Sam Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy, is escorted out of the Magistrate Court building after his arrest in Nassau, Bahamas on Dec 13, 2022. Regulators are probing the role played by two people who, based on their bona fides, also should have known better: his parents. — Reuters
FTX founder Sam Bankman-Fried was known to blur the lines between personal and professional, most famously by shacking up in a luxury Bahamas penthouse with nine colleagues.
But as regulators and lawmakers take aim at the disgraced crypto mogul, they’re widening their scope beyond his band of twenty- and thirty-somethings – “grossly inexperienced and unsophisticated individuals”, in the words of FTX’s new chief executive – and probing the role played by two people who, based on their bona fides, also should have known better: his parents.
Stanford University law professors Joseph Bankman and Barbara Fried featured briefly in congressional testimony Tuesday, as well as in civil suits against their son from the Commodity Futures Trading Commission and Securities and Exchange Commission.
They weren’t mentioned by name, or accused of wrongdoing. But their mere reference – on the same day they accompanied their son to his first appearance in Bahamas court since his arrest on Monday – signals how potentially far-reaching the government’s investigation may go into a crypto collapse that has left some one million customers in limbo.
Bankman-Fried faces eight criminal counts, including conspiracy and wire fraud, for allegedly misappropriating billions of dollars in customers’ funds to pay expenses and debts of his hedge fund, Alameda Research.
“Bankman-Fried, his parents, and other FTX and Alameda employees used FTX customer funds for a variety of personal expenditures, including luxury real estate purchases, private jets, documented and undocumented personal loans, and personal political donations,” the CFTC said in its complaint.
The SEC added that the property purchases totaled “tens of millions of dollars”.
Received payments
Neither the CFTC nor the SEC elaborated on the parents’ role, if any. FTX’s newly appointed CEO, restructuring expert John J. Ray III, confirmed at a House Financial Services Committee hearing on Tuesday that “the family did receive payments”.
Risa B. Heller, a spokesperson for Bankman and Fried, didn’t have an immediate response when reached by email.
Bankman-Fried said at the New York Times DealBook Summit last month that his parents “bore no responsibility” for what happened at FTX and a house for his parents in the Bahamas “was not intended to be their long-term property” and was for the company.
Still, even in FTX’s heyday, some red flags emerged around how invested Bankman and Fried were in their son’s business.
They got involved with the company’s personnel, entertaining them and making sure key staffers were content at FTX, according to a person familiar with the matter. Fried, the mother, was viewed as the more authoritative parent, while Bankman was more mild-mannered.
Classes cancelled
The FTX scandal has already had repercussions for the professors.
Neither Bankman nor Fried will teach at the law school next year, the Stanford Daily reported last week. Bankman cancelled a class he was supposed to lead, while Fried isn’t listed as an instructor for the courses in her catalogue next year, the publication reported.
Fried told the Daily the change was part of a “long-planned” retirement and has “nothing to do with anything else going on”.
Stanford Law School didn’t immediately respond to a request for comment.
Fried was one of the founders of Mind the Gap, a super political action committee that works to bolster Democratic political candidates. She has since stepped down from her leadership role following the collapse of FTX.
Bankman-Fried, a major political donor, was also charged Tuesday with conspiracy to defraud the US and campaign finance laws.
Her academic work has included musings on personal accountability. She wrote in 2013, in an article titled “Beyond Blame”, that society should question the idea of blame and free will for individuals.
“We have gotten nothing from our 40-year blame fest except the guilty pleasure of reproaching others for acts that, but for the grace of God, or luck, or social or biological forces, we might well have committed ourselves,” she wrote. – Bloomberg
