Sam Bankman-Fried: A Bulls Advocate in a New York High-Tensor Courtroom Against FTX
The FTX founder Sam Bankman-Fried pleaded not guilty to fraud charges related to the collapse of his crypto exchange. (His trial is set to begin on Oct. 2.) The back and forth between his lawyers and federal prosecutors in a New York courtroom on Tuesday suggests that he is poised for a titanic legal fight.
A new bail condition that would prohibit Mr. Bankman-Fried from moving any money from FTX to his own account was requested by prosecutors. The judge agreed to the request.
Mr. Bankman-Fried’s lawyers requested that the names of two other co-signers for his bond, aside from his parents, remain sealed to protect their privacy. This was also approved.
Prosecutors also described what they said was a growing body of evidence, including documents provided by banks, employees, political campaigns, internet service providers and FTX’s new leaders.
An Open Letter to DCG Finances: “Losing a Cryptocurrency Card to a Million People” by Jeffrey Winklevoss
Mr. Winklevoss accused Mr. Silbert of borrowing from Gemini customers. He accused him of hiding behind lawyers and investment bankers and of having bad faith stalling tactics. Mr. Silbert denied that DCG’s finances had been mentioned and that its resolution offer had not been responded to.
In an open letter, Mr. Winklevoss wrote, “This mess is completely of your own making.” The product that allowed customers to earn up to eight percent interest on their digital coins by lending them to Genesis Global Capital owed 340,000 customers about $900 million, according to a DCG subsidiary. The Genesis account has $175 million that was frozen on FTX, but it didn’t stop withdrawals in November.
One of the main questions surrounding the Crypto industry is when a product is a security. The suit alleges that Gemini failed to register Earn with the S.E.C. and didn’t disclose material information to investors. (In previous cases, BlockFi, the bankrupt crypto lender, settled charges with the regulator last year after failing to register a similar product, and the agency blocked a proposed interest offering from the crypto exchange Coinbase in 2021.)
The early days of PayPal were filled with problems, and in fact they were called X because of how important customer acquisition was to the company. You shouldn’t just take my word that it’s true: Peter Thiel describes those days.
We had decided to give credit cards to absolutely anybody who wanted them. You have a $10,000 credit limit. Elon had told the woman who was rolling the service out that he wanted a million people to be using the new credit card by the end of the year. Fortunately, it was about two levels down from the front page, and so not that many people were able to discover this. Some of them wrote back, saying it was wonderful and they hadn’t had credit in a long time. I can’t believe you’re offering me credit. I haven’t had a checking account in 10 years. These were people who wrote so many bad checks that banks wouldn’t allow them to have checking accounts. We ended up with a 50 percent charge-back rate. The worst subprime companies were like 4 to 6 percent. We rolled that product back quickly.
This scenario made Gemini a target for fraudsters initiating ACH transfers using stolen bank account information, two people familiar with the matter said, because they could quickly exploit this loophole to take out crypto. That left the exchange with less crypto to seize if the bank transfer was eventually disputed by the real bank account owner and the exchange had to pay the transfer back, and therefore even bigger losses if crypto prices fell again.
Some people use it because they want to, or because they can’t, access regular banking, like the ones that were hacked, or because they are trying to get the ransom payment, for instance. I mean, the first widespread use for crypto was drugs, people. This is a group that is maybe a little bit more likely to do some shady stuff than the general population, you know?
It is cheap, and so a lot of fintechs prefer it. The only problem is if the account information is stolen — or, crucially, if the owner of the account disputes the transfer. Now, remember, for banks, this kind of friendly fraud is part of the cost of doing business, so they’ll just believe their customer. But Gemini, hilariously, let people withdraw their crypto before their ACH deposit cleared! Here is information about how that worked out.
For example, if a user initiated a transfer of $100 to buy crypto and the value of that crypto rose to $150 before the transfer settled, the user could take out $50 worth of crypto.
Who would have read PayPal? What would you have done? The Winklevii had to go to band practice — and what would she have done if she had known?
I wonder if someone in a position of power would have read all of this if they had known about it. PayPal set out to revolutionize the financial industry pretty recently, after all. I assume that there were people inside who had an idea of how it would go and ripped out all their hair. But the Winklevii needed to go to band practice, and here we all are.