An FTX executive flagged worries about Alameda Research's use of customer funds to Sam Bankman-Fried as early as 2020, report says
Pete Syme
Thu, January 19, 2023
Sam Bankman-Fried leaves a bail hearing in New York
A senior FTX exec raised concerns about Alameda Research's use of customer funds as early as 2020.
That's according to a report from the New York Times, which cites government documents.
CEO Sam Bankman-Fried dismissed the concerns saying the funds were backed by FTX's cryptocurrency, FTT.
A senior FTX executive raised concerns to Sam Bankman-Fried about trading firm Alameda misusing funds from FTX customers as early as 2020, The New York Times reported, citing documents shared between US and Bahamian governments.
According to the Times' report, the unnamed executive, who is described as being a "high-level software developer" at the firm, met with Bankman-Fried after looking through a company database and finding that Alameda had a negative balance in its FTX account of "approximately hundreds of millions of dollars."
This information, the Times reports the governments documents as saying, led the executive to believe Alameda was "inappropriately using FTX.com customer funds," and to take that information to Bankman-Fried.
Bankman-Fried dismissed the concerns, the Times report says, because the money was backed by FTX's cryptocurrency, FTT. He also dismissed worries that the potential irregularity may be picked up by auditors, the documents reportedly say.
Insider previously reported how the Securities and Exchange Commission's complaint against SBF revealed that Alameda's FTX account had special treatment. It was the only one allowed to have a negative balance thanks to special code, and had a $65 billion 'secret' line of credit to draw on customer's funds.
Court documents seen by Insider show how $256.3 million of Bahamian real estate was registered in FTX's name, and the company spent $6.9 million on "meals and entertainment" in nine months.
Pete Syme
Thu, January 19, 2023
Sam Bankman-Fried leaves a bail hearing in New York
A senior FTX exec raised concerns about Alameda Research's use of customer funds as early as 2020.
That's according to a report from the New York Times, which cites government documents.
CEO Sam Bankman-Fried dismissed the concerns saying the funds were backed by FTX's cryptocurrency, FTT.
A senior FTX executive raised concerns to Sam Bankman-Fried about trading firm Alameda misusing funds from FTX customers as early as 2020, The New York Times reported, citing documents shared between US and Bahamian governments.
According to the Times' report, the unnamed executive, who is described as being a "high-level software developer" at the firm, met with Bankman-Fried after looking through a company database and finding that Alameda had a negative balance in its FTX account of "approximately hundreds of millions of dollars."
This information, the Times reports the governments documents as saying, led the executive to believe Alameda was "inappropriately using FTX.com customer funds," and to take that information to Bankman-Fried.
Bankman-Fried dismissed the concerns, the Times report says, because the money was backed by FTX's cryptocurrency, FTT. He also dismissed worries that the potential irregularity may be picked up by auditors, the documents reportedly say.
Insider previously reported how the Securities and Exchange Commission's complaint against SBF revealed that Alameda's FTX account had special treatment. It was the only one allowed to have a negative balance thanks to special code, and had a $65 billion 'secret' line of credit to draw on customer's funds.
Court documents seen by Insider show how $256.3 million of Bahamian real estate was registered in FTX's name, and the company spent $6.9 million on "meals and entertainment" in nine months.
FTX collapsed in November 2022.
Filings from the CFTC show that Bankman-Fried considered shutting down the trading firm in September 2022, saying circulating a document titled: "We came, we saw, we researched."
"I think it might be time for Alameda Research to shut down. Honestly, it was probably time to do that a year ago," the document read.
Around the same time as the document was circulated, another unnamed executive spoke to Bankman-Fried to express concerns about how much Alameda had borrowed from FTX, the Times reported, citing the documents, adding that he acknowledged that he was also concerned, to the extent that it made him "5-10% less productive."
SBF was well known for sleeping for just four hours a night on a beanbag chair next to his desk – and for taking work calls at 3:00 a.m.
Bankman-Fried and his attorney did not immediately respond to Insider's request for comment, sent outside normal working hours.
He faces eight criminal charges for his role in FTX's collapse, including fraud and conspiracy, and faces a maximum prison term of 115 years if convicted, though such a long sentence is highly unlikely.
Sam Bankman-Fried has serious beef with FTX's new boss, John Ray III
Phil Rosen
Fri, January 20, 2023 at 4:05 AM MST·5 min read
Good morning, Opening Bell crew. I'm Phil Rosen. At this point, maybe we should rebrand this newsletter to "FTX Watchers" or "SBF Fan Club," or something that conveys why we all seem so keen on watching the collapse and its aftermath in real time.
But I get it — the drama just keeps coming. We're all rubbernecking.
As our final send-off before the weekend, I'm breaking down how the two biggest players are still trading barbs about who did what with whose money, and why the other has no idea what they're talking about.
John J. Ray III, CEO of FTX Group, testifies during the House Financial Services Committee hearing titled Investigating the Collapse of FTX, Part I, on Tuesday, FTX founder Sam Bankman-Fried (C) is led away handcuffed by officers of the Royal Bahamas Police Force in Nassau, Bahamas.
John Ray, CEO of FTX Group, described a litany of amateurish business practices used to run the multibillion-dollar exchange.Tom Williams/CQ-Roll Call, Mario Duncanson / AFP
1. This much we know for certain: Sam Bankman-Fried and FTX's new boss, John Ray III, are not each other's biggest fans.
From their comments, we can see that they disagree on how to run a company, where certain cash went, and who can repay who.
On Thursday, Ray gave the Wall Street Journal his first public interview since taking over FTX. He said he's mulling a potential revival of the crypto exchange, and that new leadership doesn't need to hold a dialogue with Bankman-Fried.
"He hasn't told us anything that I don't already know," Ray said.
It doesn't take a stoic to make Bankman-Fried look chatty, given the extensive media tour he embarked on after FTX went under. But the founder didn't take kindly to what Ray had to say.
"This is a shocking and damning comment from someone pretending to care about customers," Bankman-Fried said to the Journal via text message. He's maintained that the US branch of FTX is still solvent and can make customers whole again, but the company has denied this claim.
In a Substack post last week, Bankman-Fried shared his estimation of what his crypto empire's books looked like over the last two years.
