FTX’s Founder Faces Growing Legal Troubles

All dressed up.Credit…Mario Duncanson/Agence France-Presse — Getty Images

Bankman-Fried plans to fight back

Sam Bankman-Fried, the founder of the failed crypto exchange FTX and its trading affiliate Alameda Research, remains in a Bahamian jail this morning, facing an avalanche of charges over what U.S. prosecutors have called “one of the biggest financial frauds in American history.”

But the pressure hasn’t let up yet, as Mr. Bankman-Fried — or S.B.F., as he’s commonly known — faces yet more charges, fights efforts to extradite him to the United States and confronts the possibility that some of his lieutenants may be working with prosecutors. (He’ll also undoubtedly be pilloried at a hearing about crypto held by the Senate Banking Committee this morning, which will also include a “Shark Tank” judge and the actor Ben McKenzie of “The O.C.” fame.)

Charges against S.B.F. are multiplying. In addition to those pressed by the federal prosecutor in Manhattan, who has long experience with white-collar cases, and the S.E.C., the 30-year-old faces accusations by the Commodity Futures Trading Commission that include manipulating the price of his exchange’s FTT token and front-running customers.

(In a small sign of how seriously S.B.F. views his situation, he abandoned his uniform of baggy T-shirts and cargo shorts for a navy suit as he was taken in by Bahamian authorities.)

U.S. authorities will need him to be extradited, however, and a lawyer for S.B.F. suggested his client will contest that effort. His team may argue that the conduct alleged by U.S. prosecutors wasn’t a crime in the Bahamas, though there are equivalent criminal offenses. A hearing is scheduled for Feb. 8.

Meanwhile, the Bahamian securities regulator objected to statements by FTX’s current C.E.O., John Ray III, about the exchange’s collapse, including those about S.B.F.’s apparent efforts to strike a deal with the nation’s authorities.

Questions are swirling about whether any S.B.F. allies have flipped. At Tuesday’s hearing before the House financial services committee, Mr. Ray affirmed that he would cooperate with prosecutors. He also listed FTX’s numerous business failures, including its accounting being run … on QuickBooks.

Mr. Ray added that he was looking for evidence of wrongdoing by Bankman-Fried and top lieutenants like Ryan Salame and Caroline Ellison. Unlike S.B.F., other former FTX and Alameda officials have gone quiet in recent weeks, leading to speculation that some — including Ellison — may be cooperating with law enforcement.

Fears about wider crypto contagion are resurfacing. Binance, the world’s biggest crypto exchange, faced $3 billion in customer withdrawals on Tuesday, a stampede that prompted Changpeng Zhao, the firm’s co-founder, to give a trading update on Wednesday and calm investor fears during a Twitter Spaces event. He blamed a brief panic by investors spooked by FTX’s troubles for the withdrawals.

“People got hurt by one exchange, lost a lot of money” and moved their crypto holdings, including from his exchange, he said. He added that the flow had reversed on Wednesday: “We’re seeing money flowing back in already.” But CZ, as he’s known, warned employees that “we expect the next several months to be bumpy.”


Congress makes a breakthrough on an omnibus government spending deal. House and Senate negotiators have agreed on a broad framework to fund the federal government in 2023. That puts lawmakers on track to vote on the package next week — and avert a government shutdown.

Danske Bank will pay $2 billion to settle money-laundering investigations. The payments to the Justice Department, the S.E.C. and Denmark’s Special Crime Unit will end inquiries into compliance failures that led to more than $230 billion in suspicious transactions from Russia and other countries flowing through a branch in Estonia. Shares in Danske were up 1.4 percent this morning.

Apple reportedly plans to let iPhones use alternative app stores. The company plans to open up its iOS platform in Europe, letting users download software outside of Apple’s app portal, according to Bloomberg. The move, meant to comply with new European rules, would also let developers avoid paying commissions on in-app payments to Apple.

