Bankman-Fried lieutenant alerted regulators to misuse of customer funds



15 Dec 2022

Bankman-Fried lieutenant alerted regulators to misuse of customer funds

One of Sam Bankman-Fried’s top lieutenants told Bahamian authorities that customer funds from the firm were used to plug holes in the balance sheet of his investment fund, Alameda Research.

In a Nov. 9 call with Bahamian regulators, FTX Digital Markets co-CEO Ryan Salame told Bahamas Securities Commission Executive Director Christina R. Rolle that client assets possibly held by FTX were transferred to Alameda Research to cover the hedge fund’s financial losses.

The transfer of customer assets was “contrary to normal corporate governance and operations at FTX Digital,” Rolle wrote in a Nov. 11 court document filed to the Supreme Court of the Bahamas, seeking an emergency intervention for the regulator to seize control of the company’s remaining assets. “Put simply, that such transfers were not allowed or consented to by their clients.” 

Salame’s comments to the regulator also prompted her to alert the Bahamian police, requesting an investigation into the company, “on an urgent basis.” The request to police notes that Salame was in Washington, D.C. on Nov. 9. 

The FTX DM co-CEO told officials that only three people had passwords necessary for the transfer: Bankman-Fried, Nishad Singh and Gary Wang. A Monday court filing by FTX’s representatives in bankruptcy proceedings named Bankman-Fried and Wang as responsible for a separate shift in funds, as well as the minting of new tokens, after they had filed to start the bankruptcy process.

Rolle’s request, which was granted by the court, was included in a new filing in the bankruptcy case today made by the Bahamian government in response to arguments in the U.S. Bankruptcy Court for the District of Delaware, suggesting that it is coordinating with Bankman-Fried.

Lawyers for FTX, representing the company’s new leadership, have argued that Bankman-Fried, Wang and Bahamian authorities, including the Securities Commission, may have violated bankruptcy law around movement of assets after initiating the process. The Bahamian regulator has vigorously denied coordination with Bankman-Fried, and filed these documents as evidence in support of its argument. The judge presiding over the case will hear further arguments on Friday, with a full hearing on the issue scheduled for Jan. 6. 

The request came the day that Binance pulled out of its proposal to acquire FTX. Earlier this week, Bankman-Fried was arrested by Bahamian police, denied bail and indicted by a U.S. federal grand jury on several charges of fraud or conspiracy to commit fraud. 

In her Nov. 9 request to the Bahamas Supreme Court, Rolle raised similar concerns to those raised now by FTX’s lawyers: That Bankman-Fried offered in an email to the country’s attorney general to fully refund Bahamian customers.

“Particularly, SBF has advised that FTX has “segregated funds for Bahamian customers” and are willing to allow those customers to withdraw those funds,” Rolle wrote on Nov. 9. “The question that ultimately arises is whether such transactions would be characterized as voidable preferences under the insolvency regime and subsequently result in attempts to claw back funds from Bahamian customers.”

“In any event, the Commission cannot condone preferential treatment of any investor or client of FTX Digital or otherwise,” she added. 

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.


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