New SBF indictment docs just dropped

After months of piecing together the parts of FTX’s collapse, it’s nice to finally have the full details of the government’s charges against Sam Bankman-Fried.

That’s right: The full indictment is out!

It’s an interesting read in full, but for readers who don’t have time for all 39 pages, we’ve collected some of the most notable bits here.

We’ll start with FTX US. SBF has claimed repeatedly that the company’s US platform was solvent, and could have kept operating with no problem had those pesky lawyers not talked him into signing bankruptcy papers. But uh:

BANKMAN-FRIED also transferred funds putatively belonging to Alameda to fill an approximately $45 million hole in customer assets on FTX.US.

Whoops! The indictment doesn’t specify the cause of the alleged missing $45mn.

For example, on or about November 8, 2022, the general counsel of FTX.US, in a Signal chat that included BANKMAN-FRIED and several close associates, demanded: “I need to know the fucking truth about FTX US right now.”

Soon thereafter, on or about November 9, 2022, BANKMAN-FRIED was told in the same Signal chat that there was an approximately $45 million deficit in FTX US customer assets. BANKMAN-FRIED responded that he had transferred $46 million from Alameda to FTX US.

An ad-hoc capital infusion from Alameda could have made FTX US kind of solvent, we guess? But if Alameda’s funds had essentially come from FTX International customers, as the US government claims, that surely gets a little trickier?

In November 2022, the general counsel of FTX.US warned employees that they should preserve documents because of the involvement of regulators, and then posted in a company Slack channel that FTX would need to be shut down. BANKMAN-FRIED, however, deleted the general counsel’s message about FTX being shut down, continued to use Signal messaging, and proceeded to delete some of his own statements on Twitter, including his tweets about customer assets being “fine.”

Just imagine being an FTX employee and seeing these messages appear and disappear. What a trip.

The government’s filing gestures towards frictions between SBF and other lieutenants as well. Caroline Ellison, for example:

On or about November 6, 2022, BANKMAN-FRIED sent CC-1 a screenshot of a message from Ellison that read, in part: “I just had an increasing dread of this day that was weighing on me for a long time, and now that it’s actually happening it just feels great to get it over with one way or another.”

Then there’s SBF’s political activities:

To avoid certain contributions being publicly reported in his name, BANKMAN-FRIED conspired to and did have certain political contributions made in the names of two other FTX executives (“CC-1” and “CC-2”). Those contributions were made directly to candidates in the names of those FTX executives, but with FTX and Alameda funds.

The initial charges showed that he was being accused of this type of thing. But the (alleged) details get spicier. With our emphasis:

For instance, in or around 2022, SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, and others agreed that he and his co-conspirators should contribute at least a million dollars to a super PAC that was supporting a candidate running for a United States Congressional seat and appeared to be affiliated with pro-LGBTQ issues, and selected CC-1 to be the contributor.

A political consultant working for BANKMAN-FRIED asked CC-1 to make the contribution and told CC-1, “in general, you being the center left face of our spending will mean you giving to a lot of woke shit for transactional purposes.” CC-1 expressed discomfort with making the contribution in his name, but agreed there was not anyone “trusted at FTX [who was] bi/gay” in a position to make the contribution. At the direction of BANKMAN-FRIED and individuals working for him, CC-1 nonetheless contributed to the PAC.

So . . . is the government claiming that Sam Trabucco either wasn’t “in a position to make the contribution”, or wasn’t “trusted”? Tough one for FTX’s bi/gays!

SBF also allegedly expressed worry over some “donations/personal/etc” in his name as the platform went into crisis mode late last year:

In or around November 2022, as FTX customer withdrawals were surging and FTX was experiencing a solvency crisis (as described below), and just days before the midterm elections, CC-1 messaged SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, that he was concerned about the “maybe 80m” of “donations/personal/etc that went through my bank [account] and are in my name.” CC-1 proposed a back-dated transaction to undo any sort of debt he might owe as a result of wire transfers being recorded on Alameda’s ledger as “loans.”

BANKMAN-FRIED asked CC-1 how they would go about doing it, and CC-1 proposed a retroactive sale of certain cryptocurrencies “earlier in 2022” to remove the $80 million liability CC-1 had to FTX/ Alameda, which would have further concealed the campaign finance scheme. The transaction was not, however, completed before FTX’s collapse.

