So, no one in the company said, “This looks odd…or…this is not compliant…or…this lacks governance?” No one at FTX bristled at the lack of commercial standards? No one saw this coming? QuickBooks…no transparency…moving records around…no one reported these aberrations internally? Reactions in the media beg the question about whether this is the end of blockchain and digital assets or if the FTX collapse is an independent but large-scale fraud. When the federal government unsealed the indictment, the world saw the FTX fraud show – brilliant branding of a promised alternate corporate structure – led by Bankman-Fried, whose optics were of a young, quirky, anti-social convention CEO. A company steeped in compliance violations put in place to cover up a flawed infrastructure that could have only led to failure.
The sudden collapse of FTX flattened personal and corporate portfolios. Without the media coverage, one could have written this case off as plain old fraud by taking a quick look at what these federal agencies charged. Three federal agencies charged Bankman-Fried – the Southern District of New York (SDNY) U.S. Attorney, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). After all, Congress has given these federal agencies authority to prosecute fraud by translating common law fraud, i.e. old fashioned fraud, into federal statutes.
Bankman-Fried faces government charges – criminal prosecutions in the SDNY as well as SEC violations, as well as a complaint for injunctive and other equitable relief and for civil monetary penalties under the Commodity Exchange Act and Commission Regulations of the Commodity Futures Trading Commission. The SDNY’s indictment charged Wire Fraud, Securities Fraud, Conspiracy, and Obtaining money and property by false and fraudulent pretenses. The SDNY also charged Bankman-Fried with election finance reporting violations.
Although FTX employed emerging technology for blockchain and digital assets, as more information surfaces, the most prominent aspect of Bankman-Fried’s alleged fraud was his ability to influence others and to convince so many to invest in the company even though he lacked management credentials. The FTX arrests show that there was a gulf between what Bankman-Fried proclaimed to be in public and his abilities to govern.
Up next: FTX and Bankman-Fried: From Congress to Lobbyists and Campaigns to the US Attorney’s Office
For questions related to white collar criminal defense matters, please contact Laurel F. Grass at lgrass@leechtishman.com or 212.603.6300. Laurel is Counsel with Leech Tishman and a member of the Litigation & Alternative Dispute Resolution, White Collar & Government Investigations, Corporate, and Data Privacy & Cybersecurity Groups.
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