so deposited into Alameda-controlled bank accounts.

At least some of these bank accounts were not in Alameda’s name, but rather in the name of North Dimension Inc. (“North Dimension”), an Alameda subsidiary. North Dimension’s website does not disclose any connection to Alameda.

Some commetators were suspicious of the indictment being filed just before SBF’s scheduled House Financial Services testimony, as if this were a nefarious plot to protect SBF by making sure he would not appear before the committee. It’s hard to see that. SBF has been running his mouth almost non-stop since the bankruptcy filing, in some cases with pretty crypto/finance savvy interviewers who had a go at him and elicited damaging admissions (on top of the damaging admissions SBF made all on his own).

The idea that SBF might say something new before the House Committee that would add materially to a case was vanishingly low, particularly since House members are limited to 5 minutes with a witness, making it easy for SBF to deflect. So the opportunity cost was the lost theater, to see who if anyone on the Financial Services Committee were able to pin SBF down in a very compressed interrogation time. The flip side is Congresscritters, unlike journalists and crypto mavens, could have shut down SBF’s blather and pressed for yes/no or simple answers to direct question.

The only possible protection racket I see is of crypto bought-and-paid House committee members who could become embarrassed and angry if they offered a defense of FTX and/or SBF and were shortly made to look like fools with an indictment being filed soon after the hearing.

However, the hearing did wind up providing a window into SBF’s ever-more warped world view. Forbes obtained a copy of what is presents as SBF’s draft testimony, which I strongly urge you to read in full. It’s yet more evidence that SBF thinks he is a rule onto himself.

The format for Congressional hearings is the witness gives a short verbal statement, at most five minutes, and they can also submit a much longer written account. The Forbes document reads as if SBF thought he could hold court in the House Committee and go on with no time limits on how he was misunderstood and done wrong.

Many of his claims are fantastic, like that there are still plenty of investors willing to rescue FTX if SBF were allowed to pursue older letters of intent. Another howler:

SBF has always pleaded the false poverty of having only $100,000 in his bank account (he ran the same line in his infamous Lunch with the Financial Times, when the pink paper pointed out he soon had over $700 million to buy some crypto venture). Needless to say, SBF seems to have forgotten about the $300 million that Bahamas officials believe he squirreled away in Brazil.

He also tries to play lawyer, arguing that Ray and the bankruptcy team are overstepping their bound and dealing with legal entities outside their purview. However, it is common in much bigger institutions for lines of business to operate with little regard for corporate structure; this is a big reason the US authorities punted on the TBTF “living wills” exercise. They could not make their product/service lines map onto legal entities, which is what is needed to have a tidy failure.

By contrast, see this snippet from Barron’s summary of John Ray’s testimony:

Ray noted other issues. The CEO said FTX Group’s operations were not segregated and that, FTX U.S., Alameda Research, and another entity making different investments operated as one company.

SBF’s planned testimony also whined that Ray was ignoring SBF’s offers to help and then flat out misrepresents what FTX did. See this section:

FTX was not a derivatives exchange. That was only one of its set of services. We have yet to see how many customers used FTX for custody and unlevered trading but it appears that unlevered trading was a meaningful and potentially leading part of FTX transaction volumes.

Here is the SEC’s overview of FTX offerings. You can see only item 2, if you squint hard, could conceivably qualify as derivatives (although I don’t buy that, a derivative is a contract and among other things has a termination date;4 margin accounts are not derivatives).

FTX offered its customers a number of services. For example:

a. FTX offered a “spot market,” a trading platform through which customers
could trade crypto assets with other FTX customers in exchange for fiat
currency (i.e., currency such as U.S. Dollars) or other crypto assets.
b. FTX offered “spot margin trading” services, which allowed FTX
customers to trade using assets they did not have (i.e., to trade “on margin”) by posting collateral in their FTX accounts and borrowing crypto assets through the “spot market” on the FTX platform. FTX also allowed customers to lend their crypto assets to other FTX customers who would then use those crypto assets to spot trade.
c. FTX offered an off-platform (over-the-counter or “OTC”) portal that enabled customers to connect and request quotes for spot crypto assets and to conduct trades.

