A new superseding indictment has 12 charges and presents a narrative that seeks to counter the 'I'm an idiot defense' embraced by the former CEO of the bankrupt FTX exchange.
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Federal prosecutors introduced a new indictment on Thursday that ups the number of charges Sam Bankman-Fried is facing in the collapse of the FTX cryptocurrency exchange from eight to 12.
The new charges include bank fraud and operating an unlicensed money transmitting business, as well as additional securities and commodities fraud charges related to his alleged looting of $10 billion from FTX customers to shore up his foundering crypto trading firm, Alameda Research.
Bankman-Fried also used those stolen funds to make venture investments and charitable contributions, as well as orchestrating an extensive and illegal campaign contribution operation aimed at influencing both Democrats and Republicans as Congress wrote crypto regulations, according to Damian Williams, the U.S. Attorney for the Southern District of New York.
Beyond that, the superseding indictment included a far more comprehensive account of the conduct that led to the allegations against Bankman-Fried.
In many cases, these details seem tailored to answer some of the many claims and explanations the former CEO of FTX, FTX US and Alameda Research gave in a series of high-profile interviews and social media posts over the past three months. While many of the details are known, the indictment is written very much as a narrative.
Among other things, the indictment said:
"Contrary to Bankman-Fried's promises to FTX customers that the exchange would protect their interests and segregate their assets, Bankman-Fried routinely tapped FTX customer assets to provide interest-free capital for his and Alameda's private expenditures, and in the process exposed FTX customers to massive, undisclosed risk."
The Idiot Defense
One of the biggest claims that Bankman-Fried has repeated over and over is that he didn't know anything was wrong or that billions of dollars were gone.
During an interview with Good Morning America, he said, "I wasn't even spending any time and effort trying to manage risk on FTX."
That was not even close to true, prosecutors argued. Bankman-Fried just wasn't managing it for the benefit of FTX's millions of customers, they said.
According to the indictment, Bankman-Fried "caused the creation of secret loopholes in the computer code that powered FTX's trading platform — loopholes that allowed Alameda to incur a multibillion-dollar negative balance on FTX that Bankman-Fried knew Alameda could not repay."
Bankman-Fried's answer to how he missed the existence of a $10 billion hole in its finances has been that he was so completely divorced from running Alameda that he didn't realize how big it was.
"I didn't know exactly what was going on," he told the New York Times. "I didn't know the size of their position… and obviously that's a pretty big mistake."
While he did step down as CEO of Alameda in October 2021, the indictment said:
"Even after Bankman-Fried was no longer CEO, however, he remained Alameda's ultimate decisionmaker, and directed, among other things, trading strategy, investment decisions, and venture spending."
Stealing Money
Asked later on during the GMA interview if he knew that FTX customer funds were illicitly being funneled to Alameda, Bankman-Fried gave a long six-second pause before answering:
"I did not know that there was any improper use of customer funds."
The U.S. Attorney's office went after that claim hammer and tongs in its indictment, focusing — among other things — on his claims not to have known that FTX and Alameda funds had been commingled. In reality, the indictment said:
"FTX never held customer funds in dedicated accounts for the benefit of customers or segregated from Alameda's assets. Rather, with the knowledge and under the supervision of Bankman-Fried, Alameda commingled FTX customer funds with Alameda assets in Alameda accounts… [and] Alameda regularly took money from accounts funded by or that included funds from FTX customers."
Aside from paying for Alameda's trading and operations, he used customers' money to "fund speculative venture investments; to make charitable contributions; to enrich himself; and to try to purchase influence over cryptocurrency regulation in Washington, D.C.," prosecutors alleged.
A Bad Signal
To get away with this, they added, one of the techniques Bankman-Fried used was requiring "his co-conspirators and others who worked for him to communicate using encrypted and ephemeral messaging platforms that self-deleted, thereby preventing regulators and law enforcement from later obtaining a record of his misdeeds."
Which is something he allegedly did again after being indicted. In January, he used one of those messaging platforms, Signal, to contact a potential witness in his trial believed to be FTX US general counsel Ryne Miller. In it, prosecutors told Judge Lewis Kaplan that Bankman-Fried suggested that they rebuild "a constructive relationship ... or at least vet things with each other."
He was ordered not to use those apps. A few weeks later Bankman-Fried was caught using a virtual private network, or VPN, that hides users' location and browsing. He said he used it to watch the Super Bowl.
While prosecutors asked that he be banned almost entirely from using the Internet, Judge Kaplan on Feb. 19 strongly hinted he was considering revoking Bankman-Friied's bail.
U.S. Too
One thing that Bankman-Fried has said repeatedly since being indicted is that his American exchange, FTX US, was a separate company and was solvent when the firm's new management declared bankruptcy on Nov. 11, and argued that it should be returned to clients.
That's something that is happening now at FTX Japan, which Bankman-Fried bought as an existing, heavily regulated exchange with funds he could not commingle.
As for FTX US, the indictment says the reality was:
"Bankman-Fried controlled FTX, FTX US, and Alameda and used them to prop each other up, notwithstanding conflicts of interests and outright lies to the contrary."
