FTX’s Sam Bankman-Fried charged with bribing Chinese gov’t officials

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Sam Bankman-Fried has been accused of offering millions in bribes to Chinese officials in the latest criminal charge against the disgraced founder of the FTX digital asset exchange.

On Tuesday, the U.S. Department of Justice unsealed its latest superseding indictment against SBF, marking the second update of SBF’s charges since FTX’s dramatic implosion last November. The latest indictment adds conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), which prohibits U.S. citizens/entities from paying foreign officials to benefit an international business opportunity.

The bribe in question relates to FTX’s affiliated market-maker Alameda Research, which, like FTX, was completely under SBF’s control. The DoJ alleges that in 2021, SBF “authorized and directed a bribe of at least $40 million to one or more Chinese government officials.” The payment, made in unspecified digital tokens, was intended to “unfreeze certain Alameda trading accounts containing over $1 billion in cryptocurrency, which had been frozen by Chinese authorities.”

The Alameda accounts were on “two of China’s largest cryptocurrency exchanges” and were frozen “as part of an ongoing investigation of a particular Alameda trading counterparty.” Prior to offering the bribe, SBF tried a few only slightly less illegal gambits, including “opening new accounts on the Chinese Exchanges using the personal identifying information of several individuals unaffiliated with FTX or Alameda and attempting to transfer the cryptocurrency” from one account to another “in order to circumvent the Chinese authorities’ freeze orders.”

After months of these failed efforts, SBF “discussed with others and ultimately agreed to and directed a multi-million-dollar bribe to seek to unfreeze the accounts.” In November 2021, at SBF’s direction, “an Alameda employee sent cryptocurrency payment instructions for at least a portion of the bribe payment to other Alameda employees, including at least one employee located in the United States.”

(We pause here to note that FTX’s former chief compliance officer Daniel Friedberg—who once helped orchestrate the cover-up of an online poker insider cheating scandal—is based in Washington state. We also note that the fake electronics retailer (North Dimension) that Friedberg helped set up to disguise payments to/from FTX/Alameda had a slapdash no-time-for-spell-check website created by someone in Hong Kong in November 2021. Anyway, as you were.)

The roughly $40 million in crypto was transferred from Alameda’s main trading account to a private digital wallet. Once the Chinese exchange accounts were unfrozen, SBF “authorized the transfer of additional tens of millions of dollars in cryptocurrency to complete the bribe.” The unfrozen tokens in the Chinese exchange accounts were then used “to fund additional Alameda trading activity.”

FCPA violations are no joke and, while some large U.S. entities have occasionally gotten away with relative slaps on the wrist, others have faced penalties ranging in the hundreds of millions of dollars. Worse, the current legal/political climate in the U.S. is far less tolerant of anything involving China (and even less tolerant of mop-haired crypto fraudsters).

A court hearing has been scheduled for Thursday, March 30, to discuss SBF’s increasingly dire legal issues. Despite an ever-growing number of SBF’s former colleagues cutting deals with prosecutors to resolve their own charges, SBF continues to embrace denial as the primary plank of his defense. Good luck with that.

Time to bail

On Monday, SBF’s legal team reached a deal with prosecutors over the conditions of their client’s bail. The parties have sparred over SBF’s antics while under house arrest at his parents’ California home, including unauthorized use of a virtual private network (VPN) and SBF’s attempts to contact former colleagues, which prosecutors claim were efforts to intimidate or collude with potential witnesses for the prosecution.

Under the new conditions, SBF will have access to a phone with no internet connectivity, limited to voice calls and text messages. SBF will also have access to a laptop with a secure VPN to access FTX’s internal database and a limited list of websites to help prep his defense. However, this laptop will be equipped with extensive monitoring capabilities and will be inspected three times a week by a court-appointed technical consultant.

SBF’s parents have agreed to restrict their son’s access to their electronic devices—which will also be monitored—and not to bring any prohibited devices into the home. There will also be a security guard posted outside the house who will temporarily confiscate the phones of SBF’s guests. Presumably, a designated red-tailed hawk will intercept any carrier pigeons wearing backpacks full of Adderall sent by SBF’s few remaining fans.

SBF really didn’t have much choice but to agree to the new terms, as U.S. District Judge Lewis Kaplan previously threatened to jail SBF if he didn’t stop straying outside the bounds of his original bail conditions.

