Silicon Valley fell for fraud
Alameda, Bankman-Fried, and FTX: The story of Sam Baradwaj during the 2008 September Wall Street Collapse
But according to a complaint by the US Department of Justice, by the time Baradwaj joined Alameda, the company was already using customers’ deposits to fund its own trading—behavior that, as crypto markets tanked in 2022, would ultimately lead to FTX’s bankruptcy, to hundreds of thousands of customers losing their investments, and to criminal charges against Bankman-Fried, Alameda CEO Caroline Ellison, and other senior figures at both companies. Behind the collapse of the exchange is, allegedly, one of the largest financial frauds in history, one in which Bankman-Fried and his inner circle deceived not only ordinary punters, but venture capitalists, institutional investors, and sovereign wealth funds—and people who worked for them. Several Alameda and FTX executives have already pleaded guilty to various charges of fraud and conspiracy. The trial of Bankman-Fried will be held in New York. The trial is likely to focus on whether he, and others, consciously deceived their investors. It won’t answer why those investors were easy to fool.
The prototypical poster boy for the industry was Bankman-Fried, who was a mop-haired academic with a kind of anti-charismatic on screen demeanor that set him apart. He was a fan of effective altruism, a philosophy in which people make money to give away. He wasn’t just a crypto booster; he was making billions of dollars to save the world, and Baradwaj found that compelling. “It’s kind of a noble mission,” Baradwaj says. It is contrary to the mission of most trading firms, which is to make money.
Soon after, he was on FTX’s rocket ship. The headquarters of Alameda were in Hong Kong, Bankman-Fried and FTX were in Nassau, and they were moving their operations there. The staff moved between the two. There were parties and conferences with celebrities and political leaders that helped cement the companies’ status. Sam was on the cover of Forbes. And, you know, everyone was calling him a genius,” Baradwaj says. “It made it very easy to believe that we were part of something really unique and special, and that it was going to keep going, and it was never going to end.”
“Bankman-Fried and his co-conspirators stole billions of dollars from FTX customers,” Williams explained to reporters, shortly after Bankman-Fried was arrested last December. He used the money to make investments, cover expenses and pay off debts of his hedge fund.
Silicon Valley could be said to be in the business of reality distortion. The narrative can be as important as the economic basics in startup funding. Most venture capital portfolios are filled with companies that will fail because their model is wrong, their product won’t land, their vision of the future won’t pan out. The high dropout rate means everyone is searching for the singular thing that will get them out of this world. Everyone is looking for an epochal success—a Steve Jobs, a Jeff Bezos. That creates a level of hunger that can be exploited by someone who wants to make a lot of money.
Going Infinite: The Rise and Fall of a New Tycoon: Sam Bankman–Fried’s Trial is About to Start
Bankman-Fried’s high-profile trial will start on Tuesday. Federal prosecutors have accused him of defrauding customers and investors, and charged him with money laundering. If he is convicted on all seven criminal counts, the former crypto executive could be sentenced to more than 100 years in prison.
Gisele Bndchen, a model, and former President Bill Clinton were just a few of the famous people that FTX’s mogul was fond of befriending.
Gurbir Grewal, the head of the Securities and Exchange Commission’s division of enforcement, has said FTX “operated behind a veneer of legitimacy that Bankman-Fried created.” But, that veneer was not just thin. It was fraudulent.”
Prosecutors allege Bankman-Fried and other former FTX executives used customers’ money without their knowledge to plug a multibillion-dollar hole in the hedge fund’s balance sheet.
Both the Securities and Exchange Commission and the Commodity futures trading Commission have brought suits against Bankman-Fried.
Kaplan sent the former FTX CEO there after Bankman-Fried violated the terms of his bail. He used a virtual private network with the court’s permission, and showed a reporter for The New York Times private writings from Bankman- Fried’s ex-girlfriend.
” Going Infinite: The Rise and Fall of a New Tycoon” is a book by Michael Lewis, and it’s going to go on sale on Tuesday.
Lewis thinks the disgraced tycoon may go crazy if he loses internet access for a long period of time.
“I don’t think he would go to jail if you gave him the choice to live in a $39 million penthouse in The Bahamas, without the internet, or the Metropolitan Detention Center in Brooklyn with the internet,” Lewis said.
Sam Bankman Fried’s trial is about to start. What you need to know: a personal experience with a crypto-focused company
According to Tarek Helou, a lawyer in private practice who spent more than a decade at the Department of Justice, there is a mantra among federal prosecutors: “Thin to win.”
This case is novel because it involves a company that worked in the new world ofcrypto. But according to Helou, prosecutors will want to stress that this is just a financial fraud case, plain and simple.
“The Justice Department isn’t going to say it’s about cryptocurrency,” Helou predicts. “They’re going to simplify it, and say that it’s just a case about lying and stealing.”
“I didn’t ever try to commit fraud on anyone,” Bankman-Fried told The New York Times days before he was arrested. I made a lot of mistakes, but I would give anything to be able to do it again.
Employees and executives lived together in a $30 million penthouse as they ran a business in The Bahamas, where FTX was founded.
Shortly after Bankman- Fried was arrested, she pleaded guilty to several fraud counts, as did three other executives.
The sides have requested expert witnesses and prosecutors are going to put FTX customers on the stand.
Source: FTX founder Sam Bankman-Fried’s trial is about to start. Here’s what you need to know
An Open, Expert Judge: Bankman-Fried and the Nuisance of the Public Interest in Prosecuting a Criminal Case
He started a newsletter on Substack using the name X. Prosecutors say Bankman-Fried had as many as 1,000 phone calls from reporters and invited them to visit his parents house where he was placed initially after posting bail.
It is unorthodox for a defendant facing such serious charges to talk so openly about his case, and it was a source of growing frustration to prosecutors and the judge, who decided to revoke Bankman-Fried’s bail in August.
“He’s an experienced, very well-respected judge,” says Joshua Naftalis, an attorney with the law firm Pallas, who tried a case before Kaplan when Naftalis was a federal prosecutor. “He’s no-nonsense, and he controls both sets of parties. And he runs an efficient courtroom.”
