It appears Sam Bankman-Fried’s media apology tour did not appease the Securities and Exchange Commission. He was arrested last night by Bahamian authorities, who announced in a statement that they planned to cooperate with American prosecutors and extradite the crypto financier to his home country. This came as a surprise to basically no one except SBF himself, who previously told a Twitter Spaces audience: “I don’t think I will be arrested.”
That particular quote was in reference to Bankman-Fried’s forthcoming testimony before Congress, which he planned to attend remotely out of alleged fear of “paparazzi.” He was scheduled to speak today, but in a twist of either convenient or unfortunately coincidental timing, he was arrested first. (Forbes, however, has obtained the transcript of his planned remarks). This morning, the SEC unsealed their 28-page indictment against him, laying out their case how he violated two provisions of the Securities Act, pertaining to “fraud in the offer or sale of securities,” and “fraud in connection with the purchase or sale of securities.” Separately, the New York Times confirmed that Bankman-Fried had been indicted with criminal charges, in a complaint also to be unsealed today. Those charges, filed in the Southern District of New York, allegedly involve: securities fraud, securities fraud conspiracy, wire fraud, wire fraud conspiracy, and money laundering.
It’s of course unclear how Bankman-Fried’s case will unfold, but at least one thing is starting to look certain: Caroline Ellison probably snitched. Ellison, an avid Tumblr user and Harry Potter fan, is Bankman-Fried’s alleged ex-girlfriend and the former CEO of Bankman-Fried’s now-defunct crypto hedge fund, Alameda Research, which figures heavily into the charges levied against him. And she has allegedly admitted wrongdoing in the collapse of Bankman-Fried’s crypto empire, confessing in one meeting with employees that she was aware, alongside SBF and other executives Gary Wang and Nishad Singh, that Alameda had borrowed customer funds from its sister crypto exchange, FTX. She was also recently spotted at Ground Support Coffee in Soho, a long trek from her colleagues’ hideout in the Bahamas — and very close to both the FBI and the U.S. Attorney’s Office for the Southern District of New York.
Ellison was evidently familiar with the fact that the nature of her work closely resembled wire or securities fraud. Or at least, she was allegedly part of the supposedly poly squad’s Signal group chat, titled “Wirefraud.” She also once soberly advised her Tumblr followers on how to avoid “wire fraud” indictments, and joked on that same Tumblr about putting wire fraud in her dating profile. “How do I signal my genuinely sweet and feminine nature on my dating profile?" Ellison asked on her since-deleted blog. “Should it go before or after the section on wire fraud?”
Much of the complaint lays out what has already been reported about the FTX-Alameda Research implosion: that any apparent division between the two companies was virtually nonexistent, that FTX regularly loaned Alameda money from its customers’ coffers, and that Alameda was allegedly afforded special trading privileges on the FTX platform. Those privileges allegedly included the ability to maintain a negative balance, borrow on an unlimited credit limit, avoid paying interest on its loans, and remain exempt from FTX’s automatic liquidation feature. It also reveals some lesser-known details, such as the allegation that he shielded the comingling of funds by setting up bank accounts under unrelated names (“North Dimension Inc.”) and having users send funds to an Alameda account called, intriguingly, “email@example.com.”
In past interviews, Bankman-Fried claimed a significant degree of ignorance of these operations. As we reported earlier this month, he told the Times’s Aaron Ross Sorkin that he “wasn’t running Alameda Research,” that he “didn't know exactly what was going on” there, and that he “didn't know the size of their position.” But compare that with this line in the SEC indictment:
Bankman-Fried remained the ultimate decision-maker at Alameda, even after Ellison and Trabucco became co-CEOs in or around October 2021.
Yikes. The complaint goes on to place Bankman-Fried squarely at the center of all of Alameda’s decision-making, as in this passage about Alameda’s use of customer funds:
Bankman-Fried thus gave Alameda carte blanche to use FTX customer assets for its own trading operations and for whatever other purposes Bankman-Fried saw fit. In essence, Bankman-Fried placed billions of dollars of FTX customer funds into Alameda.
The complaint also details the degree to which FTX and Alameda executives used the companies’ assets as, per the complaint, their “personal piggy bank.” The document alleges Bankman-Fried personally “executed promissory notes for loans from Alameda totaling more than $1.338 billion,” which he used “to buy luxury condominiums, support political campaigns, and make private investments.” Notably, the complaint claims that he was not alone in treating himself on the customers’ dime: “Singh and Wang also borrowed $554 million and $224.7 million, respectively, by executing promissory notes with Alameda in 2021 and 2022.”
If Ellison happened to allegedly join in on this, the SEC does not mention it. She must be quite the teetotaler. Or maybe she’s a snitch. If she has any interest in snitching to us, and likely undermining the terms of any non-prosecution agreement, she can drop us a line at firstname.lastname@example.org. Or just say hello, Caroline. You can come to our holiday party on Friday.