Department of Justice Charges Sam Bankman-Fried on Defrauding Customers, Lenders & the U.S.

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Samuel Bankman-Friend was charged with several counts including defrauding Customers and lenders and conspiring to defraud the U.S. 

SBF Charged with 8 Counts

Sam Bankman Fried (SBF) was charged with eight counts of wire fraud, conspiracy to defraud the United States, and violating campaign finance laws on Tuesday by the U.S. Department of Justice’s Southern District of New York.

According to the opening statement on Conspiracy to Commit Wire Fraud on Customers, the following allegations were made:

From at least in or about 2019, up to and including in or about November 2022, in the Southern District of New York, and elsewhere, SAMUEL BANKMAN-FRIEND, a/k/a “SBF,” the defendant,  and others known and unknown, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit wire fraud, in violation of Title 18, United States Code, Section 1343.

What this essentially means is that the prosecution gives no credence to SBF’s most recent claims that he did not understand the inner workings of FTX, and his recent attempts to blame the co-mingling of funds, and the collapse of FTX on “huge management failures” and “sloppy accounting” as he reported to the New York Times in a recent interview that he broadcast live from the Bahamas. In other words, the terms willfully and knowingly are two extremely strong statements that take away any pretense that this was all simple accounting and mismanagement errors.

It was part and object of the conspiracy that SAMUEL BANKMAN-FRIED, A/K/A “SBF,” the defendant, and others known and unknown, knowingly having devised and intending to devise a scheme and artifice to defraud, and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, would and did transmit and cause to be transmitted by means of wire, radio, and television communication to interstate and foreign commerce, writings, signs, signals, pictures, and sounds for the purpose of executing such scheme and artifice, in violation of Title 18, United States Code, Section 1343, to wit, BANKMAN-FRIED agreed with others to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research, BANKMAN-FRIED’s proprietary crypto hedge fund, and to make investments. (Title 18, United States Code, Section 1349.)

Used FTX Clients Funds as Own Piggy Bank

This statement is strong with allegations that SBF conspired to use FTX client’s funds as his own personal piggy bank. As reported in numerous media publications funds were used for unrelated expenses including purchasing 19 properties in the Bahamas valued at $300 million. It also alleges that SBF used FTX client funds for his hedge fund Alameda Research. Client funds in brokerage accounts are meant to be segregated, and these allegations offer insight that the justice department believed these funds were intentionally co-mingled.

Even worse for SBF the allegations include the willful intention to deceive clients. This includes wire fraud, an all-encompassing legal term that means any electronic communication, such as email or text messaging was used to further a criminal act. This could include any previous SBF media appearance, blog post, email, etc.

The unsealed indictment then continues with similar allegations for Wire Fraud on Customers, Conspiracy to Commit Wire Fraud on Lenders,  and Wire Fraud on Lenders.

Fraud on a Vast Scale

Conspiracy to commit wire fraud, and wire fraud are separate charges meaning that not only did SBF intend to commit wire fraud, he succeeded on a vast scale.

In Count Five, Conspiracy to Commit Commodities Fraud there are new allegations.

It was a part and an object of the conspiracy that SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, and others known and unknown, willfully and knowingly, would and did, directly and indirectly, use and employ, and attempt to use and employ, in connection with a swap, a contract of sale of a commodity in interstate commerce, and for future delivery on and subject to the rules of a registered entity, a manipulative and deceptive device and contrivance, Section 180.1, by: (a) using and employing, and attempting to use and employ, a manipulative device, scheme, and artifice to defraud; (b) making, and attempting to make, an untrue and misleading statement of a material fact and omitting to state a material fact and committing to state a material fact necessary in order to make statements made not untrue and misleading; and (c) engaging, and attempting to engage in an act, practice, and course of business, which operated and would operate as a fraud and deceit upon a person, in violation of Title 7, United States Code, Sections 9(1) and 13(a)(5), to wit, BANKMAN-FRIEND agreed with others to defraud customers on FTX.com trading or intending to trade swaps my misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research, BANKMAN-FRIEDS’s proprietary crypto hedge fund, and to make investments.

The interesting part of the above allegation is the term commodities, it is unknown if the department is considering Bitcoin and other digital assets to be commodities, either way, it is clearly spelled out that there is a belief that SBF intentionally co-mingled funds and went out of his way to deceive clients.  It is fraud on many levels, and the statement is clear that prosecutors are going to throw the book at SBF.

In furtherance of the conspiracy and to effect the illegal object thereof, the following overt act, among others, was committed in the Southern District of New York and elsewhere: in or about June 2022, SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, and others misappropriated FTX.com customer deposits in order to, among other things satisfy loan obligations owed by Alameda Research.

This statement indicates there is evidence of a specific instance to commit commodities fraud. Similar allegations are then made on Conspiracy to Commit Securities Fraud.

One section is of interest here:

(c) engaging in an act, practice, and course of business which operated and would operate as a fraud and deceit upon a person, in violation of Title 15, United States Code, Sections 78j (b) and 78ff, to wit, BANKMAN-FRIEND agreed with others to engage in a scheme to defraud investors in FTX.com by providing false and misleading information to those investors regarding FTX.com’s financial condition.

It seems that beyond a shadow of a doubt SBF went out of his way to deceive investors about the financial situation of FTX, this could include media appearances where he claimed the company was in good financial standing, tweets before the collapse of the exchange, and many other instances of deception.

It continues on with Conspiracy to Commit Money Laundering, serious charges that are often used in financial crime to conceal the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.

As if that wasn’t enough next we have Conspiracy to Defraud the United States and Violates the Campaign Finance Laws with allegations of defrauding the United States Government. This is the first time that we see reports of not only fraud on investors and lenders, but the United States government as stated below:

From at least in or about 2020, up to and including in or about November 2022, in the Southern District of New York, and elsewhere, SAMUEL BANKMAN-FRIEND, a/k/a/ “SBF,” the defendant, and others known and unknown, knowingly did combine, conspire, confederate, and agree together and with each other to defraud the United States, in violation of Title 18, United States Code, Section 371, and willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit offenses against the United States by engaging in violations of federal law involving the making, receiving, and reporting of a contribution, donation, or expenditure in violation of Title 52, United States Code, Sections 30109 (d) (1) (A) & (D).

With the intention laid out to defraud and conspire against the US government laid out allegations are then made of actual committed fraud against the US government.

It was part and an object of the conspiracy that SAMUEL BANKMAN-FIEND, a/k/a “SBF,” the defendant, and others known and unknown, would and did defraud the United States, and an agency thereof, by impairing, obstructing, and defeating the lawful functions of a department and agency of the United States through deceitful and dishonest means, to wit, the Federal Election Commission’s function to administer federal law concerning source and amount restrictions in federal elections, including the prohibitions application to corporate contributions and conduit contributions, in violation of Title 18, United States Code, Section 371.

What is of interest here is how unexpected these allegations are. This relates to recent political contributions, and how these contributions have been breaking federal laws. It then continues with explanations of how these contributions exceeded $25,000 for various political contributions to different political parties.

Finally, we end with how SBF shall forfeit the proceeds from his criminal empire. The full indictment is located here.

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