When a jury convicted Sam Bankman-Fried on seven fraud-related costs, it marked a symbolic end to the largest scandal in crypto historical past. However for Bankman-Fried’s legislation professor parents, Joe Bankman and Barbara Fried, the authorized ordeal is way from over.
Bankman-Fried’s bankrupt FTX exchange, now led by a caretaker CEO, is suing Bankman and Fried to recuperate a $10 million present from their son that was paid with company funds. Extra critically, the mother and father—Bankman particularly—would possibly face the chance that federal prosecutors cost them for abetting their son’s prison enterprise.
White-collar prison legal professionals interviewed by Fortune have been divided on whether or not Bankman would possibly in the end be charged. However every made clear that Bankman’s intimate function advising his son and FTX—on every little thing from the corporate’s byzantine offshore tax construction to the best way to navigate its final collapse—places him in very actual jeopardy.
$10 million and a luxurious villa
Lengthy earlier than Bankman-Fried launched his ill-fated crypto empire, his mother and father loved substantial monetary safety and cultural standing. They stay in a home on the stainless campus of Stanford College at which they hosted gatherings of the Bay Space’s educational and political elite, and loved entry to the very prime ranks of the Democratic get together thanks, partially, to Fried’s fundraising prowess.
When their son left the hedge fund Jane Road Capital to launch his personal crypto enterprise, Bankman and Fried offered authorized and political steerage. Certainly, the clawback lawsuit filed by FTX—whose present CEO, John J. Ray III is a blistering critic of his predecessor’s habits—quotes Bankman-Fried’s description of the operation as a “family business.”
The advantages to the mother and father have been monumental. As FTX rode the 2021 crypto growth to a $32 billion valuation, Bankman took a go away from Stanford to dedicate extra time to the alternate. However as the brand new FTX lawsuit recounts, Bankman quickly complained to his son, in an e-mail that copied his spouse, that the preliminary $200,000 wage allotted to him was inadequate, and requested as an alternative for $1 million.
“Gee, Sam I don’t know what to say here. This is the first [I] have heard of the 200K a year salary! Putting Barbara on this,” Bankman wrote to his son, based on the lawsuit. Quickly after his spouse would weigh in by writing, “That would be right if you were giving dad $10 million in cash, but I thought you were giving him only $7.2 million in cash plus the $2.8 mill in the account in his name.”
The parental strain labored, and FTX quickly paid Bankman $10 million. The FTX lawsuit additionally alleges that Bankman used firm cash to “shower family and friends with gifts,” together with a visit to France and F1 Grand Prix tickets for a Stanford scholar and future FTX worker.
Then there may be the $18.9 million that Bankman-Fried spent on a 30,000-foot Bahamian luxurious villa often called Blue Water. Whereas the property was nominally a company residence, the lawsuit alleges that Bankman-Fried deeded it to his mother and father, who loved the unique use of it and referred to it as “our house.”
In contrast to most politicians and others who obtained largesse from Bankman-Fried, his mother and father seem to have repaid not one of the cash. In the meantime, they’ve spent closely on gold-plated authorized illustration—seemingly with the present they obtained from their son, in accordance to BusinessWeek, which printed a damning profile of the pair. The mother and father have additionally retained the providers of the distinguished public relations maven Risa Heller, whose agency payments as a lot as $50,000 a month for disaster communications, based on PR trade sources.
Heller didn’t reply to repeated requests for remark from Fortune about her charges, nor did she reply to questions on whether or not the authorized and PR providers Bankman and Fried obtained are being paid for with funds that FTX says belong to its clients.
Requests for remark despatched to the e-mail addresses for the pair listed on Stanford’s web site got here again as undeliverable. Heller didn’t reply to request for touch upon their behalf. Attorneys for the couple have beforehand stated the allegations within the FTX go well with “are “completely false” and “a dangerous attempt to intimidate Joe and Barbara.”
In any case, state of affairs quantities to a deeply unflattering search for the couple—not least as a result of Bankman is an authority on company legislation whereas Fried is a number one scholar of ethics. Nevertheless it doesn’t imply they broke the legislation.
“In a criminal case, proof is beyond a reasonable doubt. It’s not enough that the dad was aware of criminal activity or that the parents were around or even benefiting from it,” says Renato Mariotti, a former prosecutor who’s now a accomplice at Bryan Cave Leighton Paisner. “At a bare minimum, they had to know of criminal activity and [have] helped it succeed in some way.”
‘Red flags’ and Sign chats
In conversations with Fortune about potential prison costs Bankman might face, attorneys pointed to the identical federal statute, Title 18, Section 2 of the U.S. Code, which spells out that anybody who “aids, abets, counsels, commands, induces or procures” the fee of an offense could be charged as if they’d dedicated it immediately.
