HomeFinanceSam Bankman-Fried, FTX’s Co-Founder, Is Increasingly Alone

Sam Bankman-Fried, FTX’s Co-Founder, Is Increasingly Alone

Two more associates of Sam Bankman-Fried, the founder of the collapsed crypto exchange FTX, have turned on him. Caroline Ellison, who ran FTX’s trading affiliate, and Gary Wang, an FTX founder, pleaded guilty to fraud and are cooperating in the federal criminal case against Bankman-Fried.

The moves by Ms. Ellison and Mr. Wang could spur more high-ranking FTX executives to strike plea deals in exchange for their testimony. That leaves Mr. Bankman-Fried — who was extradited to the United States from the Bahamas, and could be arraigned as soon as today — in more legal jeopardy than ever.

Ms. Ellison and Mr. Wang contradicted Mr. Bankman-Fried’s defense. While Mr. Bankman-Fried has said repeatedly — including at the DealBook Summit last month — that he wasn’t aware of what was happening at Alameda, the exchange’s trading affiliate, documents filed yesterday by the authorities claim otherwise.

From the S.E.C.’s civil complaint against Ellison and Wang:

Defendants and Bankman-Fried knew that FTX, at Bankman-Fried’s direction, had allowed Alameda to invest “client assets” and that Alameda had in fact done so, using FTX customer funds to make investments far riskier than “treasuries.”

In fact, the S.E.C. accuses Mr. Bankman-Fried of illicitly using customer money from FTX from the beginning to fund his crypto empire:

From the start, contrary to what FTX investors and trading customers were told, Bankman-Fried, actively supported by Defendants, continually diverted FTX customer funds to Alameda and then used those funds to continue to grow his empire, using billions of dollars to make undisclosed private venture investments, political contributions, and real estate purchases.

What Ms. Ellison and Mr. Wang are facing: ​The S.E.C. accused Ms. Ellison of manipulating the markets for FTT, FTX’s in-house token and the digital asset it frequently used to invest in other companies, to prop up its price. It also accused Mr. Wang of creating software that allowed the diversion of FTX customer funds to occur without detection.

Ms. Ellison pleaded guilty to seven criminal counts, including wire fraud and money laundering, while Mr. Wang pleaded guilty to four, including wire fraud and securities fraud.

More turncoats in FTX’s executive ranks may yet appear. Before yesterday’s revelations, Ryan Salame, the exchange’s former co-C.E.O., had already emerged as a government informant. Speculation has grown for weeks that Ms. Ellison would cooperate with the government.

In a statement yesterday, Damian Williams, the U.S. attorney for the Southern District of New York, urged more FTX employees to come forward: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” he said. “We are moving quickly, and our patience is not eternal.”

In more crypto news:

  • Bitcoin traded flat at $16,838 at 6 a.m. Eastern. Asset prices on digital coins have held steady over the past three days.

  • The law firm Paul Hastings has been hired to advise the unsecured creditor committee in FTX’s bankruptcy case, DealBook has learned.

  • Why Washington doesn’t want to talk about the millions that Bankman-Fried and his associates gave to Democratic and Republican political candidates.

The British economy is deteriorating. Data released this morning suggests that the G.D.P. fell 0.3 percent, worse than economists had predicted, and that British household income fell for a fourth straight quarter. This, combined with rising inflation and interest rates, has led some economists to say the country could suffer its worst recession since the 1990s.

The W.H.O. says that China is probably widely undercounting its coronavirus cases. While Beijing is most likely not actively deceiving the world about a surge in cases, said a World Health Organization official, it is “behind the curve.”

A major Tesla investor urges Elon Musk to walk away from Twitter. Ross Gerber, the head of Gerber Kawasaki Wealth & Investment Management, told Bloomberg TV yesterday that Mr. Musk was “not suited” to run Twitter, and that his involvement with the social network was damaging Tesla’s stock.

Life expectancy in the U.S. sinks to its lowest level since 1996. Life expectancy at birth has now fallen to 76.4 years. Among the big culprits are Covid and opioid drug overdoses, according to new federal data.

