Disgraced FTX founder Sam Bankman-Fried could see his already limited bail liberties further clipped just as we finally learned the names of his secret bail benefactors.
On Tuesday, U.S. District Court Judge Lewis Kaplan ordered SBF to refrain from using virtual private networks (VPN) when accessing the internet from his house arrest at his parents’ home in California. The order came after Department of Justice (DoJ) prosecutors in SBF’s criminal case confirmed that he’d used a VPN on at least two occasions in late January and early February.
Kaplan previously ordered SBF to stop using encrypted messaging apps after he was caught contacting Ryne Miller, former general counsel of FTX.US. Prosecutors accused SBF of attempting to either collude with or intimidate his former colleagues at FTX and its affiliated market maker Alameda Research, who may appear as potential witnesses against him in his criminal trial this October.
SBF’s attorneys claim that his VPN use was limited to trying to stream NFL playoff games via an NFL Game Pass account registered in the Bahamas, FTX/Alameda’s former base of operations. However, as the DoJ pointed out, the playoffs were free to watch via several broadcast mediums, none of which required the use of a VPN.
The DoJ also said its monitoring of SBF’s Gmail account showed “there appeared to be logins from Singapore,” not the Bahamas. Prosecutors expressed concern that SBF may have used VPNs on other occasions that his attorneys have yet to admit, including for purposes other than accessing his Gmail account.
The DoJ even suggested that SBF may have used a VPN to transfer assets out of Alameda digital wallets to crypto ‘mixing services.’ The DoJ said its investigations couldn’t connect those late-December transfers to the IP address at SBF’s parents’ home, but it “cannot presently rule out that those transfers were, in fact, by the defendant—who once had access to the keys to those wallets and who we now know has been using a VPN … which would allow him to conduct cryptocurrency transactions without detection by law enforcement.”
As a result of these discoveries, the DoJ has now asked Kaplan to amend SBF’s bail conditions to prohibit SBF’s access to “cellphones, tablets, computers, and the internet,” with limited exceptions. The DoJ said SBF’s “behavior shows that the existing conditions leave too much room for circumvention of restrictions aimed at preventing inappropriate conduct, including contacting witnesses and accessing cryptocurrency assets.”
Under the DoJ’s proposal, SBF would be allowed to use electronic devices to review discovery evidence, exchange texts and emails via his phone and use Zoom solely to talk to his lawyers. He’ll have access to one phone and one computer, both of which will have monitoring programs installed, while a pen register will monitor his Gmail account. All SBF’s devices would be subject to inspection if his probation officer suspects SBF has violated these conditions.
The parties will meet with Kaplan on Thursday, February 16, to discuss these and other matters further. Both legal teams had been seeking to push this to Friday, but Kaplan appears unmoved by their requests for more time.
On Wednesday, Kaplan ordered the public release of the identities of the two individuals who, along with SBF’s parents, provided sureties guaranteeing SBF’s $250 million personal recognizance bond. SBF’s team claimed that the pair would be subject to public vitriol or even violence from aggrieved FTX customers, but media outlets sued for the release of their names nonetheless.
SBF’s team failed to apply for a further delay of the release of the names, who—like SBF’s parents, Joseph Bankman and Barbara Fried—are Stanford University academics. Andreas Paepcke, who put up $200,000 for SBF, is a senior research scientist, while Larry Kramer, who put up $500,000, is the former dean of Stanford Law School and the current president of the Hewlett Foundation grant machine.
It’s a bit anti-climactic for those who were expecting the pair to be some shadowy crypto luminaries looking to keep SBF quiet on certain subjects. Regardless, Kramer and Paepcke can’t be too amused that, after putting their reputational necks on the line, SBF continues to treat his bail conditions the way a pimply-faced teen treats curfew.
Civil suits deferred
In addition to his criminal charges, SBF is facing civil suits filed by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). On Monday, U.S. District Judge of Manhattan Kevin Castel granted the DoJ’s motions to defer the civil suits until after the conclusion of SBF’s criminal case.
The motions filed last week by Damian Williams, U.S. Attorney for the Southern District of New York, claimed that the criminal trial would have a “significant impact” on the civil suits. Williams further argued that the civil cases could allow SBF to “improperly obtain impeachment material regarding the government’s witnesses, circumvent the criminal discovery rules, and improperly tailor his defense in the criminal case.”
The government’s request is common for scenarios in which defendants face both criminal and civil trials, and Judge Castel granted the motions without prejudice. SBF’s legal team offered no objection to Williams’ proposal, while neither the SEC nor CFTC took a position on the matter.
No examiner for you!
Meanwhile, Wednesday saw the judge overseeing FTX’s bankruptcy case in Delaware deny the U.S. Trustee Office’s motion to appoint an independent examiner into FTX/Alameda’s operations prior to their implosion last November. A bipartisan group of U.S. senators and over a dozen state attorneys general supported the U.S. Trustee’s motion.
The ‘crypto’ bankruptcy case involving the Celsius Network appointed an independent examiner who produced a detailed report on the malfeasance within. But FTX’s court-appointed management opposed the appointment based on the expected delays and costs. There were also concerns that an independent examiner would duplicate much of the work already done by FTX’s new CEO John J. Ray III, since he was appointed in November.