In his overlong House Committee script, SBF then whined about how he and members of his team were roughed up by Sullivan & Cromwell to file for bankruptcy (given how SBF admits to ignoring the strong views of his lawyers to shut up, it’s not hard to imagine that outside counsel would have to hit SBF between the eyes with a two by four to get his attention). SBF also isn’t clear if he had his own counsel. Sullivan & Cromwell was presumably acting as counsel to FTX, not to SBF. SBF’s and FTX’s interests diverged. If FTX was bleeding out, it would be the duty of executives and officers to the corporation(s) to stem losses even if that shut down SBF’s hopium rescues.5

There is more of this ilk in the SBF text, which is fascinating as an indicator of SBF’s growing divorce with reality. Further confirmation from the Daily Mail:

He has been holed up in the Bahamas for weeks, but today was denied bail after prosecutors argued in court that he was a flight risk…

SBF, 30, protested, telling Chief Magistrate Joyann Ferguson-Pratt he couldn’t go to jail because he is vegan and ‘depressed.’

She however denied him bail, remanding him in custody until February 8. He will spend his detention at Fox Hill, The Bahamas’ only prison.

The Wall Street Journal on Fox Hill:

Fox Hill inmates reported removing human waste by buckets and developing bed sores from lying on the bare ground, according to a 2021 human-rights report on the Bahamas by the U.S. State Department. Cells were also infested with rats, maggots and insects, the report said.

Inmates are supposed to get an hour every day outside for exercise. Due to staff shortages and overcrowding, there are times when they only get 30 minutes a week, said Ms. Farquharson.

The Bahamas Department of Correctional Services facility has different sections that separate those serving terms for violent crimes from those who aren’t. But due to space constraints, some inmates awaiting trial for minor crimes have been sent to the maximum-security facility, said [local attorney] Ms.[Romona] Farquharson.

“I think they’ve got to be careful not to have him in really rough areas in the prison,” she said.

Back to the Daily Mail:

During proceedings on Tuesday, is Stanford law professor mother, Barbara, laughed when prosecutors referred to him as a ‘fugitive’.

Even though this mini-outburst would not have changed the outcome, it’s a bad look. It suggests at best that his parents are in deep denial as to what their darling son has been up to, despite his father having been actively involved in the business, and/or harboring the illusion that their elite status will lead the court to cut SBF a lot of slack. This simply is not in the cards.

In addition, SBF thinking that veganism and depression were sufficient reasons for not being remanded is…lunatic. Anyone with a casual acquaintance with the court system knows that single mothers who are charged with crimes and remanded will have their kids sent to protective services if there’s no relative to care for them.

I doubt SBF has suffered any major setbacks in his life. He’s openly pleading fragility to try to get a break at the outset of the court process. The odds that he will attempt and maybe even succeed at suicide seem high, and not questionable-plausibility Jeffrey- Epstein-style, but a bona fide attempt because he will see himself as unable to endure his future.


1 With the records and systems a mess, odds favor the bankruptcy becoming a liquidation.

2 SBF had been “under supervision” of Bahaman authorities but I am not sure what that amounted to.

3 Readers may feel there are other charges that should have been lodged. The point in a case like this is to score a clean win, not throw all possible causes of action against the wall and see what sticks. SBF would face up to 155 years in jail on these charges if found guilty, which seems more than adequate. Yours truly is gratified to see the SEC take interest in SBF’s loans to himself, which they identified as $1.33 billion, due to finds some in addition to the $1 billion personal loan identified in the original bankruptcy statement.

4 From Investopedia: “A derivative is a securitized contract whose value is dependent upon one or more underlying assets.”

5 Some commentators are complaining that the bankruptcy court, presumably at the behest of Sullivan & Cromwell, is withholding the names of the 50 biggest institutions, which is pretty irregular. However, the judge was lauded at the time of appointment, so I doubt he is a pushover. One reason could be that some of the creditors (as expected) are wobbly crypto players (or other plain wobbly leveraged players) and listing how big their exposures are could lead to a rapid unwind that could blow back and hurt FTX recoveries.

Another thing most don’t realize is that if you are anything other than a very top client of a big kahuna firm, or are lucky enough to have a motivated partner on a narrow matter, the cost of renting their brand name is they may not always do what is best for you in the interest of serving their broader franchise. And they were probably smart enough to get you to sign a waiver.