But Ray pointed out that those calculations seem to include improperly diverted funds — meaning, in effect, Bankman-Fried's figures imply covering losses using customers' money.
"This is the problem," Ray said. "He thinks everything is one big honey pot."
Here's Bankman-Fried's rebuttal to that comment:
"Mr. Ray continues to make false statements based on nonexistent calculations. If Mr. Ray had bothered to think carefully about FTX US, he would likely have realized both that his interpretation is wholly inconsistent with bankruptcy law, and also that even if one were to subtract $250m from my balance sheet, FTX US would *still* have been solvent. Rather, Mr. Ray sees everything as one big honey pot—one he wants to keep."
And strangely, as the boss and former boss duke it out, FTX's native token FTT is quietly skyrocketing again.
It's possible that the crypto — which was invented by FTX and helped tank the whole enterprise with its massive plunge in value — is rallying as traders speculate on a potential reboot of the bankrupt exchange that Ray mentioned Thursday.
The token is now up more than 160% from its December low.
Crypto broker Genesis has filed for Chapter 11 bankruptcy, becoming the latest casualty of the fallout from the implosion of FTX last year. Per CNBC, the company listed over 100,000 creditors in a "mega" bankruptcy filing, with aggregate liabilities ranging from $1.2 billion to $11 billion. Read the full story.
The new CEO of FTX says the failed crypto exchange could be revived and resume normal operations
Jennifer Sor
Thu, January 19, 2023
Sam Bankman-Fried tweets away while under house arrest
Breck Dumas
Fri, January 20, 2023 at 2:13 PM MST·2 min read
FTX founder and former CEO Sam Bankman-Fried apparently cannot resist weighing in on his cryptocurrency exchange's bankruptcy proceedings as he awaits trial on several federal charges linked to the platform's collapse.
The 30-year-old continues to tweet away about the goings-on while under house arrest at his parents' home.
Jennifer Sor
Thu, January 19, 2023
SMUG
John Ray, the new CEO of FTXN
FTX's new CEO, John Ray III, has said the failed crypto exchange could be revived and resume normal operations.
He told the Wall Street Journal that investors have praised the platform, and some shareholders still see it as a "viable business."
Ray has been searching for assets within FTX to pay off its shortfalls, including the $8 billion it owes to customers.
FTX's new boss, John Ray III, said FTX could be revived and eventually resume normal operations while the crypto exchange is undergoing Chapter 11 bankruptcy proceedings.
In his first interview since FTX collapsed in November, he told the Wall Street Journal that he set up a task force to look into restarting the international exchange FTX.com.
"Everything is on the table," Ray said. "If there is a path forward on that, we will not only explore that, we'll do it."
Some customers have praised the platform for its technology and suggested bringing it back to business, he added.
Ray, who was brought in to sort out FTX's disarrayed finances, and has spent the past few months searching for assets within the exchange to cover its shortfalls, including the $8 billion it owes in customer deposits.
The exchange recently recovered $5 billion in liquid assets, but tracking down all of the money could take months, Ray warned, since FTX had virtually "no record keeping whatsoever" and used QuickBooks, a small accounting software, to run its multibillion-dollar business.
A key question Ray flagged is whether restarting FTX.com would recover more value for customers than liquidating assets or selling the platform.
"There are stakeholders we're working with who've identified what they see is a viable business," he told the Journal.
Meanwhile, Sam Bankman-Fried, who was ousted as CEO when FTX filed for bankruptcy in November, has disputed figures from FTX's new management, said FTX's US platform is solvent, and that a bankruptcy filing was avoidable.
The exchange reportedly comingled customer funds with those of Alameda Research, Bankman-Fried's crypto investing arm, and spent millions on lavish employee purchases, like vacation homes in the Bahamas.
He was charged with fraud in December and pleaded not guilty earlier this month. He is currently on house arrest as he awaits trial.
John Ray, the new CEO of FTXN
FTX's new CEO, John Ray III, has said the failed crypto exchange could be revived and resume normal operations.
He told the Wall Street Journal that investors have praised the platform, and some shareholders still see it as a "viable business."
Ray has been searching for assets within FTX to pay off its shortfalls, including the $8 billion it owes to customers.
FTX's new boss, John Ray III, said FTX could be revived and eventually resume normal operations while the crypto exchange is undergoing Chapter 11 bankruptcy proceedings.
In his first interview since FTX collapsed in November, he told the Wall Street Journal that he set up a task force to look into restarting the international exchange FTX.com.
"Everything is on the table," Ray said. "If there is a path forward on that, we will not only explore that, we'll do it."
Some customers have praised the platform for its technology and suggested bringing it back to business, he added.
Ray, who was brought in to sort out FTX's disarrayed finances, and has spent the past few months searching for assets within the exchange to cover its shortfalls, including the $8 billion it owes in customer deposits.
The exchange recently recovered $5 billion in liquid assets, but tracking down all of the money could take months, Ray warned, since FTX had virtually "no record keeping whatsoever" and used QuickBooks, a small accounting software, to run its multibillion-dollar business.
A key question Ray flagged is whether restarting FTX.com would recover more value for customers than liquidating assets or selling the platform.
"There are stakeholders we're working with who've identified what they see is a viable business," he told the Journal.
Meanwhile, Sam Bankman-Fried, who was ousted as CEO when FTX filed for bankruptcy in November, has disputed figures from FTX's new management, said FTX's US platform is solvent, and that a bankruptcy filing was avoidable.
The exchange reportedly comingled customer funds with those of Alameda Research, Bankman-Fried's crypto investing arm, and spent millions on lavish employee purchases, like vacation homes in the Bahamas.
He was charged with fraud in December and pleaded not guilty earlier this month. He is currently on house arrest as he awaits trial.
Sam Bankman-Fried tweets away while under house arrest
Breck Dumas
Fri, January 20, 2023 at 2:13 PM MST·2 min read
FTX founder and former CEO Sam Bankman-Fried apparently cannot resist weighing in on his cryptocurrency exchange's bankruptcy proceedings as he awaits trial on several federal charges linked to the platform's collapse.
The 30-year-old continues to tweet away about the goings-on while under house arrest at his parents' home.
FTX founder Sam Bankman-Fried leaves the courthouse following his arraignment in New York City on December 22, 2022.