Shares in Moderna jump on promising trial results of a cancer vaccine. The drugmaker’s stock rose nearly 20 percent on Tuesday after the company announced data showing that its personalized melanoma vaccine, coupled with a Merck treatment, drastically reduced patients’ risk of recurring disease or death. A note of caution: The results haven’t been peer-reviewed.

U.S. efforts to contain TikTok’s security risks hit more speed bumps. Concerns from the F.B.I. and unilateral moves by state regulators are the latest challenges to federal officials’ plan to address national security concerns about the Chinese-owned video platform. Meanwhile, lawmakers introduced a bill to ban TikTok in the U.S.

All eyes on Powell

It’s decision day for the Fed, and investors are holding their fire as they await news on the central bank’s latest move on interest rates. At 7 a.m. Eastern, U.S. futures were trading flat and European stocks were broadly lower ahead of what is widely expected to be a decision to raise the Fed’s prime lending rate by 0.5 percentage points.

Investors got good news on Tuesday, when the latest Consumer Price Index report showed inflation continues to slow after reaching a multidecade high this spring. The C.P.I. has now fallen nearly two percentage points since June; the reading from last month showed prices were up 7.1 percent on an annual basis, below forecasts. That spurred an impressive stock-buying spree at the start of Tuesday’s trading session, as investors bet that inflation had peaked. But markets slid in the afternoon.

Concern about a slowing economy is a big source of market volatility. The Fed’s aggressive policy of slowing inflation by raising borrowing costs has messed with investor psychology, Lawrence Gillum, a fixed income strategist at LPL Financial, told DealBook. The markets now think the Fed will slam the brakes on rate rises in the first half of 2023, and begin to cut rates in the second half of the year, he said.

That view could be mistaken. “We don’t think the Fed will declare ‘mission accomplished’ any time soon” on its inflation fight, he said. As long as the central bank tries to keep a lid on prices, there’s a risk that its approach will push the world’s biggest economy into a recession, and trigger further market volatility.

The S&P 500 has risen more than 12 percent in the past two months, as data show inflation is in retreat. But if other measures show the economy is contracting, that could squash the stock rally: “There is a risk that markets could be moving higher prematurely,” Gillum said. That will make this afternoon’s news conference by Jay Powell, the Fed chair, even more important for investors looking for insight into the economy’s health.

Elon Musk’s latest battlegrounds

No one can accuse Elon Musk of backing down from — or being unwilling to pick — a fight, with targets as varied as Dr. Anthony Fauci, current and former Twitter employees and Tim Cook of Apple.

But there are signs that the Twitter boss is preparing to wage legal war on an array of fronts, including not paying vendors’ bills or severance payments due to laid-off employees, The Times reports. It’s the latest indication that Mr. Musk is playing hardball to cut costs at the social media company.

Mr. Musk appears willing to test the bounds of contracts, by not honoring agreed-upon payouts and forcing renegotiations on commercial leases. He has also revamped the company’s legal team, dismissing his personal lawyer, Alex Spiro, and using counsel from his other companies, like SpaceX.

Meanwhile, Twitter has slashed more costs by getting rid of catering staff and auctioning office supplies and kitchen equipment. It has also laid off more executives, including the global head of infrastructure and the vice president of information security.

None of this is likely to reassure Tesla shareholders, who are increasingly worried that Musk is too distracted by his work at Twitter. The electric carmaker’s stock is down 52 percent this year. One longtime Tesla investor, Ross Gerber, tweeted on Tuesday at the Tesla board: “What is the plan? Who is running Tesla and when is Elon coming back?”

In other Twitter news:

  • Jack Dorsey, the Twitter co-founder and former C.E.O., conceded that he deserves some blame for Twitter’s content-moderation problems, though he implicitly faulted the activist investor Elliott Management as well.

  • To generate more advertising revenue, Twitter is said to be weighing a plan to force users to agree to personalized ads unless they subscribe to Twitter Blue.