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  1. Lexx

    Went to see who FTX’s biggest clients were and saw tax havens, Chinese crypto miners, and celebrities, and wasn’t going to feel too sorry for them until I saw this (Forbes):

    Stake in FTX: 0.4%
    Est. amount invested: $75 million
    Value at January 2022 peak: $125 million

    The Ontario Teachers’ Pension Plan, which manages the retirement funds of 333,000 teachers in the Canadian province, invested a total of $95 million between FTX and FTX U.S. in late 2021 and early 2022. The FTX portion of that investment alone was worth an estimated $130 million following FTX’s series C round–before the crypto winter and current crisis. “While there is uncertainty about the future of FTX,” Ontario Teachers’ wrote in a statement. On November 17, the pension plan said that it will write down its FTX investment to zero at year-end.

    Husband works for TIAA. Now it’s personal… deep sympathy for the teachers.

    1. Pat

      Based on the past, and I I hope I am wrong, it will not surprise me if at the end the biggest losers in this will be a lot of regular people just struggling to fund a retirement in a gamed system where the rewards rarely go to the regular investor. I fully expect any entity our overlords consider to be important to be made whole or almost whole either directly or indirectly.

    2. eg

      They were dupes for sure, and it’s an embarrassment for a pension fund which otherwise deservedly had a very good reputation for many years. Fortunately the sum is not material given the size of their operation, and hopefully this flagrant pratfall will be instructive come the next speculative mania.

  2. TheOneFive

    “I think they’ve got to be careful not to have him in really rough areas in the prison,” she said.

    And maybe that’s the idea? We will investigate the unfortunate prisoner-on-prisoner violence that lead to SBF’s untimely demise…

    1. Yves Smith Post author

      Sorry, this is CT thinking. SBF picked the Bahamas. The Bahamas and its terrible prison were not forced on him. His gaol disaster is the direct result of his head office choice.

      SBF decided to set up business in Bahamas because (I assume) close to US (not too hard to travel for in person meetings if needed) and very lax rules. Those third-wordly island paradises often have a super glam tourist experience, with the service class living in very shabby conditions.

      Bahamas did not establish a single, nasty prison out of the incredible foresight that FTX would implode in December 2022 and then arrange for it to be overcrowded then and they could have some revenge by incarcerating SBF in potentially dangerous digs. Remember, the detention was triggered by the US filing, not Bahama initiative.

      1. IM Doc

        If I were SBF attorneys, I would not be so worried about maltreatment in prison.

        I would be far more worried about withdrawal from stimulants, adderall and provigil.

        His level of Pharma taking seemed to be very excessive. I am not sure he will be given that level of meds in prison, if any. There will not be an adderall doctor running around the C suite anymore.

        Trust me, dealing with withdrawing amphetamine patients is quite a trick. ICUs often are not enough.

        If he was arrested two days ago, the fun may be beginning right about now.

        1. square coats

          I’m by no means a professional but at a different point in my life I knew quite a few people addicted to meth, opiates, or both, and it seemed like the general experience of those who withdrew from meth as a result of getting arrested mainly complained of needing to sleep a lot the first few days and then generally having low energy thereafter.

          I also used to know a number of professionals (psychiatry or social work/service provision) and used to read some of the literature about recovery and the like, and what I can gather from all this is that from the professional’s perspective, it’s more difficult trying to treat/support people with addictions to speed (compared to opiates) because there isn’t any approved medically assisted form of treatment.

          Just my two cents and I don’t know if the particular substances SBF was taking would make his withdrawal different.

          I did find it odd he got so chubby if he was supposed to be on such intense uppers, especially because I saw a photo of him looking to be at least college-aged in which he was quite slim. Depending on the food that’s available, he might just get a lot more chubby from combo lack of energy / increased appetite plus buying a lot of unhealthy snack food from the commissar, which is what tends to happen to people in jail where I live (Massachusetts), but I have no idea what a (possibly nonexistent) commissar would be like in the Bahamas.

        2. Tom

          Reports show that he was using “Emsam” trans-dermally which, as I understand it, is an obscure anti-depressant. In fact the Bahamian judge let him leave the courtroom to apply the patch in yesterday’s hearing. And the NYT reports that his SBF’s lawyer stated he requires adderall every 4 hours for ADD.

