FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy
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FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy

The charges are the latest twist in a saga that has rattled the world of cryptocurrencies

By CORINNE RAMEY
Wed, Dec 14, 2022 8:33amGrey Clock 5 min

U.S. prosecutors on Tuesday charged FTX founder Sam Bankman-Fried with eight counts of fraud and conspiracy, in what they called a scheme to defraud his crypto exchange’s customers and his hedge fund’s lenders.

An indictment by the U.S. attorney’s office for the Southern District of New York, unsealed Tuesday morning, accuses him of misappropriating FTX.com customers’ deposits and using those to pay expenses and debts of Alameda Research, his crypto hedge fund. Mr. Bankman-Fried is charged as well with defrauding the U.S. and violating campaign finance rules for conspiring with others to make illegal political contributions.

The FTX collapse is “one of the biggest financial frauds in American history,” said Damian Williams, the U.S. attorney for the Southern District of New York, at a press conference Tuesday afternoon.

Separately, John J. Ray III, the new chief executive of FTX, said at a congressional hearing Tuesday that FTX has incurred losses “in excess of $7 billion.” Mr. Ray, who oversaw the Enron Corp. bankruptcy in the early 2000s, said funds were taken from FTX and misused by affiliated trading firm Alameda Research, which incurred trading losses.

Mr. Ray described Enron as having been brought down by sophisticated people whose machinations aimed to keep transactions secret. FTX, by contrast, presents as “old-fashioned embezzlement,” Mr. Ray said. “It’s taking money from customers and using it for your own purpose.”

Also Tuesday, the Securities and Exchange Commission alleged in a civil lawsuit that Mr. Bankman-Fried diverted customer funds from the start of FTX to support Alameda and to make venture investments, real-estate purchases and political donations. Another U.S. markets regulator, the Commodity Futures Trading Commission, filed a separate lawsuit Tuesday linking his alleged fraudulent conduct at Alameda and FTX to markets that the CFTC regulates.

“Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in a statement.

The charges are the latest twist in a saga that has rattled the world of cryptocurrencies, a largely unregulated market that boomed during the pandemic stimulus period but has been hammered this year by rising interest rates and the failure of several significant industry players.

FTX, one of the largest crypto exchanges in the world, filed for bankruptcy last month after the firm ran out of cash and a hastily arranged merger with rival Binance collapsed. The firm’s failure marked a sudden fall from grace for Mr. Bankman-Fried, who had sought to portray himself as the right-minded champion of an industry made up largely of outsiders.

In interviews since the filing, Mr. Bankman-Fried has said he bore responsibility for FTX’s collapse but denied he committed any fraud. Mark Cohen, a lawyer for Mr. Bankman-Fried, said in a statement Tuesday that his client “is reviewing the charges with his legal team and considering all of his legal options.”

Mr. Bankman-Fried, 30 years old, was arrested Monday in the Bahamas. He is expected to appear in a magistrate court on Tuesday in Nassau. A U.S. court official said that while the case had been assigned to a federal judge in Manhattan, there was no timing yet for Mr. Bankman-Fried’s extradition.

Prosecutors allege that from 2019 through November 2022, Mr. Bankman-Fried conspired with unnamed individuals to defraud both customers and lenders. He provided false and misleading information to lenders about Alameda Research’s financial condition, the indictment says.

While the 14-page indictment was light on detailed allegations, it says that on Sept. 18, 2022, Mr. Bankman-Fried caused an email to be sent to an FTX investor in New York that contained false information about FTX’s financial condition. In June 2022, the indictment says, Mr. Bankman-Fried and others misappropriated FTX.com customer deposits to satisfy Alameda Research’s loan obligations.

Mr. Bankman-Fried is also accused of defrauding the Federal Election Commission starting in 2020 by conspiring with others to illegally make contributions to candidates and political committees in the names of other people.

He and his associates contributed more than $70 million to election campaigns in recent years, The Wall Street Journal previously reported. He personally made $40 million in donations ahead of the 2022 midterm elections, most of which went to Democrats and liberal-leaning groups.