Bankman-Fried has refused to stay quiet ever since the company filed for Chapter 11 bankruptcy after a proverbial run on the bank led to its downfall, and upwards of a million customers lost billions of dollars. Prior to his arrest, he made several public statements to media outlets and on Twitter spaces events explaining his version of what led to his platform's downfall.
FTX CRYPTOCURRENCY JUMPS MORE THAN 35% AFTER CEO JOHN RAY SAYS BANKRUPT CRYPTO EXCHANGE MAY RESTART
After being released from custody on a $250 million bond, the disgraced former chief executive picked up where he left off before his incarceration in the Bahamas, defending himself in a lengthy Substack post.
Sam Bankman-Fried, the founder and chief executive of FTX, in Nassau, Bahamas, on April 26, 2022.
But this week, he took to Twitter re-upping previous claims and taking further shots at FTX's new leadership along with Sullivan and Cromwell, one of the law firms representing it in bankruptcy.
On Tuesday, Bankman-Fried posted his own balance sheet purportedly showing the FTX U.S. "is solvent" and "always has been," pushing back against Sullivan & Cromwell's claims to the contrary.
Then on Thursday, the FTX founder celebrated the news that the CEO who replaced him, John Ray III, is considering re-opening the exchange.
"I'm glad Mr. Ray is finally paying lip service to turning the exchange back on after months of squashing such efforts!" Bankman-Fried tweeted. "I'm still waiting for him to finally admit FTX US is solvent and give customers their money back..."
Bankman-Fried retweeted several posts from others, agreeing with his view that Sullivan & Cromwell should not represent FTX, alleging that Sullivan & Cromwell pressured him to file for bankruptcy and appoint Ray as the new CEO.
A bankruptcy judge on Friday agreed to allow the law firm to continue representing FTX, dismissing objections brought before the court.
Sam Bankman-Fried is weaponizing Twitter in FTX bankruptcy battle, says crypto exchange's law firm
Brian Evans
Fri, January 20, 2023
Sam Bankman-Fried.
Lawyers for FTX say Sam Bankman-Fried is weaponizing Twitter as he pushes back against bankruptcy proceedings.
"One of the things that the debtors have been facing generally in these cases is assault by Twitter," a lawyer said.
A judge in the FTX bankruptcy case also rejected claims that the Sullivan & Cromwell law firm has a conflict of interest.
Lawyers for FTX said former CEO Sam Bankman-Fried is weaponizing Twitter in an attempt to disrupt the bankruptcy process.
In recent tweets and Substack posts, Bankman-Fried has accused the Sullivan & Cromwell law firm of pressuring him to file for bankruptcy as FTX was collapsing in November. The firm served FTX before the crash and is also representing it in Chapter 11 proceedings.
Sullivan & Cromwell partner James Bromley said in a court proceeding on Friday that the firm is "fighting a ghost" as it disputes SBF's claims without being able to confront him in court.
"One of the things that the debtors have been facing generally in these cases is assault by Twitter," Bromley said.
Bankman-Fried remains under house arrest at his parents' home Palo Alto, California, as he awaits trial on fraud charges. He has pleaded not guilty.
Bromley's comments occurred at a hearing where the bankruptcy judge weighed a motion from FTX clients who argued the law firm's appointment as FTX counsel was a conflict of interest due to Sullivan & Cromwell's history with the crypto exchange.
But Judge John Dorsey rejected to those claims, saying there was no evidence of actual conflict.
Still, Bromley told the court the firm should have been more forthright about its connection to FTX sooner in the bankruptcy process.
Earlier in the week, the law firm disclosed that it performed $10 million worth of legal work on behalf of FTX before the exchange filed for bankruptcy.
"In retrospect, your honor, we should have gone further in the original declaration," he said.
Top Republican calls FTX founder Sam Bankman-Fried a "world-class sociopath"
Arden Farhi
Fri, January 20, 2023
The chairman of the House Financial Services Committee, Rep. Patrick McHenry, thinks FTX founder Sam Bankman-Fried is a "world class sociopath" who "represents what is [the] absolute worst about the world of crypto."
Earlier this month, Bankman-Fried entered a not guilty plea on a host of fraud charges stemming from the collapse of his cryptocurrency exchange.
Bankman-Fried operated FTX from the Bahamas. He was extradited to the U.S. in December.
McHenry told CBS News' Major Garrett on "The Takeout" this week that new technologies tend to attract fraudsters, and cryptocurrency in particular needs to be regulated. "The reason why they're able to take advantage in this marketplace is our failure to actually provide clear rules of the road and a clear set of regulation that protects consumers and enables innovation," McHenry said.
He dismissed notion that Bankman-Fried may been unaware or misunderstood what caused FTX to lose $8 billion in customer funds and declare bankruptcy.
"That's bullsh*t," McHenry said. "[Bankman-Fried has] proven himself to be a sociopath by his actions. He's proven himself to be untrustworthy by his actions. No word he utters should be believed. Period."
His committee will hold cryptocurrency hearings in February and plans to present legislation this summer.
"Clear rules of the road here in the United States can unlock this economic potential," he said.
McHenry said it should be up to members of his committee whether they accept donations from the cryptocurrency industry.
"The people that contribute to my campaign are making a decision for themselves. I'm not making a decision to endorse their ideas. They're making a decision, endorse my ideas. That's been my longstanding view," he said.
Feds seize over $170 million in cash accounts linked to Sam Bankman-Fried
The Justice Department has seized more than $170 million in cash from multiple accounts associated with disgraced FTX co-founder Sam Bankman-Fried, according to court documents filed Friday. This is in addition to an estimated $526 million in stock which was also seized by the federal government.
According to the federal court documents obtained by CBS News, the seizures occurred on Jan. 4.
They included $94.5 million in an account in Silvergate Bank, a California based bank specializing in cryptocurrencies, along with nearly $50 million held at Farmington State Bank, which is based in Washington state, and $20.7 million in currency in accounts in ED&F Man Capital Markets.
Prosecutors also seized 55.27 million shares of Robinhood stock from an ED&F Man Capital Markets account, according to the court filing. The stock for Robinhood, an online trading platform, closed at $9.52 a share Friday, putting the value of that seizure at more than $526 million.
On Dec. 12, the 30-year-old Bankman-Fried was arrested in the Bahamas on federal charges of wire fraud and conspiracy related to the collapse of his cryptocurrency exchange FTX.
