face minimal illustration of Sam Bankman-Fried SBF and text with cut effect on red background

Sam Bankman-Fried mulls insanity defense as FTX’s Ryan Salame talks to feds

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If FTX founder Sam Bankman-Fried hasn’t yet gone stir-crazy, news that one of his top partners-in-crime is talking to federal prosecutors could tip him over the edge.

On Tuesday, Bloomberg reported that Ryan Salame, former co-CEO of FTX Digital Markets (FTXDM), was negotiating with federal prosecutors in Manhattan ahead of a possible plea deal next month. The feds are reportedly mulling criminal charges that could include campaign finance violations.

In 2022, Salame donated over $23 million to U.S. politicians, primarily on the Republican side of the aisle, offsetting SBF’s highly public donations to Democratic campaigns. It now appears likely that much of this generosity was fueled by cash stolen from FTX customers.

Last month, the Wall Street Journal reported that prosecutors were looking into whether Salame exceeded contribution limits to the failed GOP primary campaign of his girlfriend, Michelle Bond—a former FTX consultant—for a House of Representatives district in New York.

In April, Federal Bureau of Investigation (FBI) agents raided Salame’s home in Potomac, Maryland. Precisely what they were searching for and/or may have obtained remains a tightly guarded secret. But given the ham-fisted op-sec that seems to have embodied all things FTX, it’s likely they found more than enough to threaten Salame with a lengthy stint in stripes should he prove non-cooperative.

FTXDM was the Bahamian subsidiary of FTX, but the report didn’t specify whether prosecutors were targeting Salame’s role in last November’s collapse of the digital asset exchange. The report also didn’t specify if prosecutors were pushing Salame to provide evidence against SBF.

That said, Salame has previously demonstrated an instinct for self-preservation. Just days before FTX filed for Chapter 11 bankruptcy protection last November, Salame contacted Bahamian officials to alert them to the illegal commingling of funds between FTX and its affiliated market-maker Alameda Research (that had been going on for years under Salame’s nose, but never mind).

Salame’s possible pivot to cooperating witness would align him with former Alameda CEO Caroline Ellison, FTX co-founder Zixiao ‘Gary’ Wang, and FTX engineering director Nishad Singh, all of whom have pleaded guilty to their role in the fraud. Only SBF continues to protest his innocence despite all the damning evidence arrayed against him.

Campaign finance charge delayed, not dropped

SBF’s criminal trial is scheduled to get underway on October 2 on seven charges, including wire/securities/commodities fraud and money laundering conspiracy. A separate trial on five additional charges—including bank fraud and bribery of foreign officials—is set for March 11, 2024.

Last month, eyebrows were raised when prosecutors said they wouldn’t proceed to trial on a charge of conspiring to commit unlawful campaign contributions. The decision was made after Bahamian officials protested that this charge wasn’t filed at the time they agreed to extradite SBF from the Bahamas last December. Right-wing pundits immediately alleged favoritism due to SBF’s aforementioned donations to Democrats.

On Tuesday, the Department of Justice (DOJ) torpedoed this partisan speculation by informing U.S. District Judge Lewis Kaplan that it will file a superseding indictment next week spelling out the seven charges to be handled during October’s trial.

This document “will make clear that [SBF] remains charged with conducting an illegal campaign finance scheme as part of the fraud and money laundering schemes originally charged.” And, given that SBF “concealed the source of his fraudulent proceeds through political straw donations,” evidence of SBF’s political contributions “is admissible at trial as direct proof” of the money laundering charges.

Bail out

October’s trial date is less than two months away, but SBF may find the ticking clock slowing dramatically if his bail is revoked. On Friday (11) at 2 pm, Judge Kaplan will hold a hearing—with SBF in attendance—on whether to consider the government’s application to revoke SBF’s bail based on his ongoing pre-trial antics.

Said antics include alleged witness tampering, use of a virtual private network in violation of his strict digital lockdown, and leaking the private writings of his former girlfriend Ellison to a New York Times reporter. SBF is presumed to have done the latter in the belief that it would paint Ellison as mentally/emotionally unstable and thus discredit her testimony against him.

SBF’s most recent appearance before Kaplan saw the judge issue a temporary order restraining all parties from trying this case in the press. Kaplan also warned SBF to “seriously” prepare for Friday’s hearing based on the judge’s view that the government has already demonstrated “probable cause” for him to approve their detention request.

SBF’s brain is broken

SBF’s powers of denial regarding the severity of the charges against him are legendary—famously declaring that FTX shouldn’t have filed for bankruptcy because he was totally on the verge of finding someone to lend him $8-10 billion to restore FTX/Alameda’s balance sheets—but there are signs that reality might finally be setting in.

On Monday, SBF’s attorneys—who are reportedly being paid with millions that SBF looted from FTX pre-bankruptcy—asked Kaplan for a two-day extension of the August 14 deadline for submitting a list of expert witnesses they plan to call on SBF’s behalf. In doing so, they alerted Kaplan regarding SBF’s “intention to present an advice of counsel defense or a defense based on mental condition or defect.”

Could SBF be attempting to minimize his culpability by claiming there were bats in his belfry pre-bankruptcy? If so, will he claim it’s a genetic thing? Or was it his addiction to Emsam/Adderall that had his brain speeding like Tuco from Breaking Bad? Or maybe he’s just a malignant narcissist-grifter who can’t help but see himself as the real victim here?

Friedberg follies

Meanwhile, the ‘advice of counsel defense’ suggests SBF could try to blame FTX’s corporate and SBF’s personal attorney Daniel Friedberg for the criminal decisions that precipitated FTX’s collapse.

Friedberg, who has been hit with civil lawsuits for stealing millions from FTX customers prior to its collapse, has yet to face criminal charges. However, there’s more than sufficient evidence to put Friedberg behind bars for a long, long time, including charges under the Racketeer Influenced and Corrupt Organizations (RICO) Act, which allows for sentences of up to 20 years per count.

There have been suggestions that Friedberg’s lack of criminal charges indicates his status as a cooperating witness against SBF. That would at least partly explain SBF’s willingness to attempt to throw Friedberg under the bus by adopting his new ‘I’m just a lost boy led astray by grown-ups’ posture.

Friedberg formerly toiled at the Seattle firm of Fenwick & West, which is now the defendant in a class action suit filed by plaintiffs from the U.S., Canada, and Germany on behalf of former FTX customers who collectively lost billions when the exchange collapsed.

The crux of the complaint—in which Friedberg’s name appears 42 times—can be summed up in a single sentence: “Fenwick helped set up the shadowy entities through which Bankman-Fried and the FTX Insiders operated a fraud, structured acquisitions by FTX.US in ways to circumvent regulatory scrutiny, advised on FTX.US’s regulatory dodge … and supplied personnel necessary to execute on the strategies that they proposed.”

At this point, the only way all the FTX frauds could make things right is by telling the authorities everything they know about the twin pillars currently propping up the Crypto Crime CartelBinance and Tether. Simply put: do the right thing and give the feds the material they need to bring down those two mega-frauds, and the whole artificial structure of ‘crypto’ will collapse in on itself.

Maybe then we can finally get down to realizing Satoshi Nakamoto’s vision of a better financial universe.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX 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.

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