Thursday, July 25, 2024

Bankman-Fried’s parents face their own legal risks, experts say

Sam Bankman-Fried’s parents sat on a wooden bench in a Manhattan courtroom in October, a few feet behind the former cryptocurrency mogul, as federal prosecutors convinced a jury that their son ran one of the world’s largest financial frauds. History.

Now, Bankman-Fried is awaiting sentencing, which could send him to prison for the rest of his life Life, legal experts say, Joseph Bankman and Barbara Fried — former distinguished Stanford law professors — should worry about their own criminal exposure for their roles in their son’s collapsed crypto empire.

The pair are already facing a challenge in civil court from creditors of FTX, the bankrupt crypto exchange co-founded by Bankman-Fried. He gave his parents $10 million in cash and bought $16.4 million in property in the Bahamas, according to the FTX Investors and Clients lawsuit.

Apart from the financial fallout, having both parents involved in their son’s work can also affect their legal status. Bankman, a tax expert and clinical psychologist, served as an adviser to his son on business matters until 2018 and was a key member of his inner circle through the explosion of the exchange a year ago, according to the civil suit and testimony. Criminal investigation. Fried, an ethics scholar and co-founder of a Democratic fund-raising organization, instructed his son to hide campaign donations in a scheme that elicited guilty pleas from two of his top representatives, according to the civil suit.

Attorneys for Bankman and Fried said in a statement that the claims in the civil suit are “absolutely false.” Neither has been charged with any criminal wrongdoing. A spokeswoman for the U.S. attorney’s office in Manhattan declined to comment.

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But the fate of Bankman-Fried’s parents remains a loose thread in the FTX saga. He’s “been getting advice from his parents this whole time, so they’re very close to the heart of this story, unfortunately,” said Mark Binney, a former federal prosecutor who specializes in financial crime. “The closer a person is to the principal defendant, the more likely a judge or jury will find that there was a meeting with intent.”

“Their proximity could lead to significant civil exposure and possibly criminal exposure,” Bini added.

Prosecutors have wide latitude in deciding who to charge. In addition to Bankman-Fried’s successful prosecution, government prosecutors secured guilty pleas from four of her top executives. Bankman-Fried himself is due back on trial in March on separate charges of bank fraud and bribing Chinese officials. As prosecutors re-examine the matter, legal experts say they may be able to present evidence they need to incriminate the parents.

Criminal liability is “not an on-off switch, but a spectrum,” said Renato Mariotti, another former federal prosecutor who focused on financial crime.

“Anyone who is in the mix … or has close contact with a person who commits a crime and is in the danger zone on the radar of federal prosecutors,” he said. “Sam’s parents should certainly be concerned about the possibility of charges.”

In the wake of FTX’s collapse last year, Bankman-Fried said His parents were “not involved in any relevant part” of its operations.

John J., the corporate wind-down expert who managed FTX through its bankruptcy; A civil suit filed by Ray in September says otherwise.

The lawsuit notes that Bankman repeatedly referred to both Bankman FTX and Alameda Research, Bankman-Fried’s crypto-focused hedge fund, as a “family business,” and it argues that the parents “used their access and influence within FTX to enrich themselves.”

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The suit alleges that the couple “knew — or ignored — bright red flags that revealed their son, Bankman-Fried and other FTX insiders were planning a massive fraud scheme.”

Officially, Bankman served as an outside consultant to his son until he joined the payroll of FDX’s US division. In December 2021, 11 months before its collapse, as a senior adviser to the company’s charity. But in practice he took on a much broader portfolio, according to testimony and evidence presented at the criminal trial.

The banker advised FTX Engineering director Nishad Singh on a $477 million loan, Singh testified. Bankman participated in 16 signal group chats about company business with his son and other top executives, and was on FTX. The Bahamas headquarters collapsed after a meeting with the country’s securities regulator with his son, a Bahamian lawyer retained by FTX testified.

The civil suit also points to Bankman’s internal role. In September 2019, the banker “failed to investigate” a whistleblower complaint that “threatened to expose FTX Group as a house of cards,” the suit alleges. His status earned him perks like private jets, $1,200 hotel stays and a cameo in an FTX Super Bowl commercial opposite Larry David.

Fried, meanwhile, appeared to coach his son on how to hide the source of campaign funds as part of a $100 million political influence-peddling operation, the civil suit alleges. Singh and Ryan Salem, former co-CEOs of FTX’s Bahamian subsidiary, have already pleaded guilty to violating campaign finance laws for their role in the scheme by making donations that Bankman-Fried reimbursed.

In an August 2022 email from Fried to Bankman-Fried, I strongly urge that “only in unpublished form, do the same – or change the name of someone else”. Civil suit. A week later, he emailed his son again, saying, “Strongly advise against submitting a disclosure form in your own name.”

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Bankman-Fried responded, “I agreed that it made no sense to reveal.”

Both Freud and Bankmann played a part in their son’s investigation, often expressing conflict with Bankmann-Freud’s stoicism. The banker would continue to give his son a thumbs up even during the tense moments of the investigation; Fried, on several occasions, broke down in tears during breaks in testimony, her husband’s arm around her.

Former prosecutors say government prosecutors considering charges against Bankman and Fried must weigh several factors. They will consider the guilt of the parents, the strength of the evidence against them, and the extent to which the broader cause of justice can be gained by spending limited resources pursuing them.

“There’s a complicated decision matrix for parents to prosecute parents for their son’s involvement in a crime, and really, ‘How much did the parent know?'” said Joshua Naftalis, a former prosecutor in the U.S. Attorney’s Office for the Southern District. of New York, which brought suit against Bankman-Fried.

“Going after his parents could be seen as vindictive,” said Samson Enzer, another former federal prosecutor in Manhattan. Government prosecutors may conclude that “no real value can be added to the advancement of the prosecution’s goals beyond what has already been accomplished by the government’s case. [Bankman-Fried].”

Still, the scale of the fraud is “significant,” said Andrew George, a white-collar defense attorney at Baker Botts, which could compel prosecutors to pursue additional charges. “The government has a lot of power in this matter.”

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