    2. Lexx

      You’re speculating perhaps given the powerful people who invested with FTX, that perhaps something Epsteinesque might not occur with SBF… and who would be surprised in that,… um, environment?

      Loved the response that he couldn’t go to jail because he was ‘vegan and depressed’. ‘The whole situation is just going to further mess up my pooper!’

      1. Mildred Montana

        I hope his jailers tell him to forget his veganism* and inform him that a calorie-restricted diet could be much healthier. Then put him on one.

        The immediate effect will be a reduction in his noticeable belly fat and the size of his nascent man-boobs. In the long term it could increase his life expectancy (good for him, bad for us).

        *Looking at photos of his pudginess, I somehow doubt he is a strict vegan anyway.

        1. Wukchumni

          The immediate effect will be a reduction in his noticeable belly fat and the size of his nascent man-boobs.

          If i’m Sam the Sham, I go woke and claim trans (er, short for transfer) woke rights have been violated as he’s in transition to Samantha and is quite hurt that you refer to his man melons that way, thank you very much.

          Inevitably the Donkey Show members come to the rescue, and he uses the get out of jail card and get to keep all of the gotten gains,

          1. tegnost

            woke rights have been violated as he’s in transition to Samantha and is quite hurt that you refer to his man melons that way, thank you very much.

            Flag on the play…
            as they are in transition to Samantha and are quite hurt that you refer to their melons that way…

            It’s hard…I find myself like the parent of several kids listing out names until the right one comes out i.e. bill. bob. bonnie. bartholemew get in here this instant! stumbles into they
            I’ve learned to just try to use the new gender neutral name as often as possible…

        2. Lexx

          Sans alcohol, Husband is a skinny man. Beer = gut, and last I looked beer is vegan.

          But IM Doc’s comment about likely withdrawal from stimulants gave me pause. Should SB-F expire while in custody, that’s what I would say was responsible… were I an official in need of an explanation.

  3. Pat

    The Bankman Frieds have been living at the top for too long. At one point before the indictment came down his father was whining that defending his son might bankrupt him. All that I could think of reading that was that perhaps he should have taken some action when his son was buying so much real estate including for him and his wife. It didn’t take a financial genius to recognize that SBF was spending way more than should have been his legal proceeds from a legitimate financial company.

    One of my recent bouts of cognitive dissonance has been regarding the reactions to Brittney Griner’s return. I get being pleased at the exchange, but similar to SBF being certain that he should be treated differently because he is a vegan and depressed I find the general reaction that an adult woman who was told about Russia’s laws and policies and still decided to ignore them because she was _______(insert black, gay or my choice basketball star) was a victim and not a stupid criminal to be absurd. it isn’t just the elite who have the idea, usually right, that the laws and the consequences of breaking them do not apply to a long list of people. In truth, the Bankman Frieds biggest shocks will be the realizations that they really aren’t in the club.

    1. Objective Ace

      We really can’t be sure Griner did what she was accused of and drugs weren’t just planted. The bigger cognitive dissonance is the outrage that she shouldn’t be locked up while we lock up thousands here for the same trivial offense.

      1. Yves Smith Post author

        Please stop. She admitted she took the vaping oil, regularly carried it with her when traveling, and said her doctor recommended it.

        The drug trial of American basketball star Brittney Griner in a Russian court focused Tuesday on testimony that cannabis, while illegal in Russia, is regarded in other countries as having legitimate medicinal use.

        Griner has acknowledged that she was carrying vape canisters containing cannabis oil when she was arrested in February at a Moscow airport, but she contends that she had no criminal intent and that the canisters ended up in her luggage inadvertently because of hasty packing.

        “We are not arguing that Brittney took it here as a medicine. We are still saying that she involuntarily brought it here because she was in a rush,” defense attorney Alexander Boykov said after the session in which a Russian neuropsychologist testified about worldwide use of medicinal cannabis.

        And the US does not accept the medical value of cannabis, which I strongly suspect the prosecution pointed out:

        Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. Some examples of Schedule I drugs are: heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), 3,4-methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote.

        Here in the US, if you are caught with any amount of a Schedule 1 drug, like GHB (a fantastic sleep aid), it’s a felony.

      2. Pat

        So the US wanted a woke victim in Russia for something that is still criminal in the US, I guess you could make a case for that but there really isn’t much advantage for anybody else setting her up. So I think we can leave that aside in this.

