Update (1700ET): Following his arrest last night, with its expectations of an imminent deportation, Sam Bankman-Fried told a Bahamian judge at an arraignment Tuesday that he wouldn’t waive his right to an extradition hearing.
A defense lawyer said Bankman-Fried planned to fight being sent to the US.
Manhattan US Attorney Damian Williams called the case “one of the biggest financial frauds in American history” and said the investigation of the alleged scheme is “very much ongoing.”
Which may explain why presiding judge JoyAnn Ferguson-Pratt denied SBF’s bail application, highlighting his “risk of flight” and ordered the crypto executive to be held in custody at the Bahamas Department of Corrections until Feb. 8.
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The US Securities and Exchange Commission said it will file charges against FTX founder Sam Bankman-Fried on Tuesday relating to violations of securities law, accusing him of “orchestrating a scheme to defraud equity investors in FTX” and seeking to ban him from the cryptocurrency industry.
“We allege that 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,” said SEC Chair Gary Gensler
The SEC made the announcement on Monday, shortly after Bahamian authorities arrest Bankman-Fried, the US Attorney’s Office Southern District of New York confirmed.
The SEC has charged Bankman-Fried with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint seeks injunctions against future securities law violation that prohibits Bankman-Fried from participating in the issuance, purchase, offer, or sale of any securities except for his own personal account.
Here are some of the wildest accusations from the SEC’s 28-page filing:
SBF improperly diverted assets to his privately held crypto hedge fund:
Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.
Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations.
Bankman-Fried then exempted his crypto hedge fund, Alameda, from risk mitigation procedures:
He told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. These statements were false and misleading. In truth, Bankman-Fried had exempted Alameda from the risk mitigation measures and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited “line of credit” funded by the platform’s customers.
While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble.
Here’s how he diverted funds:
Bankman-Fried diverted FTX customer funds to Alameda in essentially two ways: (1) by directing FTX customers to deposit fiat currency (e.g., U.S. Dollars) into bank accounts controlled by Alameda; and (2) by enabling Alameda to draw down from a virtually limitless “line of credit” at FTX, which was funded by FTX customer assets.
As a result, there was no meaningful distinction between FTX customer funds and Alameda’s own 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.
SBF had a secret ‘fiat@ account with a negative $8 billion balance’:
Bankman-Fried directed FTX to have customers send funds to North Dimension in an effort to hide the fact that the funds were being sent to an account controlled by Alameda.
Alameda did not segregate these customer funds, but instead commingled them with its other assets, and used them indiscriminately to fund its trading operations and Bankman-Fried’s other ventures.
This multi-billion-dollar liability was reflected in an internal account in the FTX database that was not tied to Alameda but was instead called “[email protected].” Characterizing the amount of customer funds sent to Alameda as an internal FTX account had the effect of concealing Alameda’s liability in FTX’s internal systems.
Here’s how ‘[email protected]‘ was ‘lost’ in the shuffle:
In 2022, FTX began trying to separate Alameda’s portion of the liability in the “[email protected]” account from the portion that was attributable to FTX (i.e., to separate out customer deposits sent to Alameda-controlled bank accounts from deposits sent to FTX-controlled bank accounts). Alameda’s portion — which amounted to more than $8 billion in FTX customer assets that had been deposited into Alameda-controlled bank accounts — was initially moved to a different account in the FTX database.
However, because this change caused FTX’s internal systems to automatically charge Alameda interest on the more than $8 billion liability, Bankman-Fried directed that the Alameda liability be moved to an account that would not be charged interest. This account was associated with an individual that had no apparent connection to Alameda. As a result, this change had the effect of further concealing Alameda’s liability in FTX’s internal systems.
SBF has claimed in interviews he ‘wasn’t aware’ of how illiquid Alameda’s collateral had become, yet according to the SEC:
Bankman-Fried was well aware of the impact of Alameda’s positions on FTX’s risk profile. On or about October 12, 2022, for example, Bankman-Fried, in a series of tweets, analyzed the manipulation of a digital asset on an unrelated crypto platform. In explaining what occurred, Bankman-Fried distinguished between an asset’s “current price” and its “fair price,” and recognized that “large positions – especially in illiquid tokens – can have a lot of impact.”