Not yours to keep

Meanwhile, FTX’s current court-appointed management continues to claw back millions’ worth of FTX customer assets that SBF transferred hither and yon to suit his personal whims. Last week, FTX reached a settlement with Bahamas-based hedge fund Modulo Capital, which launched in March 2022 with Xiaoyun ‘Lily’ Zhang and Duncan Rheingans-Yoo at the wheel.

In the second half of 2022, Alameda transferred over $400 million in ‘seed capital’ to Modulo, which worked out of the same luxury condominium complex that other SBF-related entities called home. SBF and Zhang were former colleagues at Jane Street Capital and the pair reportedly also had a romantic relationship.

Last week’s settlement, which still requires bankruptcy court approval, will see Modulo return $404 million in cash and surrender claims against a further $56 million in assets held on FTX and its U.S.-licensed offshoot FTX.US at the time of their mutual bankruptcies.

It’s now common knowledge how indebted FTX/Alameda were at the time these hundreds of millions—in customer funds, remember—were funneled to Modulo. The fact that some of these ‘investments’ were made just weeks before FTX filed for bankruptcy protection vividly illustrates the recklessness with which SBF directed his ‘friends & family’ investment program.

You didn’t necessarily have to be exchanging bodily fluids with SBF to get soaked by his money faucet. Last week also saw FTX’s new management strike a deal with Mysten Labs to partially recover around $101 million that SBF invested in the Web3 developer last August. That deal, which also requires court approval, would see Mysten offer FTX $96 million in stock and token warrants to reclaim the FTX stake.

In the beginning, there was the grift

Meanwhile, the crypto casino sector’s incestuous nature was on full display in a new Financial Times report about SBF allowing execs at the now-bankrupt digital asset lender Genesis execs to buy SBF-affiliated tokens at discount prices before they were listed on FTX. Genesis is a subsidiary of Barry Silbert’s struggling Digital Currency Group (DCG), whose portfolio also includes the (equally struggling) Grayscale fund family.

The report says SBF gave some Genesis execs the opportunity to snap up “presale” tokens of FTX’s in-house FTT token ahead of its 2019 launch, as well as the Serum token ahead of the 2020 debut of the SBF-backed ‘decentralized exchange’ of the same name.

The U.S. Securities and Exchange Commission (SEC) labeled FTT an unregistered security last December when it filed civil charges against former Alameda CEO Caroline Ellison and FTX co-founder Zixiao ‘Gary’ Wang. Alameda was accused of manipulating the value of FTT to both enrich its bag-holders and to inflate the value of collateral backing Alameda ‘investments.’

As two former Genesis execs told the FT, though they were pitched on buying FTT, they didn’t bite. However, the artificially inflated value pump that FTT enjoyed post-launch made sure they didn’t miss the boat when the Serum offer came along.

507 Capital co-founder Thomas Braziel told the FT that the former Genesis insiders’ comments suggested a “weird quid pro quo” between Genesis and Alameda. Braziel noted that SBF “really took care of people who he thought were important to him … He was doing a good job of keeping everybody’s bread buttered.”

SBF also used FTT/Serum as collateral to borrow money from Genesis, resulting in a Genesis unit being among one of FTX/Alameda’s biggest creditors when the latter entities went Chapter 11. Genesis recently worked out its own bankruptcy restructuring deal although it still faces a civil lawsuit based on the SEC’s view that Genesis offered unregistered securities to the public. 

One final thing

Monday’s revelations that the Binance exchange—an early investor in FTX—traded against its customers without their knowledge are eerily reminiscent of SBF allowing Alameda to trade against FTX customers. As is the fact that the roughly 300 Binance accounts controlled by founder Changpeng ‘CZ’ Zhao were secretly exempted from the constraints imposed on other traders, much like SBF allowed Alameda to run a negative balance on FTX measured in the billions without fear of auto-liquidation.

The fact that we only learned the mind-boggling extent of SBF’s criminality after FTX/Alameda was forced into bankruptcy suggests that public evidence of Binance’s criminality may only represent the tip of the iceberg. But, given that U.S. federal authorities appear to have access to CZ’s personal phone, we may not be in the dark much longer. The financial waters will be all the safer for it.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.