Ukraine’s president asks Congress for additional aid. In an impassioned speech, Volodymyr Zelensky told U.S. lawmakers yesterday that the aid was “not charity,” and predicted an eventual improbable victory over Russian forces. But a number of Republicans have expressed opposition to or skepticism about further funding Ukraine’s defense.

Can the engine of the U.S. economy, the American consumer, spend enough to help markets rebound and even avert a recession? As unlikely as that seemed a few weeks ago, it’s now an open question as investors await the release of third-quarter G.D.P. data at 8:30 a.m. Eastern.

Stocks in Europe and U.S. futures are in the green this morning. Yesterday, the S&P 500 gained 1.5 percent, its best one-day performance of the month after upbeat news about the health of the consumer and consumer-facing companies.

Included in that news was a report by the Conference Board that its measure of consumer confidence had hit an eight-month high. The big takeaways: Consumers are feeling better about the labor market and the economy, and they feel that inflation is easing. They even plan to take vacations.

Nike and FedEx also contributed to yesterday’s rally. Shares in both companies, regarded as bellwethers of consumer spending, soared yesterday after they reported better-than-expected quarterly results (the FedEx rally was also helped by further cost cuts) on Tuesday evening. Nike alone surged 12 percent.

That was enough to awaken market bulls. “Markets are too pessimistic and not paying attention to what’s actually happening in the economy. Earnings are dropping as expected, but not to the extremes markets are pricing,” Jamie Cox, a managing partner at Harris Financial Group, a financial adviser, wrote in a note yesterday to investors. “When you get better numbers, these fast snapbacks happen.”

The markets brushed off lousy housing data. Sales of existing homes, another important economic indicator, fell 7.7 percent in November, the tenth consecutive monthly decline. Many Americans may be feeling a bit better — or not as glum — about the future, but not enough to go house-hunting.

The Conference Board survey bears this out. “Plans to purchase homes and big-ticket appliances cooled further” in November, the group found, a trend it expects to continue into 2023 with interest rates on the rise.

Elsewhere in the markets this morning:

  • The Bank of Japan may surprise the markets again by beginning to tighten its monetary policy as early as January, said a Japanese former vice finance minister who is a prominent economic commentator.

  • European natural gas prices fell to a six-month low as a bout of warmer winter weather cools off demand.

  • But natural gas prices in the United States were up nearly 2 percent as of 6 a.m. Eastern, with an Arctic blast expected to send temperatures plunging across much of the country.

Sean Hannity, the Fox News host, on the veracity of claims by Donald Trump and his advisers that the 2020 election had been stolen. Hannity made the statement under oath while being deposed as part of the $1.6 billion defamation lawsuit filed by Dominion Voting Systems against the network.

Congressional lawmakers finally released six years of Donald Trump’s tax returns this week, shedding more light on the former president’s finances, and raising questions about his businesses’ financial operations.

The revelations threaten to further turn up the heat on Mr. Trump as he embarks on another presidential run while fending off a flurry of legal inquiries.

Among the red flags that the House Ways and Means Committee raised:

  • Mr. Trump and his wife, Melania Trump, reported negative $53.2 million in adjusted gross income from 2015 to 2020.

  • Tens of thousands of dollars in interest income was claimed. The ostensible source: personal loans made to three of his adult children. Lawmakers questioned whether the loans were actually “disguised gifts.”

  • Numerous business expenses that may have actually been tied to his personal life and hobbies.

  • A deduction for the $21 million he paid to settle fraud claims against the now-defunct Trump University. It’s unclear whether Mr. Trump had received any insurance proceeds that offset some of the settlement.

More questions also arose about the I.R.S.’s treatment of Trump. While the agency routinely audited Barack Obama and President Biden, it didn’t do so for Mr. Trump until 2019, the same year Democrats requested his tax returns. (Trump often claimed that he couldn’t disclose his tax records because he was under audit.) “I’m absolutely flabbergasted,” Nina Olson, the national taxpayer advocate from 2001 to 2019, told The Times.

Even after a comprehensive investigation by The Times into Trump’s taxes, the I.R.S. set a high bar for taking action — and often didn’t.



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