Bankman-Fried asserted that FTX’s risk engine required customers to “fully collateralize a position” when the customer’s position is “large and illiquid enough.” But Bankman-Fried knew, or was reckless in not knowing, that by not mitigating for the impact of large and illiquid tokens posted as collateral by Alameda, FTX was engaging in precisely the same conduct, and creating the same risk, that he was warning against.
SEC charged Bankman-Fried for orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX). The regulatory body noted that the former CEO concealed his “diversion of FTX customers’ funds to crypto trading firm Alameda Research while raising more than $1.8 billion from investors.”
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
Plaintiff: SECURITIES AND ) EXCHANGE COMMISSION,
Defendant: SAMUEL BANKMAN-FRIED Plaintiff Securities and Exchange Commission (the “Commission”), for its complaint against Defendant, Samuel Bankman-Fried (“Bankman-Fried”), alleges as follows:
1. From at least May 2019 through November 2022, Bankman-Fried engaged in a scheme to defraud equity investors in FTX Trading Ltd. (“FTX”), the crypto asset trading platform of which he was CEO and co-founder, at the same time that he was also defrauding the platform’s customers. Bankman-Fried raised more than $1.8 billion from investors, including U.S. investors, who bought an equity stake in FTX believing that FTX had appropriate controls and risk management measures. Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.
2. Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations.
3. Bankman-Fried hid all of this from FTX’s equity investors, including U.S. investors, from whom he sought to raise billions of dollars in additional funds. He repeatedly cast FTX as an innovative and conservative trailblazer in the crypto markets. He told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. These statements were false and misleading. In truth, Bankman-Fried had exempted Alameda from the risk mitigation measures and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited “line of credit” funded by the platform’s customers.
4. While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble. When prices of crypto assets plummeted in May 2022, Alameda’s lenders demanded repayment on billions of dollars of loans. Despite the fact that Alameda had, by this point, already taken billions of dollars of FTX customer assets, it was unable to satisfy its loan obligations. Bankman-Fried directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships, and that money could continue to flow in from lenders and other investors.
5. But Bankman-Fried did not stop there. Even as it was increasingly clear that Alameda and FTX could not make customers whole, Bankman-Fried continued to misappropriate FTX customer funds. Through the summer of 2022, he directed hundreds of millions more in FTX customer funds to Alameda, which he then used for additional venture investments and for “loans” to himself and other FTX executives. All the while, he continued to make misleading statements to investors about FTX’s financial condition and risk management. Even in November 2022, faced with billions of dollars in customer withdrawal demands that FTX could not fulfill, Bankman-Fried misled investors from whom he needed money to plug a multi-billion-dollar hole. His brazen, multi-year scheme finally came to an end when FTX, Alameda, and their tangled web of affiliated entities filed for bankruptcy on November 11, 2022.
The first thing to note in the rap sheet is the date, “From at least May 2019 . . .”, by which the SEC means FTX’s entire existence. It was around May 2019 that SBF bought the FTX.com domain and the first fundraising announcement didn’t drop until August of that year.
Additionally SEC Chair Gary Gensler, warned:
“The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”
Grewal said the charges will be filed publicly “tomorrow” on Dec. 14 at the Southern District of New York.
Read the full complaint below:This post was originally published at Zero Hedge
Congressional Witness: Liberals Siding with Corporations to Keep Wages Down via Mass Immigration
Liberals are siding with corporate America over the nation’s workers.
Liberals are siding with corporate America over the nation’s workers in their promotion of mass immigration, a key tool in keeping wages down, Center for Immigration Studies Director of Research Steven Camarota told lawmakers this week.
During a hearing before the House Health, Employment, Labor, and Pensions Subcommittee, led by Chairman Bob Good (R-VA), Camarota said liberals — such as President Joe Biden — have broken with historical precedent in recent decades to defend the interests of corporations against American workers when it comes to national immigration policy.