        We actually agree on one point. I do apologize for not being clear, but part of my disgust at the outrage that Griner was treated as a regular criminal is that any average somewhat well educated and traveled human, meaning of no celebrity status and without rich and powerful relatives, would know that carrying that amount of contraband would get you thrown in prison in pretty much every state in the US and many other countries than just Russia, especially if you are a minority. That it happened in Russia is only indicative that the beneficiaries of that bubble are unaware of the bubble’s limitations. The double standard has been so ingrained in so much of the American public that a non basketball playing Britney Schmo would be carted off to jail in a hot second almost everywhere didn’t even register for them. Nor did the fact that our penal system is also a horror show for most inmates.

        1. William Verick

          Not in California. Simple possession for personal use of marijuana is legal here. Same in many other states like Oregon, Washington, Colorado, Michigan, New Jersey and New York. It remains, however, a federal felony with a maximum penalty of one year. Griner’s nine year sentence is like something out of Texas during the Seventies.

          1. EastTexasGentry

            Under Texas law during the 70’s, Marijuana possession (no minimum amount) was 2 – 99 years. Only people who were deemed in need of incarceration got the 99 years, but Angela Davis’ bodyguard did.

    2. Rip Van Winkle

      I wouldn’t be surprised if the missing frames of the recorded exchange on the tarmac was Griner shaking hands with Viktor Bout, from years of sportsmanship habit and so forth.

    1. Yves Smith Post author

      Related formulation: SBF scammed so many that some had to be the “wrong people” plus some seeming penny-ante victims had the wrong people willing to go to bat for them.

  4. griffen

    Grab some popcorn and time to enjoy this show. I watched some minutes here and there yesterday, of Mr. Ray in front of the House Committee. I really expect this man and his team to be thorough, diligent and clean up whatever they are able to scrounge up a few meager crumbs of what is left. I did hear his comment about the embezzlement, which really just looks a lot worse for those institutional funds and high net worth individuals looking to make the next great score*. Instead it is resulting a big giant L and L does not stand for Love in this instance.

    And ideally those larger funds kept the percentages incredibly minimal, which would have been the prudent move. Or better put, if they went forward they kept the potential upside high and any downside fairly limited and restricted to show at least there are controls in place.

  5. The Rev Kev

    I wouldn’t be surprised if he gets the Ghislaine Maxwell treatment. Transfer to a hard prison in the US in isolation to get the message to play ball – or else for a start. Then a carefully planned trial where anything politically embarrassing is not brought up nor the names of powerful people under the control of a compliant judge and cooperative prosecution & defence lawyers. Then when found guilty, transfer to a low-security prison where he can pursue his own private interests. Look at Ghislaine Maxwell here again. She got a transfer to a low-security prison in Florida where-

    ‘According to an inmate handbook, people locked up at the facility have access to a wide range of classes and activities, including painting, leather, art and ceramics, musical instruments, team sports such as softball, basketball and volleyball.
    The prison also offers yoga, Pilates, movies and an inmate talent show, according to prison consulting firm Zoukis Consulting Group.’

    I’m sure that the prison that he would be assigned to would offer vegan menus.

  6. Bart Hansen

    What might happen to that $300 million he stashed in Brazil, as well as in other foreign places? Given that the USA has been plundering gold, oil and billions in reserves from several countries and getting away with it.

  7. jefemt

    Bank man Fried. Fired. Fryed. Freed? Right out of Dickens…

    I can’t help but think that the gaming and rigging is so ubiquitous across all classes, categories, nation/states, and markets, that both “markets” and “investing” should always now be in quotation marks?
    I don’t think that is too cynical or too much?

    Greed the main driver, aspiring to stories we are sold by Madison Avenue and TPTB

  8. Carolinian

    Thanks for this. There was an article here the other day suggesting a Peter Pan syndrome is afflicting current culture. I think it was misapplied to the public at large but definitely describes our narrative obsessed, fantasy world elites. Sounds like SBF and his Lost Boys (and girls) were living in a world of their own self serving imagination and an insanity defense may be next. This may receive a sympathetic hearing among journalists who have their own reality problem.

    Yves’ Versailles analogy becomes ever more relevant. Just add guillotines.