After being extradited to the U.S., he pleaded not guilty to all charges in a Jan. 3 hearing. He remains free on $250 million bond. He has been ordered to live at his parents' house in California until his trial, which is scheduled to begin in October.
The sudden collapse of FTX has reverberated throughout the financial world and garnered questions about the viability of cryptocurrency. On Nov. 11, FTX filed for bankruptcy, just after Bankman-Fried told investors the company was experiencing an $8 billion shortfall.
Nearly $700M Worth of Assets Linked to Sam Bankman-Fried, FTX Seized by US
Jason Nelson
Fri, January 20, 2023
United States prosecutors have seized nearly $700 million worth of assets either owned by collapsed crypto exchange FTX or tied to founder and former CEO Sam Bankman-Fried, authorities disclosed in a Friday court filing.
Federal authorities in the Southern District of New York have seized just over $698 million worth of assets linked to the disgraced crypto founder, according to the filing, which was first reported on by CNBC.
The bulk of the value comes from a stack of shares that Bankman-Fried purchased in Robinhood, the stock and crypto trading app, allegedly using stolen FTX customer funds.
The document submitted by U.S. Attorney Damian Williams details the holdings, with nearly 55.3 million shares of Robinhood stock seized on January 4. As of this writing, the shares are collectively worth about $526 million. They were held by Emergent Fidelity Technologies, a shell company that Bankman-Fried created with FTX co-founder Gary Wang.
FTX Restructuring Team Has Clawed Back $5B in Lost Assets
In a December affidavit, Bankman-Fried wrote that he and Wang formed the new company—using funds loaned by FTX sister company Alameda Research—to acquire shares in Robinhood Markets Inc. totaling $546.4 million. FTX customer funds were reportedly used to plug a trading hole in Alameda's balance sheet last summer, ahead of the exchange's eventual collapse.
Other funds seized on January 4 include $20.7 million held by Emergent at ED&F Man Capital Markets, Inc, and another $49.9 million at Farmington State Bank, held under FTX Digital Markets. Between January 11 and 19, authorities seized just over $100 million of FTX’s funds held in Silvergate Bank.
Today’s court filings also list three accounts held at rival cryptocurrency exchange Binance and its Binance US affiliate. However, the value of the assets in those accounts was not specified.
FTX and Alameda filed for Chapter 11 bankruptcy in November following a liquidity crisis at FTX, with billions of dollars apparently missing from the once-popular crypto exchange. Bankman-Fried now faces various charges from the U.S. Department of Justice, Securities and Exchange Commission (SEC), and Commodity Futures Trading Commission (CFTC) related to his actions at the companies.
The FTX restructuring team, led by new company CEO John J. Ray III, said last week that it has separately recovered more than $5 billion worth of company assets between cryptocurrency, cash, and liquid investments in securities.
Feds have seized nearly $700M from FTX founder Sam Bankman-Fried
Jared Gans
Fri, January 20, 2023
Federal authorities have seized almost $700 million from FTX founder Sam Bankman-Fried, mostly from shares of Robinhood that he owned.
A court filing from Friday shows that the federal government seized more than 55 million shares of Robinhood stock along with tens of millions of dollars from each of several bank accounts.
Bankman-Fried was arrested last month in the Bahamas and extradited to the United States to face charges including wire fraud, money laundering and conspiracy to commit fraud as part of an alleged scheme to defraud investors.
Prosecutors have alleged that Bankman-Fried used funds from investors for his own purposes to fund investments from his hedge fund, Alameda Research, buy real estate and to make political donations.
He pleaded not guilty to all charges earlier this month. He has said he has not stolen any money, and FTX’s customers should be able to get their money back despite the cryptocurrency exchange’s bankruptcy declaration in November.
Federal authorities have said Bankman-Fried used the money that investors intended to put into FTX to buy the Robinhood shares.
The total value of the shares seized is more than $500 million. Five of the sums that officials seized were accounts held in the name of “FTX Digital Markets,” while three were for all money, assets and funds contained in three accounts for
Feds seized nearly $700 million from FTX founder Bankman-Fried
Bankman-Fried attends a hearing on FTX fraud case in New York City
Fri, January 20, 2023 at 5:22 PM MST·1 min read
By Dietrich Knauth
(Reuters) - Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.
Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.
The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.
The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.
The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX's subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.
The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.
DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.
(Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis)
Bankman-Fried attends a hearing on FTX fraud case in New York City
Fri, January 20, 2023 at 5:22 PM MST·1 min read
By Dietrich Knauth
(Reuters) - Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.
Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.
The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.
The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.
The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX's subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.
The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.
DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.
(Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis)
FTX spillover continues to spread as 2 more crypto exchanges initiate layoffs
Phil Rosen
Thu, January 19, 2023
Sam Bankman-Fried.Tom Williams/Getty Images
FTX's collapse has rocked the digital asset sector, and two more crypto exchanges have started cost-cutting measures.
The crypto exchanges Amber Group and OSL will move to reduce operating expenses via staff cuts, according to the South China Morning Post.
Amber is "anticipating and preparing itself for an extremely conservative position, so that it can go the long mile."
FTX's downfall continues to reverberate through the digital asset sector, with two more crypto exchanges moving to cut costs and reduce staff.
OSL and Amber Group will both reduce operating expenses in light of damages to the cryptocurrency market, the South China Morning Post reported Thursday.
A subsidiary of Hong Kong-listed BC Technology Group, OSL told the SCMP that it will cut costs by about 33% "in response to current market conditions," and that the process will include a reduction in headcount.
As for Amber, which is now based in Singapore and was founded in Hong Kong, the company will slash jobs in its IT, risk management, and compliance departments, after cutting its entire internal audit team, the SCMP reported.
At the same time, Amber has been delaying payables to third-party vendors and shuttered an office in Hong Kong's downtown district for a more affordable location. This comes despite Amber completing a $300 million funding round in December, Crunchbase data shows.
In a message to the SCMP, Amber said that it's "anticipating and preparing itself for an extremely conservative position, so that it can go the long mile, even if it means having to go back to core business fundamentals during this period."
Other crypto exchanges have also announced steep staff reductions recently, including Coinbase and Crypto.com, while Binance said it plans to grow its headcount.
