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Sam Bankman-Fried pleads not guilty, shots fired over FTX assets

Sam Bankman-Fried (SBF) has pleaded not guilty over his role in the downfall of the FTX digital asset exchange, leaving crypto’s former hirsute hero looking at a possible century-plus behind bars.

On Tuesday, SBF appeared—wearing an actual suit, not cargo shorts—in a Manhattan courthouse to enter a ‘not guilty’ plea to eight federal charges filed against him in mid-December. The charges include wire fraud, commodities fraud, securities fraud, conspiracy to commit said frauds and campaign finance violations.

Chewing gum like his life depended on it, SBF arrived at the courthouse with a phalanx of burly bodyguards who did their best to keep the throngs of media and other onlookers from getting too close. Inner City Press reported speaking with at least one irate individual (presumably a former FTX customer) who “exchanged swear words with SBF here in the courthouse.”

U.S. District Judge Lewis Kaplan set an October 2 target for the start of SBF’s trial, should SBF fail to reach a deal with the feds before then. The prosecution expects to deliver the bulk of its material for discovery over the next few weeks, with the rest following by the end of the month.

That SBF is guilty is beyond apparent to anyone who has perused the mountain of physical evidence presented by the Department of Justice in their indictment. Additional damning evidence was presented in the civil complaints simultaneously filed against SBF by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

There’s also the testimony of Caroline Ellison, former CEO of the FTX-affiliated/SBF-owned market-maker Alameda Research, and Zixiao ‘Gary’ Wang, FTX’s co-founder/former CTO. The pair were charged just before Christmas and are actively cooperating with the feds in the prosecution of (so far) less chatty FTX/Alameda execs.

SBF may yet change his plea to guilty, assuming he can figure out who he can throw under the bus to save his own hide from 115 years in prison (if convicted on all counts). As this site (and others) have speculated, SBF’s previous intimate dealings with the controversial Tether stablecoin and the equally sketchy Binance exchange could provide all the leverage SBF needs to haul his flabby ass out of the fire.

The fact that the DoJ didn’t argue against SBF making bail strongly suggests that SBF is negotiating some kind of plea agreement. But others in the FTX/Alameda orbit are likely contemplating similar deals, putting the onus on SBF not to tarry too long or push too hard for overly favorable treatment.

Tuesday also saw Damian Williams, U.S. Attorney for the Southern District of New York (SDNY), announce the formation of the SDNY FTX Task Force to trace and recover assets of the victims of SBF’s antics. Williams characterized the FTX debacle as “an all-hands-on-deck moment” and said the new unit would be “powered by all of SDNY’s resources and expertise, until justice is done.”

Follow the money … if you can

Ahead of Tuesday’s hearing, SBF’s attorneys filed a request to redact the names and other identifying information of two additional sureties of SBF’s $250 million personal recognizance bond. That bond was originally signed by SBF’s parents, at whose California home the mop-haired fraudster has been chilling since he was extradited to the U.S. from his squalid jail cell in the Bahamas shortly before Christmas.

The filing notes that the two additional sureties were to “sign separate bonds in lesser amounts.” These sureties “have yet to sign their individual bonds, the amounts of which have not yet been determined with the Government, but they intend to do so by January 5.”

The identities “are known” to the government and “will be disclosed to Pretrial Services and, if necessary or requested, to the Court.” Regardless, the request for secrecy is only fueling speculation regarding the identities of these two SBF sympathizers.

The filing warns of “serious cause for concern that the two additional sureties would face similar intrusions on their privacy as well as threats and harassment if their names appear unredacted.” SBF’s attorneys claimed that his parents “received a steady stream of threatening correspondence, including communications expressing a desire that they suffer physical harm” after reports emerged that they’d used their home as collateral for SBF’s bond.

Following a short discussion with attorneys, Kaplan agreed to seal the names of the two sureties but “without prejudice to opposition.” Media outlets will have until January 12 to petition for the release of the two names.

The boy who cried ‘innocence’

Kaplan imposed some new bail conditions on SBF, including barring him from accessing FTX or Alameda assets. SBF controversially transferred a significant quantity of these assets into the control of the Securities Commission of the Bahamas (SCB) on November 12, the day after FTX filed for bankruptcy protection in Delaware.

