CRIMINAL CRYPTO CAPITALI$M
US to seize $624m of Robinhood shares tied to FTX founder Bankman-Fried

JANUARY 04, 2023

Sam Bankman-Fried purchased about 7.42 per cent of Robinhood’s stock through Emergent Fidelity Technologies.

WILMINGTON, Delaware — United States prosecutors are in the process of seizing shares of Robinhood Markets tied to Sam Bankman-Fried, who has been charged with fraud in the collapse of the FTX cryptocurrency exchange, a US attorney told a judge on Wednesday (Jan 4).

The Department of Justice did not believe the 56 million shares of Robinhood, worth about US$465 million (S$624 million), were property of a bankruptcy estate, US attorney Seth Shapiro told US bankruptcy judge John Dorsey, who is overseeing the FTX bankruptcy.

Mr Shapiro said that competing claims to shares of the stock-trading app could be worked out in a forfeiture proceeding.

Bankrupt crypto firm BlockFi, FTX and liquidators in Antigua have all laid claim to the Robinhood stock, along with Bankman-Fried.

FTX, along with Bankman-Fried, has laid claim to the Robinhood stock.

Prosecutors have accused Bankman-Fried of engaging in a years-long “fraud of epic proportions” that cost investors, customers and lenders potentially billions of dollars by using customer deposits to support his Alameda Research hedge fund.

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He pleaded not guilty to counts of wire fraud and conspiracy. He has acknowledged risk management failures at FTX, but has said he did not believe he was criminally liable.

Bankman-Fried purchased about 7.42 per cent of Robinhood’s stock through Emergent Fidelity Technologies, using funds borrowed from Alameda Research, according to an affidavit he filed in December in an Antigua court.

Bankman-Fried said he owned 90 per cent of Emergent and Gary Wang, another former FTX executive, owned 10 per cent. Wang has pleaded guilty to fraud charges from the FTX collapse and is cooperating with prosecutors.

Mr Shapiro also said prosecutors had seized US bank accounts affiliated with FTX’s Bahamas-based business, known as FTX Digital Markets. Court records showed that the accounts at Silvergate Bank and Farmington State Bank, which does business as Moonstone Bank, held about US$143 million.

Mr James Bromley, an attorney for FTX, told Judge Dorsey that none of the assets targeted for seizure were currently in the direct control of any of FTX entities in Chapter 11.

He said the Robinhood shares were subject to litigation and it was an “open question” about who owns them.

The Robinhood stock, which closed on Wednesday at US$8.36 per share, is also being claimed by BlockFi, another bankrupt crypto firm, as well as liquidators of Emergent, which is in insolvency proceedings in Antigua, where it is incorporated.

BlockFi is suing Emergent in a bid to seize the stock, which was pledged by Alameda as collateral to guarantee repayment of a loan made by BlockFi. Two days after the pledge, Alameda filed for bankruptcy along with FTX.

FTX’s former top lawyer aided U.S. authorities in Bankman-Fried case

ANGUS BERWICK
REUTERS

FTX’s former top lawyer Daniel Friedberg has co-operated with U.S. prosecutors as they investigate the crypto firm’s collapse, a source familiar with the matter said, adding pressure on founder Sam Bankman-Fried who was arrested on criminal fraud charges last month.

Friedberg gave details about FTX in a Nov. 22 meeting with two dozen investigators, the person said. The meeting, held at the U.S. Attorney for the Southern District of New York’s office included officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission, the source said. Emails between attendees scheduling the meeting with those agencies were seen by Reuters.

At the meeting, he told prosecutors what he knew of Bankman-Fried’s use of customer funds to finance his business empire, the source said. Friedberg recounted conversations he had with other top executives on the subject and provided details of how Bankman-Fried’s hedge fund Alameda Research functioned, the source said.

Friedberg’s co-operation has not been previously reported. He has not been charged and has not been told he is under criminal investigation, the source said. Instead, he expects to be called as a government witness in Bankman-Fried’s October trial, the person said.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX did not respond to requests for comment on his co-operation. The SEC, the Department of Justice and Bankman-Fried’s spokesman declined to comment.

Bankman-Fried is accused of diverting billions of dollars in FTX client funds to Alameda to bankroll venture investments, luxury real estate purchases, and political donations. On Tuesday, he pleaded not guilty in Manhattan federal court.

Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against now bankrupt FTX, said last month: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to fraud and agreed to co-operate. A lawyer for Ellison didn’t respond to a request for comment. Wang’s lawyer declined to comment.

FTX filed for bankruptcy protection on Nov. 11. A few days later, on Nov. 14, Friedberg received a call from two FBI agents based in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege, according to a person familiar with the matter and emails viewed by Reuters.

Friedberg wrote to FTX the next day asking the company to waive his privilege so he could co-operate with prosecutors, according to the email seen by Reuters. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.

Friedberg then wrote back to the two FBI agents, telling them in an e-mail reviewed by Reuters: “I want to co-operate in all respects.”

The U.S. Attorney’s Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies, according to the source and an e-mail exchanged by participants. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.

Prior to his work advising FTX, Friedberg advised a mix of banking, fintech, and online gaming companies.

One of his previous employers, a Canadian online gaming firm named Excapsa Software, where he was general counsel, also drew controversy due to a cheating scandal involving a poker site it operated called Ultimate Bet. A Canadian gaming commission in 2008 fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.

According to an audio recording available on the website PokerNews, Friedberg and some other Ultimate Bet associates privately discussed that year how to handle the scandal and minimize the amount of refunds owed to players. Friedberg previously told NBC News that the audio was illegally recorded but NBC’s article did not say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as outside counsel while at U.S. law firm Fenwick & West, where he chaired its payment systems group, the source familiar with the matter said. At the time, the source said Friedberg advised Bankman-Fried on running Alameda, which he founded that year.

In 2020, when Bankman-Fried launched a separate exchange for U.S. customers called FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted blog post published that year on FTX’s website, Bankman-Fried wrote that Friedberg was FTX’s legal adviser “from the very beginning,” noting he had been “with us through thick and thin.”

Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money, according to the source and three other people briefed on the talks, along with text messages his legal team exchanged at the time.