    1. Wukchumni

      Its really more akin to the last days before the French Revolution when gambling was so ever pervasive in Paris, until cooler heads prevailed.

  9. Sunny

    I still can’t make any sense between these high profile scammers like the theranos lady and this guy who lost investors billions and the hateful big mouth Martin Shkreli who didn’t lose a penny for his investors , actually he made them a ton of money, yet they put him in jail for 7 years I believe for some technicality I believe.
    By the same standards this guy should get about 300 years in jail.

    1. IM Doc

      I guess Mr. Shkreli’s big “technicality” would have been charging tens of thousands of dollars for a critical medication that for decades had cost 10 cents a pill.

      It is all fun and games until it is you who needs the medication whether it be anti-parasite medicine as in his case or insulin or many others.

      The fact that behavior is a “technicality” and not a crime speaks volumes about the character of our FDA and Congress.

      1. Sunny

        Not defending Shkreli here but he did more to expose the pharma corruption and gouging than anyone, Pfizer and other big boys do way worse than shkreli but they don’t go talking about it like he did.
        There is an article on bloomberg that explains in detail his fraud.
        Also, contrary to prevailing opinion, it looks like he gave the medicine for free to any one in need, the price increase was for the private insurance companies, which is modus operandi for all big pharma companies.

        1. IM Doc

          I would like for someone to explain how he gave the medicine for free. And more importantly in EVERY SINGLE CASE. These people will say anything to make themselves look better. Lying is now a foundation of “effective altruism”:

          During the time Shkreli was the CEO of that company – not once but twice, I had to have family members of patients with parasites fly to Mexico to pick up the medication in the local Mexican pharmacies. The USA pricing would have been tens of thousands of dollars. With the airfare to Mexico included, the total cost was less than a thousand dollars. The situation in both cases was the patient had to stay in the hospital to be treated because they could not be treated at home. Both were for extended treatment times over weeks. In other words, it was costing the patient and by extension the taxpayers lots of money for them to be treated. Once the meds were secured after the flight, the patients were able to go home.

          Given the situation the hospital was in, it would have behooeved them to pursue the Shkreli company handouts if available. They did not – because there were none available. And I am certainly not alone with this type of story – this was a topic of discussion for years while the raping was going on.

          These “captains of industry” quite frankly lie like rugs. It would be wise for all of us to take any and all of these “effective altruism” claims with a big grain of salt.

          1. Lexx

            Sounds like the Hep C story, where the treatment in India was considerably cheaper than in the U.S. to just fly to India and stay for the duration of the ‘cure’. Still true?

          2. Sunny

            I was going by their statement at the time, I dont know if they followed thru as Shkreli was put in jail afterwards and I have no personal experience with it.
            Not saying Shkreli was an angel, but we dont put people in jail because they are axxholes.
            From their press release at the time:
            Sample starter packages at zero cost to ensure physicians treating patients in the community have free and immediate access to start therapy in emergency situations. We plan to make these available in early 2016.
            Provide Daraprim free-of-charge to uninsured, qualified patients with demonstrated income at or below 500% of the federal poverty level through our Patient Assistance Program.

          3. Michael Mck

            My understanding is that the industry takes tax write offs for their generosity, based on the discount from highest price ever quoted for the medicine. Their altruism is very effective if you consider their own well being the metric.

      2. Mikel

        And there’s also the drug company Valeant.
        Waĺl Street cheered as that company promoted a business model of “to hell with R&D, buy other drug companies and pump the prices.”
        They make Shkreli look like an amateur.

    2. Pat

      Think of it this way, his crimes against society that couldn’t be prosecuted were so great that like Al Capone and tax evasion, the government got him on crimes they could prosecute. And they did this even though most well thought of robber barons and criminals doing the same were regularly ignored.

      Shkreli is not a victim, get over it. He is not a good example. His history of victimizing large numbers of people even if it was in another manner is too well known. You want more traction here point out others who game the system and don’t get prosecuted at all.

  10. playon

    “I think they’ve got to be careful not to have him in really rough areas in the prison”

    Yes, it would be a damn shame if that were to happen…

    1. TimH

      Please don’t advocate violence in incarceration, even as an off the cuff joke. It happens to innocent people on remand who can’t afford bail (Rikers…), and is not a laughing matter.