Meanwhile, crypto lender Genesis will significantly reduce its workforce amid expectations it will file for bankruptcy, after FTX helped induce a liquidity squeeze.
And crypto-friendly bank Silvergate Capital reported a $1 billion fourth-quarter loss this week, as the FTX crash sparked a run at the end of 2022 when customers pulled $8.1 billion in deposits.
Alameda Research-Connected Bank Exits Crypto Business
Stephen Alpher
Thu, January 19, 2023
Farmington State Bank, which does business under the Moonstone Bank name, is returning to its longtime role as a community lender and eschewing the crypto business, the company said in a press release Thursday.
The bank, which is based in Farmington, Wash., a tiny town in the eastern part of the state, is dropping the Moonstone Bank brand and will do business as Farmington State Bank instead.
Eyebrows were raised after the collapse of FTX when court documents showed the crypto exchange's sister company Alameda Research purchased an $11.5 million stake in Farmington State Bank last January. It was a sizable amount, American Banker noted, given that Farmington generally had only about $10 million in assets over the last decade.
Farmington was owned through a holding company by French banking executive Jean Chalopin. Chalopin is the chairman of Bahamas-based Deltec Bank & Trust, whose parent company, Deltec International Group, reportedly received a $50 million loan from FTX.
Read more: FTX’s Collapse Was a Crime, Not an Accident
A tiny rural bank which Alameda bought an $11.5 million stake in is giving up its crypto and weed ambitions to return to its community roots
Pete Syme
Fri, January 20, 2023
The Palouse hills in Whitman County, Washington, where Farmington State Bank is located.
Sam Bankman-Fried's Alameda research invested $11.5 million in Farmington State Bank last year.
That's despite the bank being one of America's smallest, with just 32 employees.
New owners planned to serve the crypto and cannabis industries, but are giving up after FTX's collapse.
The tiny rural bank, which the now-bankrupt Alameda Research bought a controversial stake in, has given up its crypto and cannabis ambitions and will return to being a community bank.
The New York Times reported last November that Sam Bankman-Fried's Alameda had bought an $11.5 million share in Farmington State Bank. That raised eyebrows because it was the 26th-smallest bank out of America's 4,800, and had just three employees until 2022.
The town of Farmington, Washington has just 146 residents, and is so remote that Google Street View doesn't cover the whole town. In 2010, local paper The Spokesman Review described the bank as "strictly no-frills" because it didn't offer credit cards or online banking, instead specializing in agricultural loans to farmers.
Farmington State Bank was purchased in 2020 by FBH, a company owned by the "Inspector Gadget" co-creator Jean Chalopin. It then began doing business as Moonstone Bank, which aimed to serve digital assets and the cannabis industry. According to the bank's website, the owner's son, Janvier Chalopin, is its Chief Digital Officer.
Alameda bought 10% of FBH for $11.5 million in January 2022, even though the bank had a net worth of $5.7 million at the time, according to The Times. After that report, the bank clarified that it now has 32 employees, and said its $115 million valuation "was consistent with other similar technology banks and trust-banks startups at the time."
In a statement released on Wednesday night, the bank said it will now exit the crypto space and refocus on being a local community bank.
"The change in strategy reflects the impact of recent events in the crypto assets industry and the resultant changing regulatory environment relating to crypto asset businesses," the statement read.
It added that it will retire the Moonstone Bank name, "reflecting this return to its roots."
Jean Chalopin is also the chairman of Deltec Bank, which is based in The Bahamas. Forbes reported on Monday that Deltec secured a $50 million loan from FTX.
FTX's bankruptcy lawyers did not immediately respond to Insider's request for comment, sent outside US working hours.
Alameda Research and Genesis' multi-billion dollar relationship reportedly began years ago with Sam Bankman-Fried asleep in a beanbag chair at their first meeting
Morgan Chittum
Thu, January 19, 2023
Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, leaves following a hearing at Manhattan federal court in New York City, U.S. January 3, 2023.Andrew Kelly/Reuters
Alameda Research and Genesis reportedly kicked off their relationship at a meeting in 2018.
Genesis doled out hundreds of millions of dollars in unsecured loans to Alameda, the Wall Street Journal reported.
At the peak, Alameda had $6.5 billion from Genesis through loans that were only 50% secured, sources told the WSJ.
Sam Bankman-Fried's crypto trading firm Alameda Research met with lender Genesis Global Capital in 2018, kicking off a years-long, multi-billion dollar lending relationship between the two embattled firms, the Wall Street Journal reported on Thursday.
When Genesis' team, including former chief exec Michael Moro, arrived to the Berkeley, California office where Alameda had been working, Bankman-Fried was reportedly found asleep on a beanbag chair. The former crypto billionaire was "surprised they showed up" since the fund, which was capturing bitcoin arbitrage opportunities, was still very small in late 2018.
The two parties didn't ink a deal that day because Genesis saw Bankman-Fried's nap as "a sign of [his] dedication to his company," the report reads, citing people familiar. Moro denies attending this meeting.
At the time, Alameda was on its way to making more capital-intensive crypto bets. This led to a deepening lending relationship between the two firms over the years.
Genesis doled out hundreds of millions of dollars in unsecured loans to Alameda. At the peak, the trading firm reportedly had $6.5 billion from Genesis through loans that were often only 50% secured.
Alameda has since been accused of using customer deposits from Bankman-Fried's crypto exchange FTX for daily operations like making risky investments. As a result, Bankman-Fried is charged in an eight-count indictment with money laundering, fraud, and campaign finance violations. The disgraced founder has pleaded not guilty.
Meanwhile, Genesis is reportedly making bankruptcy plans after taking hits from exposure to defunct crypto hedge fund Three Arrows Capital and FTX.
Digital Currency Group, the parent company of Genesis, did not immediately respond to Insider's request for comment
DCG's crypto-lending subsidiary Genesis files for Chapter 11 bankruptcy
Jacquelyn Melinek
Thu, January 19, 2023 at 10:24 PM MST·3 min read
Genesis Global Trading, a subsidiary of the crypto conglomerate Digital Currency Group (DCG), filed for Chapter 11 bankruptcy in the Southern District of New York (SDNY) court late Thursday night.