“Americans expect our government to uphold the laws of our nation when it comes to our private and personal information — whether it be tax returns or health care records.”

Ken Griffin, the billionaire financier, in a lawsuit filed against the I.R.S. over last year’s leak of his tax returns to the nonprofit news outlet ProPublica. Griffin accused the I.R.S. of failing to safeguard his personal tax information; the agency has said it is investigating the matter, but hasn’t provided public updates.

China’s Covid U-turn sows confusion

Anyone looking for signs of optimism from the Chinese economy is probably feeling a sense of whiplash. Beijing’s abrupt decision last week to reverse some of the most draconian aspects of its zero-Covid policy is now followed by reports that officials canceled, then uncanceled an important economic planning meeting this week, highlighting the opacity of policymaking as cases surge in the world’s second biggest economy.

The scale of the outbreak is unknown, and the data could get murkier. Beijing is all but abandoning its policy of rigorous testing and severe lockdowns for more lax measures. Health officials now say they won’t publish data on asymptomatic cases, adding to worries about the country’s Covid preparedness, and raising further questions on the reliability of government information.

Some Chinese are reverting to lockdown-like behavior. Cities, including Beijing, are eerily quiet as residents stay at home for fear of getting the virus or to avoid infecting others, putting a damper on business activity. Restaurants are empty, pharmacies are running out of flu medication and disinfectant supplies, and the usually ubiquitous delivery drivers have almost vanished.

Investors are still hopeful for 2023. Business groups say moving beyond zero-Covid is vital for restoring economic growth. Chinese trade data for November showed the costs of Beijing’s highly restrictive policy: the government recorded the largest monthly decline in imports and exports since the start of the pandemic.

But underlying economic challenges remain unresolved. Chinese companies are still struggling to access crucial technologies, and the Biden administration is set to place more of the country’s businesses on its trade blacklist, according to the Financial Times. Meanwhile, Japan and the Netherlands are in talks with the U.S. to restrict tech exports, such as high-tech chips, to China. Beijing complained to the World Trade Organization this week, showing that the East-West trade war shows little sign of fading.



  • Carlyle has reportedly requested more time to raise money for its latest private equity fund, as investors worry about overcommitting to the buyout industry and the firm’s succession chaos. (FT)

  • Deutsche Bahn of Germany is reportedly near a decision to sell its Schenker logistics division, which could fetch about $21 billion. (Bloomberg)

  • Serta Simmons, the privately held mattress maker, is said to be planning to file for bankruptcy as soon as next month. (Bloomberg)

  • In sports deals: The former CNN chief Jeff Zucker will lead a new sports and media investment firm, while the financier Bill Foley and the actor Michael B. Jordan are the latest Americans to buy an English Premier League soccer club. (WSJ, FT)


  • The European Union plans to raise 20 billion euros ($21 billion) via an auction of carbon credits to finance its move away from Russian natural gas. (Bloomberg)

  • The Bank of England warned Prime Minister Rishi Sunak of Britain against over-easing financial regulations as part of its economic plans. (FT)

  • The federal government is wooing tech workers laid off from the likes of Google, Meta and Twitter. (CNBC)

  • Qatar reportedly offered European lawmakers lavish gifts like World Cup tickets and all-expenses-paid trips to the emirate as part of an influence campaign now under investigation. (FT)

Best of the rest

  • WeWork is burning through its cash reserves amid a drop in demand for co-working spaces, raising the specter of a default on its debt. (WSJ)

  • Airbnb conceded that Black travelers face discrimination in booking on the site, and announced steps to combat such bias. (NYT)

  • Traders are worried that the price of nickel on the London Metal Exchange is increasingly disconnected from its price on other global markets. (FT)

  • How to tell whether your hybrid workplace isn’t working. (WSJ)

  • A close look at Vivek Ramaswamy, the financier seeking to become the face of the “anti-woke” capitalism movement. (New Yorker)

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