We aren’t lawyers, but a “retroactive sale” sounds like an interesting strategy.

Oh look, here’s another interesting alleged strategy:

On or about November 8, 2022, FTX suspended customer withdrawals. Shortly thereafter, however, BANKMAN-FRIED reopened withdrawals only for customers in The Bahamas, resulting in millions of dollars being preferentially withdrawn from the exchange, while other customers of FTX had no true access to it.

The indictment also addresses the relationship between FTX and Alameda in detail. Many of the government’s allegations are already known; charges that SBF secretly gave Alameda a massive credit line — $65bn — that allowed it “unlimited” access to customer funds. Allegedly drawing “billions of dollars in customer assets from FTX” to repay lenders when markets went bad in summer 2022. Oh and, allegedly, misleading auditors:

In the course of the audits underlying the financial statements, BANKMAN-FRIED and those acting at his direction misled auditors and avoided providing information about FTX customers, including Alameda, and about the commingling of customer assets with Alameda funds, as well as Alameda’s enormous line of credit on the exchange. When one co-conspirator expressed concern to BANKMAN-FRIED about auditors disapproving of the commingling of customer assets with Alameda funds, BANKMAN-FRIED assured that co-conspirator that the auditors would not find out. The audited financials were then used to falsely reassure customers and investors that FTX had proper risk management controls and systems for storing customer assets.

The government also mentions the use of Alameda accounts for FTX customer deposits in 2020, when banks were crypto-cautious and hesitant to open accounts for FTX. (SBF himself has discussed this one publicly.) The deposits were allegedly directed to a company called “North Dimension”:

In part to obscure the relationship between FTX and Alameda, and in order to overcome Bank-1 ‘s refusal to open a bank account for FTX without extensive due diligence and licensing, in or about August 2020, SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, directed the incorporation of a new U.S.-based entity, North Dimension . . . BANKMAN-FRIED also directed the creation of a website for North Dimension and used a credit card in his name to fund the hosting services for the website.

Once the North Dimension bank account was opened, FTX directed customer dollar deposits to the North Dimension account. Thereafter, when FTX customers deposited or withdrew fiat currency, Alameda personnel, who maintained control over the North Dimension account and acted under the direction and supervision of SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, and his co-conspirators, manually credited or subtracted the customer’s FTX account with the corresponding amount of fiat currency on an internal ledger system.

Customers could then convert their deposits to a range of cryptocurrencies and traditional currencies, engage in various types of trading, and make withdrawals denominated in various types of cryptocurrencies and traditional currencies. FTX charged fees and generated revenues from many of these activities, using the fraudulently obtained access to a U.S. bank account. Customers could also convert various cryptocurrencies and traditional currencies to dollars on their FTX account, and withdraw the dollars from FTX. FTX sent customer withdrawals by wire transfer from the North Dimension bank account, and by at least summer 2021 charged a fee for dollar withdrawals.

Then when things started falling apart, we get back to the good old “poorly internally labled [sic] fiat@” account. With our emphasis:

After the November 2, 2022 leak showing Alameda’s assets comprised mostly FTT, commentary expressing fear, uncertainty, and doubt about the value of FTT, and in turn the prospects of FTX as an exchange, spread across the internet . . . 

. . . as SAMUEL BANKMAN-FRIED, a/k/a “SBF,” the defendant, well knew, the “[h]idden, poorly internally labled [sic] ‘fiat@’ account,” was the multi-billion-dollar entry on FTX’ s ledger reflecting the amount of FTX customer fiat deposits accepted into Alameda’s bank accounts that had not been maintained for the benefit of customers or repaid to FTX, and of which BANKMAN-FRIED was aware throughout the relevant time period. The labeling of the account was deliberate: BANKMAN-FRIED had previously authorized moving the ledger entry of Alameda’s fiat liability from an account with “fiat” in its name, into a subaccount under the last name of an Alameda intern. On or about November 6, 2022, in the course of directing CC-I and others to calculate Alameda assets and liabilities for purposes of estimating available funds to meet customer withdrawal demands, BANKMAN-FRIED specifically told CCI to include this subaccount in his calculations, describing it as the account that “has the old fiat@ account.”

FUD indeed!