Mr. Ray, the FTX CEO, also said FTX is probing whether any loans taken by FTX executives were improperly used for campaign contributions.

However, Mr. Ray noted that tracing fund flows from FTX to executives and third parties was difficult given the lack of a paper trail for many corporate transactions at FTX.

“We’re dealing with a paperless bankruptcy,” he said. “It makes it very difficult to trace and track assets.”

The CFTC’s complaint contains a detailed discussion of events at Alameda and FTX and argues that the agency, generally less visible to the public than the SEC, also has jurisdiction over the case. The CFTC regulates U.S. derivatives markets, but it can go after fraud that affects certain commodity markets.

Besides giving Alameda access to its customer deposits, FTX granted the crypto hedge fund controlled by Mr. Bankman-Fried a series of trading-execution privileges that provided it an edge against other traders on the platform, the CFTC lawsuit alleges.

The CFTC said while institutional customers had their orders routed through the FTX system, Alameda was able “to bypass certain portions of the system and gain faster access.” It resulted in transaction orders being received several milliseconds faster than of other institutional clients.

The lawsuit also alleges Alameda wasn’t subject to certain automated verification processes, including on whether it had available funds before executing a transaction, giving it further advantage on the speed of its trades.

Tuesday’s congressional hearing was the first public appearance for Mr. Ray on FTX’s bankruptcy. Mr. Bankman-Fried had been scheduled to appear virtually at the same hearing, before he was arrested in the Bahamas at the request of the U.S. government. Bahamian police have said they would keep him in custody and they are awaiting an extradition order from U.S. authorities.

“The operation of Alameda really depended, based on the way it was operated, on the use of customer funds,” Mr. Ray said, responding to questions from members of Congress at the hearing. “There were virtually no internal controls…whatsoever.”

He also described numerous loans totaling billions of dollars taken out by Mr. Bankman-Fried, the former leader of FTX, from Alameda Research.

“We have no information at this time as to what purpose or use of those funds were,” Mr. Ray added. He said Mr. Bankman-Fried had signed as the issuer and recipient for some of the loans.

Mr. Ray also pushed back against recent statements made by Mr. Bankman-Fried that he had little to no involvement in the management of Alameda after passing control of the company to Caroline Ellison and Sam Trabucco, as well as Mr. Bankman-Fried’s statements that customer funds were passed to Alameda because of an accounting error.

“I don’t find those statements to be credible,” Mr. Ray said.

The arrest of Mr. Bankman-Fried is the latest case to highlight prosecutors’ push to bring white-collar cases to justice faster.

Deputy U.S. Attorney General Lisa Monaco said in a September speech that making prosecutors and companies feel that they were “on the clock” in these cases was a key priority for the department.

“We need to do more and move faster,” she said. “In individual prosecutions, speed is of the essence.”

Former federal prosecutors say that high-profile financial cases with lots of victims can increase the pressure on authorities to bring cases more quickly.

“Appearances matter when it comes to criminal justice,” said Mark Chutkow, a former federal prosecutor who is currently head of government investigations and corporate compliance at Dykema Gossett PLLC.

If Mr. Bankman-Fried remains in the Bahamas while the details of his potential extradition to the U.S. are worked out, there’s only one prison there: the Bahamas Department of Correctional Services, commonly known as Fox Hill Prison.

Prison inmates reported removing human waste by buckets and developing bed sores from lying on the bare ground, according to a 2021 human rights report on the Bahamas by the U.S. State Department. Cells were also infested with rats, maggots and insects, the report said.

Inmates are supposed to get an hour every day outside for exercise. Due to staff shortages and overcrowding, there are times when inmates will only get 30 minutes a week, said Romona Farquharson, an attorney in the Bahamas.

The prison has different sections that separate those serving terms for violent crimes, for instance, from those who aren’t. But due to overcrowding, there have been instances where inmates awaiting trial for minor crimes have been sent to the maximum security facility, said Ms. Farquharson.

