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HomeTechThe charges against Sam Bankman-Fried

The charges against Sam Bankman-Fried


Two weeks ago, while speculating on why disgraced FTX founder Sam Bankman-Fried was still a free man, we noted that his best strategy to avoid criminal charges would be to portray his crypto exchange’s spectacular collapse as a feat of embarrassing incompetence rather than unmitigated greed.

His bizarre media blitz in early December was certainly an attempt to cement this narrative in the public consciousness.

But as of this week, SBF is no longer a free man, having been arrested in the Bahamas on Monday. What’s more, it turns out US prosecutors – unlike the vaunted venture capital, private equity and hedge funds that poured billions of dollars into FTX – didn’t buy his spiel for a second.

Neither, it seems, did John Ray, FTX’s new court-appointed chief executive, who told a US House committee hearing on Tuesday, “This isn’t sophisticated whatsoever, this is just plain old embezzlement.”

Here, then, are the three sets of charges against SBF, starting with the most serious.

Department of Justice

On Tuesday, a US Department of Justice indictment was unsealed, which charged SBF with eight counts including:

  • Wire fraud
  • Conspiracy to commit wire fraud
  • Conspiracy to commit commodities fraud
  • Conspiracy to commit securities fraud
  • Conspiracy to commit money laundering
  • Conspiracy to defraud the Federal Election Commission and commit campaign finance violations

It said the conspiracy began in 2019, the year FTX was founded, meaning prosecutors believe FTX – and by extension SBF – were crooked from the start.

In the words of US Attorney Damian Williams, “As today’s charges make clear, this was not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple.”

Williams also described the alleged crimes as “one of the biggest financial frauds in American history” at a news conference.

SBF faces a maximum of 115 years in prison if convicted of these charges but his actual sentence is unlikely to exceed 20 years.

Securities and Exchange Commission

The US securities regulator’s charges focus on SBF’s alleged fraud against equity investors rather than customers.

The complaint alleges SBF orchestrated a years-long fraud to conceal from FTX’s investors:

  • the diversion of FTX customers’ funds to Alameda Research, his private crypto hedge fund
  • the special treatment afforded to Alameda on the FTX platform, including a virtually unlimited line of credit funded by the platform’s customers, and exempting Alameda from certain key FTX risk mitigation measures
  • risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.

The SEC also alleges SBF used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.

If these charges are proved, SBF will face huge files and probably be banned from working in a financial institution for the rest of his life.

Commodity Futures Trading Commission

The third set of charges against the crypto’s former boy wonder are courtesy of the Commodity Futures Trading Commission (CFTC), which polices the US derivatives markets.

The agency’s charges focus on SBF’s core crime: commingling depositors’ funds between FTX and the Alameda.

  • It alleges that FTX customer assets were routinely accepted and held by Alameda and commingled with Alameda’s funds.
  • It also says Alameda, SBF, and others used customer funds for their own operations and activities such as buying luxury real estate and making political donations.
  • FTX employees – on SBF’s direction – tweaked the FTX code to favour Alameda and allow it to make transactions even when it did not have enough funds, the CFTC alleges. This, the agency says, gave Alameida an “effectively limitless line of credit” that allowed it to withdraw billions of dollars in customer assets from FTX.

These, like the SEC’s, are civil charges that could result in big fines for SBF but no jail time.


Big scoops this week

LensKart funding

ADIA looks to invest $400 million in Lenskart: Abu Dhabi Investment Authority (ADIA) is in advanced talks with Lenskart and its existing stakeholders for an investment of $350-400 million, the largest fundraise by the omni channel eyewear retailer, people aware of the development told us, adding that some of the current investors are looking for a partial exit.

Old VC funds under Sebi scanner: After alternative investment funds, the Securities & Exchange Board of India (Sebi) is now scrutinising venture capital funds (VCFs) floated around and after 2008 for extending their life well over 10 years. A fortnight ago, Sebi had asked all alternative investment funds (AIFs) to spell out whether the different schemes run by them have reached ‘final closure’, and if not, why, and the ‘end date’ of the schemes.

Tata Group mulls exclusive Apple stores across India: The Tata Group aims to open small exclusive Apple stores across the country, two people aware of the development said. The iPhone maker is tying up with Tata-owned Infiniti Retail, which runs the Croma store chain, for the venture, they said.

Infiniti Retail will become an Apple franchisee partner and intends to open 100 such outlets of 500-600 sq ft each at malls as well as high-street and neighbourhood locations.

