FTX Updates

There's been a small but steady trickle of news since my last post on this subject, punctuated by this morning's notice of Sam Bankman-Fried's arrest in the Bahamas at the request of the US Attorney for the Southern District of New York. Charges are to be unsealed later today.

"Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the SDNY," Damian Williams, U.S. Attorney for the Souther District of New York said in a statement. "We expect to move to unseal the indictment in the morning and will have more to say at that time."

There is actually little new here. It appears Sam was under some sort of house detention in the Bahamas pending this development, and the only surprise is how quickly the actual US arrest was made -- as I've pointed out, the single recent equivalent has been the Madoff indictment, which took place so quickly because Madoff himself precipitated the case when he spontaneously confessed to the scheme. Sam hasn't confessed, and equivalent Ponzis, like Enron and Theranos, resulted in indictments years after the bankruptcies of their associated companies.

It's intriguing how quickly the Bahamas have moved to distance themselves from FTX, where they'd had their headquarters:

Prime Minister Philip Davis said in a statement, "The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law."

The statement added that while U.S. authorities pursue criminal charges, the Bahamas is continuing a regulatory and criminal investigation into the company's collapse.

Other developments, while less publicized, are even more intriguing. Although initial reports had been that after Paul, Weiss dropped Sam as a client, he was being represented by one of his father's colleagues at Stanford Law (which struck me as a clear conflict of interest), as of December 6,

Sam Bankman-Fried has retained high-profile defense attorney Mark Cohen, reported Reuters on Tuesday, citing confirmation from Bankman-Fried's spokesperson Mark Botnick.

A partner at Cohen & Gresser, Mark Cohen is a former federal prosecutor and recently represented Ghislaine Maxwell in her sex trafficking trial.

For whatever it's worth, Sam apparently did not change his policy of making lengthy statements to the press even with his new counsel.

A week ago, I reported that Caroline Ellison had been spotted in New York under circumstances that suggested she was working with an attorney. The New York Post provides an update, saying she

has hired Stephanie Avakian, a partner at white-shoe law firm Wilmer Hale who is the former enforcement division chief at the Securities and Exchange Commission[.]

Elsewhere, though, it's reported that neither Mark Cohen nor Wilmer Hale has made any public comment on representing either Sam or Caroline Ellison.

My own view continues to be that although the only question for either Sam or Caroline is how much time they'll spend in federal prison, a much better question is who else will go there with them. Some people are worried about how far the scandal extends. Dylan Mattews writing at Vox yesterday on the scandal revealed, well down in the story:

First, a disclosure: This August, Future Perfect — the section of Vox you’re currently reading — was awarded a $200,000 grant from Bankman-Fried’s family foundation. The grant was for a reporting project in 2023, which is now on pause. (I should be clear that, under the terms of the grant from SBF’s foundation, Future Perfect has ownership of its content and retains editorial independence, as is standard practice for all of our grants.)

. . . Obviously, knowing what we know now, I wish we hadn’t taken the money. It proved the worst of both worlds: It didn’t actually help our reporting at all, and it put our reputation at risk.

What I noticed here was that the money didn't come from FTX, or even from Sam himself, it came from "Bankman-Fried’s family foundation". And Mattews himself elsewhere in the piece stressed that

SBF was an inexperienced 25-year-old hedge fund founder who wound up, unsurprisingly, hurting millions of people due to his profound failures of judgment when that hedge fund grew into something enormous[.]

But naive and inexperiecned 25-year-old SBF who played video games and popped prescription pep pills had a family foundation? This is what Fords and Rockefellers do. And Clintons. Not 25-year-old naifs. Somebody else was behind the scenes managing this sudden wealth like a Lay or a Madoff. If it was a family foundation, might that not be a clue?

Bankman-Fried’s parents have reportedly been (figuratively) struck by the collateral damage of their son’s reckless exploits. Bankman-Fried’s father, Joseph Bankman, has canceled the one law class he was scheduled to teach at Stanford early next year, according to the Stanford Daily. Bankman-Fried’s mother, Barbara Fried, also isn’t teaching any classes next quarter.

. . . Bankman hasn’t commented on why he’s not teaching any courses next year; Fried told the Stanford Daily that her absence was simply due to a “long-planned” decision to retire and has “nothing to do with anything else going on,” presumably referencing the downfall of her son’s fake crypto empire. She added that she would like to make a return to teaching in the future, which somewhat refutes her earlier statement. If she does teach again someday, it’ll certainly make for an interesting first lecture.

I might surmise that Stanford has suggested to the pair that given the circumstances, it might be best for them to maintain a very low profile vis-a-vis the institution, but I would also think that if both are law professors, they may well be anticipating that their time and energy will no doubt be directed to their own defense. (In any case, a felony conviction, if not an arrest, would end their tenured professorships. Stanford is thinking toward the future here as well.)

Sam ran FTX like the guy in the Mickey Mouse costume at Disneyland runs Disney.