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US prosecutors are apparently building a probable fraud charge against disgraced crypto billionaire Sam Bankman-Fried, and there is rising speculation that his ex-girlfriend Caroline Ellison could become a key witness in the case.
Bloomberg News reports that Justice Department officials in the Southern District of New York are investigating the suspected transfer of hundreds of millions of dollars from the United States to the Bahamas around the time when his FTX bitcoin exchange filed for Chapter 11 bankruptcy.
According to prior reports, federal prosecutors in Manhattan are also investigating whether Bankman-Fried manipulated crypto markets by coordinating trades that contributed to the collapse of the TerraUSD coin earlier this year.
Bloomberg reported separately that Ellison has hired Stephanie Avakian, a lawyer at white-shoe law firm Wilmer Hale and the former head of the Securities and Exchange Commission’s enforcement division. Avakian was photographed grabbing coffee at a SoHo restaurant in Manhattan last week.
The Post has reached out to WilmerHale for comment.
A user claims to have seen Caroline Ellison at 8:15 a.m. at Ground Support Coffee on West Broad in SoHo, Manhattan. This would indicate that she is neither in Hong Kong nor in detention in New York. pic.twitter.com/QUduYO9GfZ
— Autism Capital (4 December 2022) (@AutismCapital)
In recent weeks, Bankman-Fried has gave multiple interviews and commented frequently on social media, whereas Ellison has been silent, prompting some observers to conclude that she is attempting to assist with authorities.
In an interview released last month, Bankman-Fried appeared to place the responsibility for FTX’s failure on Ellison, a 28-year-old self-proclaimed “Harry Potter” fan who has tweeted about taking amphetamines. In an interview with Vox reporter Kelsey Piper, Bankman-Fried argued that his claim that FTX did not “invest client assets” was “factually accurate” because Alameda Research, not FTX, made the investments.
Bankman-Fried and Ellison were purportedly part of a gang of ten housemates who ran FTX and Alameda from a Bahamas penthouse. The group was rumored to be intimately intertwined, with some internet rumors claiming they were a “polycule” or network of polyamorous partnerships.
FTX is claimed to have utilized billions of dollars in customer assets to settle debts accrued by Alameda Research, setting off a chain of events that resulted in its abrupt collapse last month. On November 11, many crypto observers observed a suspicious $663 million transfer from digital wallets managed by FTX to a fund administered by Bahamian officials.
The Securities Commission of the Bahamas issued a statement on November 17 stating that it has directed the transfer of assets “for safekeeping” to its own digital wallet.
Bloomberg News stated that investigators are also exploring if FTX participated in illegal activity by utilizing customer payments to settle debts incurred by Alameda Research, a sister analytics company also founded by Bankman-Fried.
Mark Cohen, attorney for Bankman-Fried, and Mark Botnick, spokesman for Bankman-Fried, both declined to comment.
In subsequent conversations with the media, Bankman-Fried denied intentionally committing fraud.
Bankman-Fried, formerly estimated to be worth $17 billion, resigned as CEO of FTX following the filing of Chapter 11 bankruptcy.
Bankman-Fried has stated that he accepts responsibility for FTX’s demise and that he miscalculated the level of risk that both the Bahamas-based FTX and Alameda were taking on.
One of the allegations against Bankman-Fried is that he arranged for Alameda to use customer assets in FTX to place market bets. Bankman-Fried has stated in public interviews that he did not “knowingly” combine the assets of clients with those of Alameda.
Last month, Bankman-Fried told the New York Times DealBook Summit, “I had no idea what was going on.”
“I learnt several of these things as they occurred.”
In subsequent conversations with the media, Bankman-Fried denied intentionally committing fraud.
Bankman-Fried tweeted last week that he is willing to testify in front of Congress on Tuesday, but that he will be constrained in what he can say and “won’t be as useful” as he would like to be.
The post was a reaction to many tweets from House Financial Services Committee Chair Maxine Waters earlier this month, in which she demanded that Bankman-Fried attend Tuesday’s hearings regarding the collapse of FTX.
Waters, a Democrat from California, stated in a series of tweets to Bankman-Fried that it was “obvious to us that the information you have thus far is sufficient for testimony” based on various media interviews conducted since the collapse of FTX.
FTX failed last month in what was basically a cryptocurrency version of a bank run, when users attempted to withdraw their assets simultaneously due to growing fears about the company’s and Alameda Research’s financial viability.
Justice Department officials are reportedly investigating questionable transfers from FTX’s U.S.-based activities to the Bahamas around the time the company filed for Chapter 11 bankruptcy protection.
Since its demise, the new management of FTX has described the cryptocurrency exchange’s administration as a “total failure of corporate controls.”
In a series of tweets to Waters, Bankman-Fried identified particular problems he would be able to discuss with the committee, such as the viability of FTX’s US business, its American clients, and potential alternatives for restoring assets to overseas clients.
He said that he could discuss what he believes caused the incident and “my own shortcomings.”
Bankman-Fried stated in a television appearance just over ten days ago that he believed the US branch of FTX was completely solvent and could begin processing withdrawals immediately.
Regarding the remainder of FTX, which was substantially larger than the US division, he stated that he had little control over the fate of clients’ assets.
After FTX’s bankruptcy, Bankman-Fried, who was once one of the wealthiest individuals in the world on paper, now believes he survives on a single credit card and likely has less than $100,000 to his name.
»Caroline Ellison seeks attorney as US contemplates fraud charge against Sam Bankman-Fried«