Whether or not or not Bankman’s function at FTX amounted to abetting within the prison sense, there may be proof he was immediately concerned in main choices on the agency. That proof consists of quite a few group chats on the messaging app Sign, produced as proof at Sam Bankman-Fried’s trial, during which Bankman participated throughout a timeframe as much as and together with the alternate’s collapse.
I believed it was attention-grabbing earlier within the trial that SBF’s father, Joe Bankman, was within the “small group chat” Sign battle room that was attempting to deal with the upcoming collapse.
Now that we now have the Sign chat abstract doc, listed below are all of the chats JB and SBF have been each in. pic.twitter.com/Z5792qMUhd
— Molly White (@molly0xFFF) October 29, 2023
BusinessWeek’s report additionally factors to legislation agency invoices that present Bankman attended conferences that targeted on the event and advertising of the FTT token—the funny-money cryptocurrency that FTX relied upon to paper over gaping holes in its balance sheet.
There may be additionally the balance sheet itself, which listed obscure tokens that had little real-world worth and included surreal entries like “Hidden, poorly internally labeled ‘fiat@’ account.” If Bankman had seen it—which appears believable, given his function as lawyer and shut advisor to the agency—it’s arduous to fathom how he might settle for the validity of such a doc, which might have obtained a failing grade from a highschool accounting trainer.
As for Bankman’s exact function at FTX, it was amorphous like every little thing else on the firm his son ran as a private fiefdom. The one formal documentation about its company construction, drawn up by an govt and printed on the mud jacket of Michael Lewis’s book about Bankman-Fried, lists Bankman as a direct report back to his son.
Lastly, there may be the brand new civil lawsuit filed by FTX, which notes Bankman noticed the corporate’s interior workings with the “training and knowledge of a sophisticated law professor and the perceptiveness of a clinically trained psychologist. But when red flags about the operations and business practices surfaced, Bankman chose to ignore them.”
Attorneys interviewed by Fortune speculate that Ray and his staff drafted the lawsuit in such a method as to make it as helpful as potential to prosecutors at Southern District of New York, who efficiently filed costs in opposition to Bankman-Fried. (FTX didn’t instantly reply to a request for remark.) SDNY, as it’s recognized in authorized circles, is the nation’s preeminent discussion board for pursuing white-collar criminals, and it’s staffed by legal professionals who’re each smart and aggressive.
Affordable doubt and wild playing cards
However regardless of quite a few information suggesting Bankman had intimate data of his son’s crooked empire, a prison case would hardly be a slam dunk. The Justice Division’s problem is larger nonetheless given Bankman’s familiarity with the legislation.
“It’s hard to prosecute lawyers. They know what to put in writing,” stated Mariotti, the previous prosecutor.
The a number of challenges of proving past an affordable doubt that Bankman was actively complicit point out prosecutors are unlikely to carry costs, based on Mariotti. He added that the time elapsed—Bankman-Fried was first charged final December—means that in the event that they have been planning to take action, they might have completed it by now.
Different legal professionals will not be positive about that. Chris LaVigne, a white-collar protection specialist on the legislation agency Withers, says that earlier circumstances involving large fraud noticed the Justice Division first convict the principal actors, then transfer on to lesser gamers. He factors to the examples of convicted hedge fund fraudster Raj Rajaratnam, whose brother was arrested following his trial (although not convicted), and of Bernie Madoff, whose sibling was likewise charged (and finally convicted) after Madoff’s conviction.
LaVigne provides that whereas Bankman’s authorized coaching makes it unlikely he would put something in writing that might immediately implicate him, the general circumstances might persuade a jury to convict him and his spouse all the identical.
“They were living high on the hog while advising a bunch of twentysomethings who had no idea what they were doing,” stated LaVigne. “There’s a certain level of info smart folks can have before it becomes apparent something strange is going on—especially if they’re advising in a way to sweep stuff under the rug or obfuscate.”
In figuring out whether or not Bankman will likely be charged, there’s a ultimate wild card to contemplate: his son, who’s in the perfect place to inform prosecutors whether or not his dad was blind to the fraud or actively helped to design it.
At a current crypto discussion board that barred citing feedback with attribution, a senior lawyer at a well known firm predicted that prosecutors would cost the mother and father—and advised that Bankman-Fried has described FTX’s downfall in ways in which reduce their involvement.
“It’s the natural instinct of every child to try and protect their parents,” stated the lawyer, who added that he was skeptical Bankman-Fried might have constructed FTX to such a measurement with out their assist.
For now, Bankman-Fried has stated that any blame for prison exercise at FTX ought to solely fall on his former girlfriend Caroline Ellison and onetime friends who’ve already pleaded responsible to fraud-related costs. However as he prepares to face a second trial and awaits a sentencing listening to that might put him in jail for all times, there may be the likelihood he might level the finger in different instructions.