Genesis Global Holdco and two of its lending business subsidiaries, Genesis Global Capital and Genesis Asia Pacific, filed voluntary petitions under the bankruptcy code for SDNY, its press release stated. “Genesis’s other subsidiaries involved in the derivatives and spot trading and custody businesses and Genesis Global Trading are not included in the filing and continue client trading operations,” it added.
Genesis stated it has over $150 million in cash, which it plans to use as liquidity to support its ongoing operations and facilitate its restructuring process.
As part of its filing, Genesis plans to consider a “dual track process” for sale, capital raise or equitization transaction that would potentially allow the business to “emerge under new ownership,” the release said.
The filing followed a series of attempts from Genesis to stay afloat.
The firm struggled to raise capital for its lending unit, cut 30% of its staff in early January and took a financial hit from major catastrophic crypto events last year like the collapse of crypto hedge fund Three Arrows Capital and the decline of crypto exchange FTX.
Genesis had a trading and lending relationship with both Three Arrows Capital and Alameda, FTX’s sister company, DCG’s CEO Barry Silbert shared in a letter from January 10.
“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” Derar Islim, interim CEO of Genesis, said in a statement on Thursday.
In mid-November 2022, Genesis halted withdrawals and new loan originations and later that month the firm warned of a possible bankruptcy filing as creditors looked for alternative options to prevent it. Around that time, a Genesis spokesperson told TechCrunch, “We have no plans to file bankruptcy imminently.” The spokespersson added, “Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors.”
Aside from Genesis, DCG is the parent company of digital currency asset manager Grayscale, media company CoinDesk, mining and staking company Foundry, digital asset exchange and wallet Luno and API-centric platform TradeBlock. Silbert said in the mid-January letter that Genesis is a “separate and distinct operating subsidiary” from DCG.
On January 12, the U.S. Securities and Exchange Commission charged Genesis and cryptocurrency exchange, wallet and custodian Gemini for the unregistered offer and sale of securities to retail investors through Gemini Earn crypto asset lending program. The prosecutors said Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors.
“In November 2022, Genesis announced that it would not allow its Gemini Earn investors to withdraw their crypto assets because Genesis lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market,” the SEC release stated. “At the time, Genesis held approximately $900 million in investor assets from 340,000 Gemini Earn investors. Gemini terminated the Gemini Earn program earlier this month. As of today, the Gemini Earn retail investors have still not been able to withdraw their crypto assets.”
This is a developing story and may be updated to reflect new information.
Sam Bankman-Fried's 2 mysterious bail sponsors ponied up a total of $700,000 to get the alleged fraudster out of jail
Jacob Shamsian
Fri, January 20, 2023
Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, leaves following a hearing at Manhattan federal court in New York City, U.S. January 3, 2023.Andrew Kelly/Reuters
In addition to his parents, Sam Bankman-Fried has two anonymous bail sponsors keeping him out of jail.
They contributed $500,000 and $200,000 respectively, one of his lawyers disclosed in a court filing.
The judge is weighing a request from media organizations, including Insider, to unseal their names.
The two anonymous sponsors of Sam Bankman-Fried's bail posted a total of $700,000 to help get him out of jail, the lawyer for the FTX cofounder said in a court filing Thursday night.
One of the two sponsors posted $500,000 while the other posted $200,000 to help guarantee the $250 million bond, which allows Bankman-Fried to remain under house arrest in his parents' California home while awaiting trial in a Manhattan federal court.
In addition to the anonymous bail sponsors, Bankman-Fried's parents used their $4 million Palo Alto home as collateral to help secure the bond. If Bankman-Fried violates its conditions, he'll be on the hook for $250 million.
Federal prosecutors in the Southern District of New York allege Bankman-Fried "orchestrated a years-long fraud" in which he diverted funds from his FTX cryptocurrency exchange to Alameda Research, a crypto hedge fund he controlled as well. In court, prosecutors estimated he defrauded more than 1 million customers.
The prosecutors have secured guilty pleas from Caroline Ellison and Gary Wang, two of Bankman-Fried's top lieutenants at Alameda Research. Bankman-Fried has pleaded not guilty to the charges against him.
Christian Everdell, one of Bankman-Fried's defense attorneys, disclosed the contributions of the two anonymous bail contributors so that US District Judge Lewis Kaplan, who is overseeing the case, would include them in the bail condition documents.
"We therefore respectfully request that the Court update the bail conditions to reflect that the two non-parent sureties will sign separate appearance bonds prepared by the Magistrate Clerk's office in the amount of $500,000 and $200,000, respectively," Everdell wrote.
Earlier this month, several news organizations, including Insider, asked Kaplan to unseal the identities of the two anonymous bail sponsors, arguing it was in the public interest.
"Given Mr. Bankman-Fried's relationships and access to some of the most wealthy, powerful, and politically connected individuals, including elected officials, access to the identity of the bond sureties will bolster trust in the judicial process here," the news organizations wrote in the filing.
Everdell argued in a separate filing on Thursday night that disclosing their names would present a security risk to them.
He recounted an incident where a group of people drove up to the Bankman-Fried family's Palo Alto home and spoke to his security guards.
"Recently, the Bankman-Frieds had a security incident at their home when a black car drove into the metal barricade set up outside their home," Everdell wrote. "Three men got out of the car. When the security guard on duty confronted them, the men said something to the effect of: 'You won't be able to keep us out.' The men got back in the car and quickly drove away before the security guard was able to see the license plate."
Kaplan said in a court filing Friday that the names "shall remain under seal" as he continues to weigh the arguments.
A representative for Bankman-Fried declined to comment on the identity of the bail sponsors.
Former FTX U.S. CEO Sam Bankman-Fried rejects liquidators’ claim of recovered assets
Lachlan Keller
Thu, January 19, 2023
Sam Bankman-Fried, the founder and former chief executive of FTX U.S., has rejected claims by the company’s current leadership made in a presentation on Tuesday that the team has only recovered US$181 million worth of funds from the exchange.
See related article: FTX says US$415 mln in crypto hacked since bankruptcy filing
Fast facts
Current FTX chief executive, John J. Ray III, said half of those funds were lost to unauthorized transfers following FTX.com filing for Chapter 11 bankruptcy on Nov. 11.
“These claims by [restructuring firm Sullivan & Cromwell] are wrong, and contradicted by data later on in the same document,” Bankman-Fried wrote in a Substack post on Wednesday. “FTX U.S. was and is solvent, likely with hundreds of millions of dollars in excess of customer balances.”