Judge John Dorsey agreed with FTX, saying that given “the facts and circumstances of this highly unique case,” appointing an outside examiner would result in additional costs that might “exceed $100 million,” creating an “unnecessary burden” for both debtors and creditors.
Unplug the shredder
On Tuesday, the bankruptcy court did approve the issuance of new subpoenas for FTX/Alameda insiders to produce documents related to the companies’ operations. Among those targeted are former Alameda CEO Caroline Ellison, former FTX CTO Zixiao ‘Gary’ Wang, and former FTX Digital Markets co-CEO Nishad Singh, as well as SBF’s parents.
The documents ordered to be preserved/produced are anything pertaining to assets, payments, real estate, business operations, financial performance, digital wallet addresses, etc. The information sought applies to both corporate and personal holdings/dealings. Political and charitable donations by SBF and other execs are also on the list.
The subpoenas also seek communications between the various FTX/Alameda execs, including information on whether any documents/records were destroyed once the ship began sinking. SBF and Ellison have specifically been asked about their communications with Binance boss Changpeng ‘CZ’ Zhao, who, for a 24-hour period, appeared willing to pull FTX back from the financial precipice, only to abruptly back off and leave SBF et al. to their fate.
Most parties were given until Thursday to produce the requested information, while SBF himself got an extra day to ante up. SBF is also responsible for producing any documents related to his infamous text chats with Vox writer Kelsey Piper last November.
SBF’s chat with the Vox reporter exposed the cynicism behind his public support for the ‘effective altruism’ movement. SBF told Piper that it was part of “this dumb game we woke westerners play where we say all the right shibboleths, and so everyone likes us.”
Another FTX insider’s supposed benevolence is now under the microscope. On Tuesday, the Wall Street Journal reported on Polaris Ventures, a Basel, Switzerland-based charitable group founded by former FTX/Alameda chief of staff Ruairi Donnelly.
Donnelly reportedly used around US$562,000 of his FTX salary to buy FTX’s in-house FTT token at the highly favorable price of only 5¢ apiece. Donnelly then donated his FTT to Polaris, which reaped millions by selling the tokens for $1 each when they were offered for public sale in 2019 and 2020.
All manner of funds linked to FTX/Alameda entities were frozen following the November bankruptcy filing, but Donnelly is now seeking to reclaim the $150 million still held by Polaris. Donnelly’s attorney insists that the FTT his client donated to Polaris “was not FTX’s funds” and is thus not subject to FTX creditor claims. Furthermore, over $30 million of Polaris’ money was reportedly stranded on FTX when the exchange collapsed, making Polaris a major FTX creditor.
Earlier this month, FTX’s current leadership issued a notice to “recipients of avoidable donations” that any funds received from FTX companies or individuals were to be returned by February 28. Recipients who didn’t return the funds voluntarily were warned that they could face “actions before the Bankruptcy Court to require the return of such payments, with interest accruing from the date any action is commenced.”
Founded in 2019, Polaris was originally known as the Center for Emerging Risk Research. Its grandly stated goal was “improving the quality of life of future generations in the most comprehensive way possible.” The ‘about’ section of the Polaris website boldly states that the non-profit is “willing to make bets.”
In 2021, Polaris made a $15 million grant to the Cooperative AI Foundation and another $3 million to the Cooperative AI Lab at Carnegie Mellon University. Polaris also invested in AI safety and research company Anthropic in a 2022 funding round led by SBF that also included FTX/Alameda alums Ellison and Singh. As of July 2022, Polaris’s assets were said to be “around $200 million.”
Also participating in that Anthropic funding round was Jaan Tallinn, the Estonian billionaire/Skype co-founder who loaned SBF $110 million in 2018 to help get Alameda up and running. Like SBF, Tallinn is also a promoter of effective altruism, a movement that looks dodgier by the day.
We’ll close with the ‘of course he did’ news that former FTX attorney Daniel Friedberg gave $5,800 last June to the 2022 congressional campaign of scandal-plagued/truth-challenged George Santos. That was not only the maximum sum allowable under campaign finance law, but it also made Friedberg the single largest contributor to Santos’ ultimately successful campaign.
Why Friedberg—a resident of Washington State—contributed so much to a New York candidate is unclear, particularly since his previous political donation record is scant. However, Friedberg wasn’t the only friend of SBF who dropped cash into Santos’ tin cup. Last week, Friedberg told the Seattle Times:
“Obviously [Santos is] a terrible candidate but this was unknown to me at the time.”
Friedberg has a history of backing dodgy projects, including his role in covering up an insider cheating scandal in his previous role with the online gambling site Ultimate Bet. More recently, his Seattle law firm was responsible for incorporating a company that purported to be an online electronics retailer but appears to have been used as a front for funneling funds to Alameda without tipping off financial watchdogs.
Friedberg is reportedly cooperating with federal prosecutors in their investigation into SBF’s antics, which may be the only reason he’s still walking the streets. But he may yet find his comeuppance after being named in a civil suit filed in Florida by former FTX customers. Or maybe, just maybe, he and Santos will end up as cellmates after Santos is convicted of campaign finance fraud.
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