Slice secures PPI licence: Card-fintech platform Slice has received a prepaid payment instrument (PPI) licence from the Reserve Bank of India, multiple people aware of the matter told us. Slice plans to open minimum know your customer (KYC) PPI accounts for teenagers as it looks to widen its user base and target a newer cohort of users.

Foxconn to emulate China model in TN: In a bid to replicate the large-scale functioning of its manufacturing facility in China, Taiwanese contract manufacturer Foxconn is building large hostels with capacity to house up to 60,000 workers near its facility outside Chennai. The company is looking to rapidly expand its production capacity for Apple devices in India, people aware of the development told us.


Startup corner

Paytm share buyback

Paytm’s Rs 850-crore share buyback: The board of One 97 Communications Ltd, which owns Paytm, has approved share buyback worth up to Rs 850 crore at a maximum price of Rs 810 apiece via the open market route. Through the process, Paytm plans to buy back 10.49 million shares, which represent approximately 1.62% of its paid-up share capital, as of FY22 end.

Meanwhile, The company earlier this week said that it had clocked an annualised loan disbursal run rate of $4.8 billion (or Rs 39,000 crore) in November. The value of loans disbursed grew 374% year-on-year (YoY) to Rs 6,292 crore ($774 million), while the number of loans disbursed grew 150% YoY to 6.8 million cumulative for the two months ended November.

Freshworks to undertake layoffs: Product software company Freshworks is laying off around 60 employees based in India amid a reorganisation to correct wage costs amid a difficult macroeconomic environment in the United States as well as Europe.

Also read | Java Capital launches Rs 75 crore seed-stage fund


ET Ecommerce Index

We’ve launched three indices – ET Ecommerce, ET Ecommerce Profitable, and ET Ecommerce Non-Profitable – to track the performance of recently listed tech firms. Here’s how they’ve fared so far.

ET Ecommerce Tracker

Tech policy updates

Data Bill

Tech firms seek clarity on data storage rules: Technology giants, including big social media intermediaries, have sought greater clarity on proposed rules around data storage in foreign jurisdictions. In meetings with senior officials of the Ministry of Electronics and Information Technology, executives from the internet intermediaries sought assurances that data storage norms, as and when decided, will not be “entirely dependent” on changing geopolitics, forcing companies to change the locations of their data storage units.

In-depth | The simpler and smaller draft data protection bill is a mixed bag

Amazon, Flipkart in focus over sale of acid: The Delhi Commission for Women (DCW) on December 15 issued notices to e-commerce majors Amazon and Flipkart for the alleged sale of acid on their shopping platform, in the wake of the acid attack incident in Dwarka. Calling the easy availability of acid online a matter of grave concern, the DCW sought a detailed action taken report from the two firms by December 20.

The Central Consumer Protection Authority (CCPA) has also sought an explanation from Flipkart on the issue within a week.


ETtech Interviews

Ashwini Vaishnaw

UPI-like platforms for logistics, agri, education in works: The government is working with the National Digital Health Mission to roll out a UPI-like model, which will be used for other areas such as logistics, agriculture, and education among others, Minister of Electronics and IT Ashwini Vaishnaw told us.

HCLTech’s growth guidance ‘best’ among peers: HCLTech is being cautious about its outlook for the next quarter considering that certain customers are facing pressure on their P&L (Profit and Loss), chief financial officer (CFO) Prateek Aggarwal told us in an exclusive interview. At 16-17% annual revenue growth guidance for its IT services business, he said it was still the “best” among tier-1 Indian IT majors.


In other news

NR Narayana Murthy

Wrong to not allow next gen at Infosys, says Murthy: Speaking at the 40-year anniversary celebrations of Infosys in Bengaluru earlier this week, founder NR Narayana Murthy said he was “completely wrong” in not allowing the next generation of the promoter-founder families to take up active roles in the Bengaluru-based tech giant. “I was depriving this organisation of legitimate talent, so I take back whatever I said,” he said in response to ET’s query on succession planning at the company.

Why China’s group-buying concept failed in India: At the start of the year, several ecommerce platforms were betting on “group buying”, a concept believed to have originated in China, to tap the next hundred million users in India and push them to buy online. Cut to the year-end and most of them have either shut this line of business, put it on the backburner, or just moved on. More on this here

Explained | Evolution of ransomware, from floppy disks to crypto: Ransomware attacks have come a long way since the first such known attack in 1989. Called the ’AIDS Trojan’, it was installed on a floppy disk disguised as a document with information about the disease and sent to more than 20,000 people by a scientist named Joseph Popp. More than 30 years later, ransomware attacks are now capable of crippling massive infrastructure projects such as the Colonial Pipeline in the US. Read the full explainer here



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