      1. ChrisPacific

        Agreed. This is of a piece with Trump’s suggestion that police use violence against people they’ve arrested.

        More selfishly, I want to see his delusions, evasions and lies get picked apart properly in a court. If it opens some eyes as to what a cesspool the crypto space is, so much the better.

      2. Rip Van Winkle

        Uncle Ted, another kid math wiz, however from Evergreen Park High School in Illinois, later Harvard (and MKUltra victim), later living in a plywood shack in Montana, is still in the hard time prison -forever- not for what he did, but what he wrote. What he foretold is becoming more true as time goes on.

        The worst that will happen to SBF will be attending an introductory on-line course in license plate theory taught by some Illinois governor.

        1. Michael Fiorillo

          Uncle Ted was jailed for his writing, not for sending mail bombs? Who would have ever thought?

    1. Mangelwurtzel

      The way it works is that people don’t get to choose their surnames. They can change them later, if they wish.

      1. Mildred Montana

        Re: Hyphenated surnames, reductio ad absurdum

        Ms. Black meets Mr. White and they get married. They have a child whom they name Joe Black-White. Elsewhere Ms. Brown meets Mr. Green, they get married, and they have a child whom they name Jane Brown-Green.

        Years later, the inevitable happens. Joe Black-White meets Jane Brown-Green. They get married. They have a child, let’s say a boy. Would they dare call him John Black-White-Brown-Green?

        I think not. Fad over after one generation.

        1. Mangelwurtzel

          That example does make it seem unwieldy. But it’s not exactly faddish, it’s just a newer tradition in El Norte. Look at naming conventions in Spanish-speaking countries: there are many of what we would call “middle” names, sometimes a long list. Nevertheless, it is a convention which recognizes the surnames of both sides of the family tree. A la carte, it would seem.

        2. square coats

          I know it’s not the point, but I couldn’t help thinking it might be clever (if a bit too cute) to name Joe Black-White Joe Grey instead. I’m not sure for Jane, maybe Olive? (my apologies)

  11. Tom Doak

    The case of SBF reminds me of our old friend Sir Allen Stanford, who was running a similar but less techy fraud out of Antigua in the early 2000’s.

    So, I looked up his status. He is serving a 110-year sentence in the Federal pen. According to Wikipedia, his earliest possible release date is March 13, 2103. [not a typo though it looks like one]. I hope someone thinks to read that to SBF.

  12. Wukchumni

    We were at Valley of Fire state park a few weeks ago, just an hour from Vegas, its got boucoup 2,000 to 3,000 year old petroglyphs to gawk at, along with some mindbending scenery, great stuff!

    One of the many tragedies of cryptocurrency is that unlike those proto-Americans who left their mark way back when, nobody is going to know that it ever even happened, say in 3946 when historians conclude it was a myth, the emperor’s new math.

  13. Bobby Gladd

    The stench at Stanford extends all the way up to the University President’s office. He is now under pressure to resign, over alleged scientific publication fraud (see Science Magazine). SBF’s Stanford Law School faculty parents have had to take a “sabbatical” from their teaching schedules (they are now in the Bahamas). I dunno about that place.

  14. lyman alpha blob

    RE: confused juries tend not to convict

    Judging by several hours of Some Banking Fraud interviews where he does nothing except toss obfuscatory word salad, my guess would be that’s the tactic he plans to use during trial, if it gets that far.

    One of the more hilarious utterances was in the last interview with Unusual Whales just before being indicted. He was asked whether a since deleted tweet where he claimed that FTX had enough money to cover the amounts in investor accounts was true, and he claimed that it was, even though he deleted it. His explanation was that he had enough to cover the net deposits, because since he allowed margin trading many of the accounts had negative balances, while others did have positive balances. In other words, if the non-margin accounts had $10 billion in them, and the margin accounts were negative $9,999,999,999.00, and SBF had a dollar in his pocket, he technically had enough to cover!

    He did admit though that he fell just a wee bit short in covering the gross amounts in the positive accounts. What a paragon of virtue!

    1. Yves Smith Post author

      He won’t take the stand unless he again ignores advice of counsel. Defendants don’t have to.

      His stay in the nasty prison may get him to recognize he can’t talk his way out of this one.

