The FTX-SBF fiasco: This week’s latest developments

On December 21, co-founder and former CEO of FTX, Sam Bankman-Fried was arrested in the Bahamas and extradited to the US, where he faces several counts of fraud, money laundering and other criminal charges. He was later released on a record bond of $250 million. Since then, updates around the court proceedings and the FTX fiasco are coming thick and fast. Here’s a roundup of the latest SBF-FTX developments from this week and how they could impact the bigger picture in the months to come.

As mentioned earlier, SBF was granted bail on a staggering amount of $250 million on December 22, while he awaits a court trial which is scheduled to take place on January 3, 2023, in a New York Federal court.

After posting bail, SBF has been residing at his parent’s home in Palo Alto, California. As per reports, the home in question is a sprawling $4 million, 5-bedroom property with a swimming pool in the backyard.

SBF has also been seen going for daily jogs with a formidable security detail. Reports state that Bankman-Fried’s parents are dishing out close to $10,000 a week on private security after SBF received numerous death threats. Three days after posting bail, SBF was also spotted at a business class lounge at JFK airport before boarding a flight to San Francisco.

While the current scenario is a far throw from SBF’s lifestyle before the FTX meltdown, crypto Twitter still questioned the luxuries he is being afforded, especially after having one of the worst meltdowns in crypto history on his hands.

As per court rulings, SBF has been kept under watch and made to wear an ankle monitor to keep tab on his movements. He is restricted from leaving his residential premises, except under exceptional circumstances. He can neither carry a firearm nor can he conduct any transaction over $1,000 and his passport has also been seized.

The co-founder of the fallen exchange FTX, Gary Wang, and the ex-CEO of Alameda Research, Caroline Ellison, have already pleaded guilty to siphoning off billions of dollars of customer funds. Both are now cooperating with authorities.

Now reports are emerging that SBF is also likely to enter a plea deal at the Manhattan Federal Court on January 3, 2023. SBF has three options at his disposal: pleading guilty, not guilty, and deciding not to contest.

Pleading guilty will lead to SBF conforming to his crimes and being liable to face the necessary consequences. The second option will imply his denial of the charges.  And the third option will lead to a situation where he is aware that the charges brought against him can point him out as guilty, but he does not accept the guilt on his behalf.

The judge originally appointed to the FTX case was Ronnie Abrams. However, the district judge from Southern New York recused herself from the case stating a conflict of interest. According to reports, Abram’s husband is a partner at Davis Polk and Wardwell LLP, a law firm that advised FTX in 2021.

The new judge on the case, Lewis Kaplan, comes with quite the repute. The 78-year-old district judge is known for his no-nonsense approach to proceedings. Kaplan was appointed by former U.S. President, Bill Clinton, and has overseen several high-profile cases throughout his career, many of which were financial in nature.

At the moment, Kaplan is preceding over a couple of lawsuits against Donald Trump. In the past, he has also chaired proceedings against Kevin Spacey and Prince Andrew. He also presided over the Bitcoin Savings and Trust case where he sentenced the owner of the firm, Tendon Shavers, to 18 months in prison.

In another worrying development, several users on Twitter reported that, on Dec 28, large amounts of crypto funds were transferred out of wallets linked to Alameda Research, FTX’s sister concern. As per initial reports, almost $1.7 million worth of assets from 30 wallets were routed through crypto-mixing services.

To begin with, several Ethereum-based tokens made their way to a couple of main wallets, from where they were swapped for ETH and USDT. These coins were then routed through several wallets before being sent to coin mixers like ChangeNOW and FixedFloat. This ensures that the money trail will be obfuscated going forward.

In all, the mixers were used to exchange $800,000 worth of USDT, while $400,000 were swapped in some other way. Moreover, $200,000 worth of USDT was transferred to the BTC network by using renBTC.

The transfer of funds created quite a stir in the crypto community, and many have questioned legal authorities for not being able to prevent such things from happening, especially when a case of this magnitude is ongoing.

According to the Oregon Division of Financial Regulation (DFR), scammers are posing as government officials and duping wounded FTX investors. Some of them are creating fake websites that require users to enter sensitive information, such as usernames and passwords. Armed with these credentials, scammers can syphon funds from investors who have already lost money in the FTX meltdown.

In one such case, scammers created a fake website that claimed to be managed by the U.S. Department of State. They promised to help investors recover their assets frozen on FTX. However, the site was only meant to extract credentials and then syphon funds from unsuspecting users.

This is perhaps the only positive to come out of the FTX-SBF fiasco over the last few days. According to a statement from Dec 29, FTX’s Japanese subsidiary aims to start refunding investors by early 2023.

To begin with, customers will have to open accounts on Liquid Japan, an FTX-owned crypto exchange. After this, a balance check will establish the refund amounts and finally, the refunds will begin to flow in Feb next year. As per a Bloomberg report from Dec 2, FTX Japan currently holds nearly $141 million in client accounts.

The crypto community is not particularly pleased with the legal proceedings so far. Several investors, especially those who sustained massive losses due to the FTX meltdown, want their debts made whole and SBF behind bars at the earliest.

Given the fact that Bankman-Fried made heavy donations to both the Democratic and Republican election campaigns, there are also speculations that SBF might take advantage of his political connections to earn a lighter conviction.