FTX: government drops lawsuit against Sam Bankman-Fried



Yesterday it was reported that the Justice Department of the US government officially dropped its lawsuit against FTX co-founder and former FTX CEO Sam Bankman Fried over allegations that he used client funds to finance politicians. 

In the letter sent to Judge Lewis A. Kaplan of the Southern District of New York, US Attorney Damian Williams states that the US government had sought clarification from The Bahamas regarding allegations of conspiracy to provide illegal campaign contributions. 

The Bahamas later informed the United States that it did not intend to extradite the defendant on the basis of these charges. 

At that point they added: 

“Accordingly, in keeping with its treaty obligations to The Bahamas, the Government does not intend to proceed to trial on the campaign contributions count.”

The role of the Bahamas

The Bahamas plays a crucial role in this affair. 

In fact, the FTX Group’s main operational headquarters was in the Bahamas, which is an independent state. 

Moreover, Sam Bankman-Fried practically lived there, physically, and after the exchange’s bankruptcy he had remained in Nassau, under the surveillance of local authorities. 

It was actually Bahamian law enforcement that arrested him, and only later was he extradited to the US, given that SBF is a US citizen like the vast majority of FTX‘s creditors. 

Moreover, the extradition process is known not to have been trivial, and there were negotiations between SBF’s lawyers and the Bahamian and US governments to reach an agreement. 

From what emerges from the letter sent by Prosecutor Williams to Judge Kaplan, part of this agreement would be precisely the US government’s promise not to prosecute Sam Bankman-Fried over the issue related to financing politicians. 

FTX: funding of politicians by Sam Bankman Fried

However, this decision did not please many people at all. 

Indeed, whether or not it was a necessary condition for securing SBF’s extradition to the US, there may be a conflict of interest. 

The election campaigns referred to by Attorney Williams are in part precisely those that have brought to Congress several Democrats who support the current Democratic administration of Joe Biden. 

According to what the Times revealed a few months ago, Sam Bankman-Fried has contributed to election campaigns by donating more than $70 million to political committees in less than 18 months. During that time he was by far one of the top political donors in the entire nation. 

In particular, he personally donated at least $40 million for the 2022 midterm elections, mainly to Democrats and liberal-leaning groups, making him the second largest donor to Democrats overall, behind only George Soros. 

The single largest donation ($27 million) was to Protect Our Future, which is a super PAC aligned with Democrats that had as its main goal to help elect candidates who will be champions for preventing future pandemics. 

This group also supports the effective altruism movement, of which SBF was a leading exponent, i.e., a philanthropic movement based on using reason and data to allocate money. 

Later SBF had also claimed to have donated equally to Republicans, but in secret, so in total in addition to the 40 million given to Democrats there may have been another 40 million given to Republicans. 

But the main problem is that he also appears to have made one of the largest donations to Joe Biden’s 2020 presidential campaign, with $5.2 million. This is why there is talk of a conflict of interest. 

Political friendships with client money

In the wake of the FTX bankruptcy, it was discovered that Sam Bankman Fried was not donating its own money to politicians. Instead, a large part of it was taking it from funds that clients deposited on the exchange, which in theory should have remained the property of the clients. 

It is worth mentioning that on traditional exchanges, funds from users are segregated from those owned by the managers, so that it is much more difficult for them to be taken away to be used to finance corporate expenses. 

Instead on FTX the funds were commingled, so as it drew on these huge reserves inevitably some of it was money that was theoretically owned by the users of the crypto exchange. 

By using this money to finance the political campaigns of various candidates SBF evidently wanted to buy the friendship of many politicians. Right now there are those who are accusing Joe Biden’s own Democratic government of falling into this trap. 

Indeed, FTX’s new management, that of bankruptcy trustee John J. Ray III, has tried in vain to get these donations returned so that it can recover some of the customer funds squandered by SBF. 

At this point, it would not even seem logical for the court to decide to overlook and simply drop these charges, but if the prosecutor decides not to proceed, it might actually stop there. 

However, it is worth remembering that there are many more charges against SBF, so the prosecution against him will still go forward. Moreover, at this point it is very unlikely that proceeding with regard to the financing of politicians would also allow some of the donations made by SBF to be recovered. 

The order of silence

Meanwhile, Judge Kaplan himself, following the explicit request of district attorneys, issued an order of silence against Sam Bankman-Fried. 

Indeed, SBF allegedly violated his press silence on the case, which is still open, so the judge limited his ability to speak publicly about it.