  15. Thorleif

    To my knowledge the US firm FTX US was not part of the (international) FTX parent company involved in the client-fund scam owned by SBF. US residents were not allowed to trade other FTX platforms than the FTX US which according to SBF no client funds were withdrawn (for unlegal purposes). SBF said in an article that customers in FTX US should be solvent and that a mistake was done seeking CH 11 for FTX US. FTX US was not doing business outside the US. Ownership in FTX US is unclear other than SBF.

    If the above is true what are the implications for the US judicial authorities suing SBF?

    1. Yves Smith Post author

      As I indicated in this and earlier posts:

      1. It appears FTX’s KYC was so weak/non-existent that customers could use VPN to hide their location. Given the US view that US citizens are taxable on worldwide income, a US user might be highly motivated to pretend he has nothing to do with the US. FTX also had substantial customer assets from tax secrecy jurisdictions. So FTX was set up to not have an accurate picture of the legal residence of its customers.

      2. As discussed above, FTX was operated as one integrated company (including Alameda, not just the various FTX subs), so legal entity boundaries didn’t count for much when FTX was alive and looks like they won’t at trial either.

      3. Ray has said, and I agree, that anything that comes from FTX pre the BK cannot be trusted. They are having to recreate everything records-wise from the bottom up.

      4. Aside from that, SBF is a liar. It’s easy to show that SBF is lying by omission by saying he has only $100,000 in the bank when it is clear he has at least hundreds of millions he stashed away….just not in the bank account he loves to talk about. He’s also repeatedly lied about misappropriating customer assets.

      5. Most of SBF’s investors are in the US and he defrauded them too.

      1. Thorleif

        Thank You Yves,

        1. To me that is asking for trouble. There are standards for showing residency! Not demanding proof is inviting US judicial authorities down the road.

        2. Yes box! (CFTC filing i.e. 93.)

        A part from SBF being a direct liar/fraudster, did he have any earlier experiences from brokerage/custody-services or is he only a “programmer” interested in trading? Was his staff filled with young unexperienced trained people? People easy to fool!

    1. Thorleif

      Ok, as far as I can understand (of CFTC filings) FTX broke their own rule considering trading by US customers on FTX (not FTX US). Also client-funds in FTX US was possibly not separated.

      According to CFTC :

      FTX Trading
      (42.) “….On information and belief, some U.S. persons and entities were able to use FTX Trading to transact in digital assets, including digital commodity products, futures, options, swaps, and derivatives.”

      (43.) “Some or all of those bank accounts were opened in the name of an entity called North Dimension, a Delaware-registeredwholly-owned subsidiary of Alameda that, on information and belief, deliberately did not have aname that was readily-identifiable with Alameda. Certain of these bank accounts were located and based in the U.S.”

      FTX US
      (93.) “On or about November 7, FTX executives were also asked to evaluate the solvency
      of FTX US. They were readily able to carry out this request because FTX personnel had access to
      and oversight of the FTX US (but not FTX US Derivatives) code, database, and ledgers in the
      ordinary course of their duties. The FTX executives ultimately identified a shortfall they did not
      understand and were unable to quantify on FTX US”

      So FTX did not register their activities in the US but handled some US customers on their FTX platforms/services against their own rules (see link above). FTX US had a suspect shortfall which resulted in clients not withdrawing funds.


  16. FreeMarketApologist

    On footnote 3, “The point in a case like this is to score a clean win, not throw all possible causes of action against the wall and see what sticks”. Yes, this.

    I was in a discussion with a former SEC enforcement person the other day, and they noted that they typically didn’t include every possible issue and charge — but enough to make a strong case with the largest violations solidly evidenced.

  17. tawal

    Thank you Yves. I was in hopeful anticipation updating my NC feed in the early a.m. to hear your response to all the news on this matter.
    You really are spectacular at synthesizing and communicating the prescient points.
    Thank you again for all your hard, dedicated work.
    Keep at it.
    Much Admiration,

  18. Jon Cloke

    Has SBF developed a new concept from mansplaining (“the explanation of something by a man, typically to a woman, in a manner regarded as condescending or patronizing)?

    Cryptosplaining – the explanation of cryptofraud by a cryptonerd, typically to a Democrat politician, in a manner regarded as dishonest or self-serving?

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