FTX U.S., established in 2020 to cater to U.S.-based customers, is a separate entity from the Bahamas-based crypto exchange FTX.com.
Bankman-Fried is currently under house arrest for his involvement in the collapse of FTX.com and faces charges of securities fraud, wire fraud, conspiracy, money laundering, and violating campaign finance rules. He has pleaded not guilty to all charges.
He launched a Substack on Jan. 13, an online, personal newsletter that users can subscribe to.
In this recent post on Substack, Bankman-Fried gives lengthy explanations for how he believes FTX U.S. is still solvent. However, as Ray has been distancing himself and the company from its former head, it is possible Bankman-Fried does not have access to the most up-to-date information.
FTX leadership told creditors on Tuesday that US$415 million had been lost to hackers since the Nov. 11 bankruptcy filing, of which US$90 million had been siphoned from FTX US.
Roughly US$5.5 billion worth of liquid assets have been marked for recovery by FTX consisting of US$1.7 billion in cash, US$3.5 billion in cryptocurrencies – including FTX Token (FTT) – and US$300 million worth of liquid securities.
See related article: US lawyers, Bahamas liquidators trade barbs over who rules FTX bankruptcy jurisdiction
Judge approves FTX choice of law firm as bankruptcy counsel
The FTX Arena logo is seen where the Miami Heat basketball team plays on Nov. 12, 2022, in Miami. The judge presiding over the bankruptcy of cryptocurrency exchange FTX has approved the company’s choice of a law firm representing it in the bankruptcy on Friday, Jan. 20, 2023, despite concerns about potential conflicts of interest.
RANDALL CHASE
Fri, January 20, 2023
DOVER, Del. (AP) — The judge presiding over the bankruptcy of cryptocurrency exchange FTX has approved the company’s choice of a law firm representing it in the bankruptcy, despite concerns about potential conflicts of interest.
Judge John Dorsey on Friday granted a motion by FTX for the Sullivan & Cromwell law firm to serve as debtor’s counsel.
The ruling came after a Sullivan & Cromwell partner filed additional disclosures this week about the firm’s work for FTX entities and FTX founder Sam Bankman-Fried before the November bankruptcy filings. Those disclosures were made in response to concerns raised by the U.S. Trustee, which serves as a government watchdog in Chapter 11 reorganizations.
According to declarations filed by attorney Andrew Dietderich, the firm was paid millions of dollars for work on behalf of FTX starting in July 2021. That does not include bankruptcy-related retainers totaling $12 million. Of that amount, $3 million was paid to Sullivan & Cromwell for previous work.
Bankman-Fried has pleaded not guilty to charges that he illegally diverted massive amounts of customer money from FTX to Alameda Research, his cryptocurrency hedge fund trading firm.
Dietderich said in a hearing last week that Bankman-Fried instructed FTX co-founder and chief technology officer Gary Wang to create a secret “back door” that allowed Alameda to borrow from customers on the FTX exchange without their permission.
Wang and Carolyn Ellison, the former CEO of Alameda Research, have pleaded guilty to charges including wire fraud, securities fraud and commodities fraud and are cooperating with federal prosecutors.
Meanwhile, Dorsey signed an order Friday authorizing FTX to redact the names of all customers, and the addresses and e-mail addresses of non-individual customers, from court filings for at least the next 90 days.
FTX also is authorized to permanently keep secret the addresses and email addresses of individual creditors and equity holders. Dorsey also allowed FTX to maintain a veil of secrecy for at least the next 90 days over the names of individual creditors or equity holders who are citizens of the United Kingdom or European Union nations and covered under a consumer protection program known as the General Data Protection Regulation, or GDPR.
Lawyers for FTX have argued that its customer list is both a valuable asset and confidential commercial information. They contend that secrecy is needed to protect FTX accounts from potential theft and to ensure that potential competitors do not “poach” FTX customers.
FTX Bankruptcy Judge Calls Fmr FTX US Exec's Allegations Against Law Firm 'Hearsay, Innuendo, Speculation, Rumors'
Stacy Elliott
Fri, January 20, 2023
In a court hearing on Friday morning, the bankruptcy judge overseeing FTX’s case approved the hiring of the law firm Sullivan & Cromwell, and called allegations from a former FTX US compliance officer made in objection to the law firm “hearsay, innuendo, speculation, rumors, and certainly not something I would allow to be introduced into evidence."
"There's no evidence of actual conflict here," said judge John Dorsey.
On Thursday night, Daniel Friedberg, who oversaw compliance at FTX US and regulatory matters at FTX.com, had filed a 17-page declaration supporting two individual creditors' objections to the hiring of Sullivan & Cromwell. In his declaration, Friedberg mentioned that FTX US general counsel, Ryne Miller, used to work for Sullivan & Cromwell.
“Mr. Miller informed me that it is very important for him personally to channel a lot of business to S&C as he wanted to return there as a partner after his stint with the Debtors,” Friedberg wrote in the court filing. He added later that Miller told him S&C partners Andrew Dietderich and Mitchell Eitel were his mentors and that “he would do anything to help those partners.”
Early on during the hearing, Friedberg struggled to get Judge Dorsey’s attention over the Zoom call that was being used to allow interested parties to watch and listen to the FTX bankruptcy proceedings.
“I did not recognize [Friedberg] intentionally because as I said he has not filed a motion, he has not joined any motion,” Dorsey said to Marshal Hoda, an attorney representing the creditors who objected to FTX hiring S&C. “He is simply trying to be a witness, I suppose. But witnesses are not allowed unless they're here in person.”
The two creditors, Warren Winter and Richard Brummond, filed an emergency motion to stop Friday’s hearing from taking place. Up until recently, Andrew Vera, U.S. Trustee, also opposed the hiring of S&C because the law firm wasn’t more timely with its disclosures about ties to Miller.
On Thursday, S&C partner Dietderich amended his declaration in support of the firm being hired by FTX, to reflect that he told the U.S. Trustee overseeing the bankruptcy case on January 10, 2023—not November 10, 2022, as he originally said—that the law firm “would not be involved in any investigations with respect to Ryne Miller to the extent one is required.”