“I think they’ve got to be careful not to have him in really rough areas in the prison,” she said.

—Angel Au-Yeung and Ben Foldy contributed to this article.



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The Loneliness of the American Worker

More meetings and faceless chats. Fewer work friends. How the modern workday is fueling an epidemic of isolation.

By TE-PING CHEN
Wed, May 29, 2024 6 min

More Americans are profoundly lonely, and the way they work—more digitally linked but less personally connected—is deepening that sense of isolation.

Nick Skarda , 29 years old, works two jobs in logistics and office administration in San Diego to keep up with his bills. After a couple of years at the logistics job, he has one friend there. He says hi to co-workers at his office job but doesn’t really know any.

“I feel sort of an emptiness or lack of belonging,” he says. Juggling two jobs leaves Skarda exhausted, with little energy or time to grab drinks with co-workers . “It makes it harder to go in and give it your all if you don’t feel like anyone is there rooting for you,” he adds.

Employers and researchers are just beginning to understand how workplace shifts over the past four years are contributing to what the U.S. surgeon general declared a loneliness health epidemic last year. The alienation affects remote and in-person workers alike. Among 1-800-Flowers.com ’s 5,000 hybrid and fully on-site employees, for instance, the most popular community chat group offered by a company mental-health provider is simply called “Loneliness.”

Consider these phenomena of modern work:

It is a marked shift from even a decade ago, when bonds fostered at work helped compensate for declining participation in church , community groups and other social institutions. As the American workday becomes more faceless and scheduled , the number of U.S. adults who call themselves lonely has climbed to 58% from 46% in 2018, according to a recent Cigna poll of 10,000 Americans.

The faceless workday

The disconnection is driving up staff turnover and worker absences, making it a business issue for more employers, executives and researchers say. Cigna, the health-insurance company, estimates that loneliness is costing companies $154 billion a year in absenteeism alone.

“Work is social, it’s a lot more than a paycheck,” says James McCann , founder and chairman of 1-800-Flowers.com.

Earlier this year, 1-800-Flowers.com moved from three days in the office to four to boost a sense of connectivity among workers. It has also begun tapping workers across teams to serve as designated hosts during lunchtime, encouraging people to sit with colleagues they don’t know in common areas and chat, and suggesting conversation topics.

While today’s workers have more ways to connect than ever, “there are only so many memes and jokes you can send over Slack,” says Maëlle Gavet , chief executive of Techstars, a pre-seed fund that has invested in 4,100 startups. “We tend to have more and more people with back-to-back calendars, more meetings and less connections.”

Gavet says that is especially the case for hybrid workers on in-office days, which they tend to use to dash from one meeting to the next.

Paradoxically, meetings can make people feel lonelier—and even more so if the meetings are virtual, behavioural researchers say. A 2023 survey by employee experience and analytics company Perceptyx found people who described themselves as “very lonely” tended to have heavier meeting loads than less-lonely staffers. More than 40% of those people spent more than half their work hours in meetings.

In Cincinnati, Kelly Roehm says she came to chafe at the meetings—sometimes as many as 12—consuming her day after joining a consulting company in 2021. She would often feel her eyes glazing over as she multitasked on other screens.

“It’s like you’re a zombie, there but not there,” says Roehm, who lived 10 minutes from the office but worked mostly remotely because she says few colleagues typically came in. It is a more common setup as companies distribute teams across more locations: At Microsoft , 27% of the company’s teams all worked in the same location last year, compared with 61% in 2019.

She compares that experience with her time more than a decade ago at a company now owned by AstraZeneca . There, she enjoyed lots of social outlets at work: a Weight Watchers group and a lunchtime crochet club.

“Now if I were to think about asking, ‘Hey, do you want to participate in something like this,’ it would just sound weird,” says Roehm, who left this year to focus on her own career-consulting business. “There wasn’t that emotional attachment that made it difficult to say, it’s time to move on.”