“Historically, progressives from Eugene Debs to A. Philip Randolph, they got that if you have lots of immigration, you tend to push down wages,” Camarota said:
Unfortunately, a lot of progressives are lying with corporate America on this — they want low wages. And they’re perfectly happy to ignore this crisis of non-work among working-age people, particularly the U.S.-born. Immigrants haven’t suffered this same problem. It’s particularly U.S.-born men without a college degree and we know it’s a social disaster. [Emphasis added]
Even former President Obama, in his 2006 book The Audacity of Hope, admitted that illegal immigration threatened the wages of America’s working class:
"The number of immigrants added to the labor force every year is of a magnitude not seen in this country for over a century."— NumbersUSA (@NumbersUSA) August 30, 2020
— Barack Obama, The Audacity of Hope pic.twitter.com/R10Np1r2m1
As Breitbart News reported, Camarota estimates that more than 44 million native-born Americans remain on the labor market sidelines — not including the millions of native-born Americans counted in monthly unemployment figures.
“If we curtailed immigration and enforced our law, we would be forced to draw these people back which will not be easy … less immigration would be enormously helpful but it is not the only issue,” Camarota said:
One of the things immigration is doing is holding down wages, there’s some crowding out … it’s letting us ignore this problem [of non-work]. If we didn’t have access to all this immigrant labor, employers and the American people … would demand that we try to reinstill the value of work. Raising wages would be one of the most important things to make work more attractive. Immigration lets us not do any of that, including the current flow of massive illegal immigration. [Emphasis added]
‘Bidenomics’ Fail: Food Stamp Bonanza Sends Grocery Bills Soaring 15%, Study Finds
In a classic move by those on the left — democrats, socialists, and everyone in between with seemingly no grasp of what sparks inflation — championed the Biden administration’s move in 2021 to increase food stamp spending by the most in history, hiking benefits by an average of 27%.
In 2022, the Department of Agriculture’s Supplemental Nutrition Assistance Program (SNAP) spending hit a record high of $119 billion, a sixfold increase over the last two decades. In 2019, taxpayers were on the hook for $4.5 billion per month on food stamp benefits. By December 2022, monthly food stamp spending soared to $11 billion.
According to findings from the government watchdog Foundation for Government Accountability (FGA), previewed by Fox News, the administration’s massive expansion of food stamp benefits could be responsible for a 15% spike in grocery store prices.
FGA called Biden’s rush to increase SNAP benefits an “unlawful expansion—which bypassed Congress—will cost taxpayers $250 billion over the next decade and has heavily contributed to soaring grocery prices.”
“Congress should repeal President Biden’s unlawful food stamp expansion and ensure this type of executive overreach cannot happen again. In doing so, Congress could save taxpayers more than $193 billion over the next decade,” it added.
The good news is the emergency allotments expired earlier this year, but food stamp spending remains $8.6 billion in March. The Congressional Budget Office estimates SNAP spending will cost taxpayers nearly $1.1 trillion over the next decade.
“USDA cooked their books to hike food stamp benefits by 27% — the largest permanent increase in program history. And they bypassed Congress to do it,” said Jonathan Ingram, Vice President of Policy and Research at the Foundation for Government Accountability.
Ingram noted, “Data show the Biden administration’s overreach led to massive spikes in grocery prices. They’re feeding inflation, not stopping hunger.”
The index for food at home (groceries) has skyrocketed ever since Biden increased SNAP benefits.
As food inflation soared, Biden’s officials, seemingly detached from economic reality, pointed the finger at food companies for raging food inflation.
If FGA is correct, this is another sign that ‘Bidenomics’ has been a disaster for low/mid-tier consumers drowning in inflation.