New York Daily News scribe Molly Crane-Newman tweeted that SBF “became animated when prosecutors successfully requested that the judge prohibit him from accessing or transferring FTX assets—furiously writing notes to his attorneys on a legal pad and pointing to them with a biro.” (We strongly suspect the pad contained the phrase: “Will you work pro bono?”)

SBF’s animated reaction recalls the fact that SBF’s (mostly) dormant Twitter account sparked to life last week after reports that assets in certain Alameda-linked digital wallets were on the move. SBF tried to downplay speculation that it was him transferring the assets, tweeting that he no longer had access to these funds, while expressing hope that “the various legit legs of FTX” were behind the transfers.

The prosecution cited this unexplained movement of Alameda assets in asking Kaplan for stricter bail conditions. SBF’s attorneys tried to argue that their client had denied being involved in the transfer but this was apparently trumped by the prosecution reminding Kaplan that SBF had “tweeted falsely before.”

Jurisdictional shots fired!

Speaking of FTX’s ‘legit legs,’ the he-said/she-said dispute continues between FTX’s current CEO John J. Ray III and the SCB. This latest round kicked off on December 29, when the SCB publicly declared that the assets transferred into their custody from FTX had a total value of over $3.5 billion at the time of transfer.

The next day, FTX’s current leadership issued a statement saying the assets contained in the digital wallet that the SCB identified as holding the FTX assets had a total value of only $296 million at the time of transfer. The value of these assets—much of which consists of FTX’s now largely worthless in-house token FTT—had plunged to only $167 million by December 30.

The FTX statement goes on to say that the SCB hasn’t provided the FTX Debtors with “any further information to resolve the valuation disparity.” The statement urged the SCB to “clear up any confusion created by their recent statements and provide the public with accurate information concerning the cryptocurrency seized and how it was valued for the purposes of these statements.”

The statement takes a final stab at the SCB’s right to hold these assets, noting that the SCB “regulated only FTX Digital Markets Ltd. (FTX DM), a local service company in The Bahamas. FTX DM is not the owner or operator of the FTX.com exchange, or the owner or custodian of the cryptocurrency seized.”

On Monday, the SCB responded to the FTX missive with its own accusatory release, saying it needed to “once again correct material misstatements” made by Ray, who was appointed CEO in November following FTX’s bankruptcy filing.

The SCB says Ray’s calculation of the digital wallet’s contents is “based on incomplete information.” The SCB also accused the FTX Debtors of failing to request information from the Bahamas-based Joint Provisional Liquidators. The statement concluded by saying the FTX Debtors’ “continued lack of diligence when making public statements concerning the Commission is disappointing, and reflects a cavalier attitude towards the truth and towards The Bahamas.”

In the Manhattan courtroom on Tuesday, the prosecution told Judge Kaplan that SBF had told a co-conspirator that he transferred assets to Bahamian regulators because he thought that would lead to more lenient treatment. SBF reportedly believed that said leniency might even allow him to realize his pie-in-the-sky fantasy of being allowed to continue trying to reboot FTX off its deathbed.

SBF (sadly) not crapping into garbage bags

Finally, Tiffany Fong—who scored an early post-bankruptcy audio interview with SBF—recently met with SBF at his parents’ home for a follow-up. On Tuesday, Fong posted a YouTube video offering further details on this latest tête-à-tête, which earned her some misogynistic coverage in both the New York Post and the UK’s Daily Mail.

Fong said her most recent talk with SBF included him describing his brief stint at the Bahamas’ infamous Fox Hill prison as “maddening.” SBF acknowledged that he had it better than Fox Hill’s other inmates, including access to running water and a toilet, while other inmates had to use ‘garbage bags.’

While SBF stoically declared that he could eventually have gotten “used to” Fox Hill’s “disgusting” conditions, the biggest drawback for SBF was the lack of “mental stimulation.” Presumably this stimulation includes the ability to play League of Legends while lying to investors about the solvency of his companies and stealing FTX customer funds to keep his real-world business fantasies alive one more day. That, or wondering if a different conditioner might finally tame those unruly curls.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of group —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.

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