The power of small talk

Office chitchat, sometimes an unwanted distraction, seems to provide more benefits than many people realise, says Jessica Methot , an associate professor at Rutgers University who studies social ties at work.

In a study of 100 employees at different workplaces, Methot and fellow researchers surveyed participants at points throughout the day. They found those who had engaged in small talk reported less stress and more positivity toward co-workers.

Even exchanging pleasantries with a co-worker you barely know can help, says Sarah Wright , an associate professor at New Zealand’s University of Canterbury who studies worker loneliness.

“We used to think loneliness has to be overcome by developing meaningful relationships and having that degree of intimacy,” Wright says. “More and more, though, we’re seeing it’s these day-to-day weak ties and frequency of [interactions] with people that matters.”

Such interactions are substantially harder to replicate in a virtual environment. “The default now is, I have to schedule time with you, even if it’s five minutes, instead of just picking up the phone,” says Katie Tyson , president of Hive Brands, an online food retailer founded in 2020 as a fully remote company.

The frictions add up, she says. Last fall, the company added an office in New York where employees voluntarily gather a couple of times a week to foster more cohesion.

Coming to the office, even on a hybrid basis, tends to yield a roughly 20% to 30% boost in serendipitous connections, according to Syndezo, which analysed survey data and email and messaging traffic from more than two dozen large companies.

Yet there are diminishing returns to time in person, says Philip Arkcoll , founder of Worklytics, which analyses workforce data for Fortune 500 companies. Coming in once a month provides a significant boost in ties; two or three times a month adds a little more, Worklytics data show. Once or twice a week results in a smaller increase, though, and working in-person four or five days a week makes almost no difference.

A business priority

Ernst & Young has asked managers to use the first five minutes of team calls to engage in conversation “as real human beings,” says Frank Giampietro , whose title, chief well-being officer for the Americas, was created in 2021 to help support employees during the pandemic.

The professional-services firm is also training employees to spot and reach out to co-workers struggling with issues such as isolation. To date, more than 1,600 employees have taken the training.

One challenge is that American workers have sacrificed connection for productivity, says Julie Rice , co-founder of fitness chain SoulCycle. These days, with more business contacts preferring video calls, she finds breakfast meetings and coffee dates on her calendar have been replaced with Zoom. Though efficient, such video calls are less likely to yield conversations that can turn into useful professional connections or lasting friendships, she says.

Julie Rice says that her work schedule, once packed with coffees and in-person meetups, is now an avalanche of Zooms. PHOTO: CHRISTOPHER GREGORY-RIVERA FOR THE WALL STREET JOURNAL

“Even people I’m meeting with here in New York, we’ll just Zoom,” she says.

Last year, Rice co-founded Peoplehood, a company that runs “gathers” to improve connectivity and relationship skills, and employers are signing up. One, a beauty-services business with hundreds of field employees who never see each other, asked Peoplehood to host a series of gatherings for workers to meet and share job advice. Another, a marketing company with far-flung employees, requested help after surveys showed staff wanted to feel more connected.

“Whatever relationships we had pre-Covid have sort of run out of gas,” Rice says.

Good luck prodding employees to socialise, though. Nearly all the 150-odd staff at the Pleasanton, Calif., headquarters of Shaklee, the nutrition-supplements company, used to attend annual Earth Day gatherings, which involved community service, lunch and breaking early for the day, says Jonathan Ramot , the company’s North American human-resources director. Office happy hours, bowling outings and “mix and mingles” were also robustly attended.

Now that the workforce has gone remote, last year’s Earth Day event attracted 20 staffers, even though most workers live nearby.

“We have a lot of people asking for in-person events, but when we plan them, they don’t show up,” Ramot says. “Then they complain they’re lonely.”

This past April, Shaklee instead held a mandatory get-together with the chief executive, who had relocated to Florida during the pandemic and was in town. About 100 employees gathered at a brewery for food, drinks and conversation—and no speeches from the bosses.

There was a buzz in the air, Ramot says, as staff hugged and delighted in seeing each other, some for the first time. “People were saying, I miss this,” he says.

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