It’s one giant EBT party…This post was originally published at Zero Hedge
Endgame: US Federal Debt Interest Payments About To Hit $1 Trillion
There was a shocking number in today’s latest monthly US Budget Deficit report. No, it wasn’t that US government outlays unexpectedly soared 15% to $646 billion in June, up almost $100 billion from a year ago…
… while tax receipts slumped 9.2% from $461 billion to $418 billion, resulting in a TTM government receipt drop of over 7.3%, the biggest since June 2020 when the US was reeling from the covid lockdown recession; in fact never have before tax receipts suffered such a big drop without the US entering a recession.
Needless to say, surging government outlays coupled with shrinking tax revenues meant that in June, the US budget deficit nearly tripled from $89 billion a year ago to $228 billion, far greater than the consensus estimate of $175 billion. One can only imagine which Ukrainian billionaire oligarch’s money laundering bank account is currently enjoying the benefits of that unexpected incremental $50 billion US deficit hole: we know for a fact that the FBI will never get to the bottom of that one, since they can’t even figure out who dumped a bunch of blow inside the White House – the most protected and surveilled structure in the entire world.
And with the monthly deficits coming in higher than expected and also far higher than a year ago, it is also not at all surprising that the cumulative deficit 9 months into the fiscal year is already the 3rd highest on record, surpassed only by the crisis years of 2020 and 2021: at $1.393 trillion, the fiscal 2022 YTD deficit is already up 170% compared to the same period last year.
Again, while sad, none of the above numbers are surprising: they merely confirm that the US is on an ever faster-track to fiscal death, but not before the Fed is forced to monetize the debt once again (one wonders what financial crisis the Jekyll Island folks will invoke this time to greenlight the next multi-trillion QE).
No, the one number that was truly shocking was found all the way on page 9, deep inside Table 3 of the latest Treasury Monthly Statement: the only highlighted below, and which shows that in the 9 months of the current fiscal year, the US has already accumulated a record $652 billion in gross debt interest.
This number was more than 25% higher compared to the Interest Expense payment for the comparable period a year ago, which amounted to $521 billion.
Soaring interest rates, driven by the panicked Fed’s scramble to undo its epic policy failure of 2020 and 2021 when the Fed kept rates at zero for far too long while injecting trillions into various asset bubbles, have been the key driver of the deficit, with the Federal Reserve boosting its benchmark rate by 5% since it began hiking in March last year. Five-year Treasury yields are now about 3.96%, versus 1.35% at the start of last year. As lower-yielding securities mature, the Treasury faces steady increases in the rates it pays on outstanding debt: that’s right – even when the Fed starts cutting rates, due to the delay of rolling over maturing debt, actual interest payments will keep rising for the foreseeable future.
For context, the weighted average interest for total outstanding debt at the end of June was only 2.76%, a level that’s not been surpassed since January 2012, according to the Treasury. That’s up from 1.80% a year before, the department’s data show, and if the Fed indeed keeps rates “higher for longer”, the blended rate on the debt will surpass 4% in one year.
That would be a complete disaster for the US, and it would mean that interest payments on total US debt of $32.3 trillion would hit $1.3 trillion within 12 months, potentially making interest on the debt the single biggest US government expenditure and surpassing social security!
But we don’t even have to wait that long until the exploding interest on US government debt becomes a major talking point ahead of the coming presidential elections. According to the St Louis Fed’s FRED and the BEA, the interest payments by the Federal Government have now surpassed $900 billion for the first time ever, and within a quarter will hit probably rise above $1 trillion, a historic benchmark that will probably begin the countdown to the US Minsky Moment.
One of the most incompetent puppets in the Biden admin (and there are countless), Treasury Secretary Janet Yellen, has played down concerns about higher rates. She has instead flagged that the ratio of interest payments to GDP, after adjustment for inflation, remains historically low. The problem with Yellen’s argument is that GDP will crater after the next recession (which will also spark the next financial crisis, one which Yellen will not live to see), but US debt will never again drop in either absolute or relative terms, as the good folks at the CBO have been so kind to make clear to even such intellectual midgets as the former Fed chairwoman.
In short, the endgame has now arrived, and all the US can do now is rearrange the deck chairs.This post was originally published at Zero Hedge
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