During the hearing, FTX attorney James Bromley argued that Friedberg, along with FTX founder Sam Bankman-Fried, are concerned about the information that’s being shared with law enforcement.
“So if you're Mr. Bankman-Fried or Mr. Friedberg, there's a concern about what's going on and what could happen to them,” he said. “They can't throw stones at the U.S. Attorney's Office, but they can throw stones at debtors’ counsel that's providing information to the prosecutors and the regulators. And that's exactly what's happened.”
Earlier during the hearing, Bromley expressed frustration at Bankman-Fried’s continued use of Twitter and a Substack newsletter to cast doubt on information provided by the FTX restructuring team.
“One of the things that the debtors have been facing, generally in these cases, is assault by Twitter,” Bromley said. “It’s very difficult, Your Honor, to cross examine a tweet, particularly tweets that are being issued by individuals who are under criminal indictment and whose travel is restricted, so to speak.”
Fri, January 20, 2023
DOVER, Del. (AP) — The judge presiding over the bankruptcy of cryptocurrency exchange FTX has approved the company’s choice of a law firm representing it in the bankruptcy, despite concerns about potential conflicts of interest.
Judge John Dorsey on Friday granted a motion by FTX for the Sullivan & Cromwell law firm to serve as debtor’s counsel.
The ruling came after a Sullivan & Cromwell partner filed additional disclosures this week about the firm’s work for FTX entities and FTX founder Sam Bankman-Fried before the November bankruptcy filings. Those disclosures were made in response to concerns raised by the U.S. Trustee, which serves as a government watchdog in Chapter 11 reorganizations.
According to declarations filed by attorney Andrew Dietderich, the firm was paid millions of dollars for work on behalf of FTX starting in July 2021. That does not include bankruptcy-related retainers totaling $12 million. Of that amount, $3 million was paid to Sullivan & Cromwell for previous work.
Bankman-Fried has pleaded not guilty to charges that he illegally diverted massive amounts of customer money from FTX to Alameda Research, his cryptocurrency hedge fund trading firm.
Dietderich said in a hearing last week that Bankman-Fried instructed FTX co-founder and chief technology officer Gary Wang to create a secret “back door” that allowed Alameda to borrow from customers on the FTX exchange without their permission.
Wang and Carolyn Ellison, the former CEO of Alameda Research, have pleaded guilty to charges including wire fraud, securities fraud and commodities fraud and are cooperating with federal prosecutors.
Meanwhile, Dorsey signed an order Friday authorizing FTX to redact the names of all customers, and the addresses and e-mail addresses of non-individual customers, from court filings for at least the next 90 days.
FTX also is authorized to permanently keep secret the addresses and email addresses of individual creditors and equity holders. Dorsey also allowed FTX to maintain a veil of secrecy for at least the next 90 days over the names of individual creditors or equity holders who are citizens of the United Kingdom or European Union nations and covered under a consumer protection program known as the General Data Protection Regulation, or GDPR.
Lawyers for FTX have argued that its customer list is both a valuable asset and confidential commercial information. They contend that secrecy is needed to protect FTX accounts from potential theft and to ensure that potential competitors do not “poach” FTX customers.
FTX Bankruptcy Judge Calls Fmr FTX US Exec's Allegations Against Law Firm 'Hearsay, Innuendo, Speculation, Rumors'
Stacy Elliott
Fri, January 20, 2023
In a court hearing on Friday morning, the bankruptcy judge overseeing FTX’s case approved the hiring of the law firm Sullivan & Cromwell, and called allegations from a former FTX US compliance officer made in objection to the law firm “hearsay, innuendo, speculation, rumors, and certainly not something I would allow to be introduced into evidence."
"There's no evidence of actual conflict here," said judge John Dorsey.
On Thursday night, Daniel Friedberg, who oversaw compliance at FTX US and regulatory matters at FTX.com, had filed a 17-page declaration supporting two individual creditors' objections to the hiring of Sullivan & Cromwell. In his declaration, Friedberg mentioned that FTX US general counsel, Ryne Miller, used to work for Sullivan & Cromwell.
“Mr. Miller informed me that it is very important for him personally to channel a lot of business to S&C as he wanted to return there as a partner after his stint with the Debtors,” Friedberg wrote in the court filing. He added later that Miller told him S&C partners Andrew Dietderich and Mitchell Eitel were his mentors and that “he would do anything to help those partners.”
Early on during the hearing, Friedberg struggled to get Judge Dorsey’s attention over the Zoom call that was being used to allow interested parties to watch and listen to the FTX bankruptcy proceedings.
“I did not recognize [Friedberg] intentionally because as I said he has not filed a motion, he has not joined any motion,” Dorsey said to Marshal Hoda, an attorney representing the creditors who objected to FTX hiring S&C. “He is simply trying to be a witness, I suppose. But witnesses are not allowed unless they're here in person.”
The two creditors, Warren Winter and Richard Brummond, filed an emergency motion to stop Friday’s hearing from taking place. Up until recently, Andrew Vera, U.S. Trustee, also opposed the hiring of S&C because the law firm wasn’t more timely with its disclosures about ties to Miller.
On Thursday, S&C partner Dietderich amended his declaration in support of the firm being hired by FTX, to reflect that he told the U.S. Trustee overseeing the bankruptcy case on January 10, 2023—not November 10, 2022, as he originally said—that the law firm “would not be involved in any investigations with respect to Ryne Miller to the extent one is required.”
During the hearing, FTX attorney James Bromley argued that Friedberg, along with FTX founder Sam Bankman-Fried, are concerned about the information that’s being shared with law enforcement.
“So if you're Mr. Bankman-Fried or Mr. Friedberg, there's a concern about what's going on and what could happen to them,” he said. “They can't throw stones at the U.S. Attorney's Office, but they can throw stones at debtors’ counsel that's providing information to the prosecutors and the regulators. And that's exactly what's happened.”
Earlier during the hearing, Bromley expressed frustration at Bankman-Fried’s continued use of Twitter and a Substack newsletter to cast doubt on information provided by the FTX restructuring team.
“One of the things that the debtors have been facing, generally in these cases, is assault by Twitter,” Bromley said. “It’s very difficult, Your Honor, to cross examine a tweet, particularly tweets that are being issued by individuals who are under criminal indictment and whose travel is restricted, so to speak.”
