Molly White's Citation Needed - Not just one bad apple: FTX's practices were business as usual in crypto

Episode Date: December 31, 2024

Adversary cases from the FTX collapse further expose how crypto companies do business: with secret acquisitions of “grey area” businesses, buying influence, and creative accounting. Originally published on December 30, 2024.

I'm Molly White, and you're listening to the audio feed for the Citation Needed Newsletter. You can see the text version of the newsletter online at citation needed.news. Not just one bad apple, FTC's practices were business as usual in crypto. Adversary cases from the FTX collapse further expose how crypto companies do business, with secret acquisitions of, quote, gray area businesses, buying influence, and creative accounting. This issue was originally published on December 30, 24. Over a year after Sam Bankman-Fried's trial, perhaps one of the most memorable moments to stick with me was an unexpected one,

a brief exchange between prosecutors and Block Vought 5 founder, Zach Prince. FTX's collapse bankrupted the crypto lender, which had loaned FTX entities hundreds of millions. On the stand, Block Fy's Zach Prince said, with crypto firms, it was much less common to have audited balance sheets because of issues with getting audits as a cryptocurrency firm. The prosecutor replied, just to be clear, some of the balance sheets you received from crypto firms were what is called unaudited balance sheets. Prince responded, I would say the majority of balance sheets that we received from cryptocurrency firms

were unaudited. This casual statement about lending hundreds of millions based on scrawled estimates and a trust-me-bro underscored the deception in crypto executives post-collapse claims that FTX was a rare bad actor with aberrant business practices, a black sheep among scores of legitimate businesses. On the contrary, many of FTX's activities were business as usual in an industry where regulatory enforcement and proper audits were rare, but maximal leverage and risk-taking were par for the course. I'm not so much fascinated by the specifics of the FTX adversary cases two years post-bankruptcy, where the debtors work to claw back the remaining traces of FTX's exorbitant spending. Instead, I'm interested in the pulling back of the curtain on the cryptocurrency industry's day-to-day operations.

Shady practices have become so commonplace as to be open secrets, only questioned during occasional brushes with those from more strictly regulated financial sector, who often react with horror when given a peek at the crypto industry's standard operating procedure. In the span of only a few days in November 2024, the FTX bankruptcy estate filed over 30 adversary cases. Several target political action committees and non-profits that received hundreds of thousands or millions of dollars from FTX as part of the company's political influence campaigns and reputation polishing efforts. Others target other cryptocurrency exchanges, where Al-Librate, Alameda Research or other affiliated entities were trading, sometimes secretly, and where account

balances haven't been released back to the bankruptcy estate. Some target FTCS customers engaged in criminal behavior, and some target employees, contractors, or business associates of FTCS and its entities. Genesis Block In early 2020, FTCS entities acquired Hong Kong-based Genesis Block, and over-the-counter trading firm and cryptocurrency ATM operator. It served as a crypto on and off ramp in Asia, where the company publicly acknowledged they were operating in a, quote, gray area.

Quote, people were literally lining up around the corner with bags of cash at Genesis Block, a former employee said. Quote, sometimes they shut the door saying they were out of Bitcoin. The company was a valuable asset for FTX, allowing them to circumvent capital controls and providing business connections in Asia. FTCX's ownership of Genesis Block was kept secret from the public and from regulators. FtX also used Genesis Block to make venture investments and operate various other entities they acquired or created in Singapore, the Philippines, and Mexico, so as to reduce regulatory exposure. FTX employees helpfully put their reasoning in writing.

While FTX was still in Hong Kong, Genesis Block was the nominal employer of several FTX personnel, including Gary Wong and, Nishad Singh in order to circumvent visa requirements. Genesis Block co-founder Clement Ip has rather brazenly claimed he is owed $65.8 million held in an FTCS account belonging to his partner's company, which is called Myth Success. However, FDetters say Myth Success was yet another shell company, used by FTCX to circumvent regulators, acquire companies without publicizing FTCS's involvement, and secretly trade on other platforms, and that it had no business operations of its own. As FTCS collapsed, when its executives were desperately searching the couch cushions for money to satisfy withdrawals, Genesis Block and

Myth Success acknowledged that the money in Myth Success's account belonged to FTX and transferred some of it back. However, the debtors alleged that, quote, Ip appears to have hoped that the fact of these transfers would be lost in the chaos and disarray of the FTX group's implosion, and described his claim on the assets as, quote, a baffling act of hubris. The Genesis Block adversary case also finally explains the many references to, quote, our Korean friend in the FTX trial. This nickname was used for the internal FTX account that hid Alameda's billions in liabilities and was opened in the name Soeun Charles 88 at gmail.com.

Throughout the trial, there was infuriatingly little indication as to who this person was. Liz Lapato wrote, quote, Adam Yadidia wasn't even doing anything shady like transferring money from Alameda's account to the, quote, Korean friend account. I still don't know what the deal is with the name Soyun Charles 88, and I'm starting to get kind of pissed that no one is explaining it. It turns out that the Soyenne Charles 88 FTX account was registered to Yang Jai Song, father of Genesis Block's head trader Charles Yang, and opened using his passport and bank statement.

An internal note when the account was open stated, quote, Alameda was going to use this for deposits, withdrawals. Later, according to Gary Wong's testimony, Alameda's negative balance on FtX would be moved to appear under the Soyenne Charles 88 account, quote, so that its balances would not be included in the line of credit interest payments that Alameda was paying. It appears that the account was never under Yang Jai Tsung's control, but was instead a name used internally to obscure FtX's fraud in its own. own records. Criminal activity on FTX. Some of the adversary cases involve FTCS customers allegedly

engaged in criminal activity. The Mobile Coin Exploiter. In my November 2023 article titled The Stones Left Unturned in the Sam Bankman-Fried trial, I expressed frustration with one of the many loose threads from the FTC criminal trial, a trader who stole around $800 million by exploiting flaws in FTC's risk management software. I wrote then, quote, what we haven't learned is who this customer was, or why they were so valuable that Bankman Fried thought it was worthwhile to avoid liquidating them, even when facing a threat of an exploit that could, and did, cost the company almost its entire annual revenue for that year. There has also been no evidence that FTCS ever tried to recoup the funds via legal action against the customer, whose identity should presumably have been

known to FDX as a part of their standard know-your-customer process, which Bankman Freed also described in this testimony. Why not? We now have a little more information from an adversary case filed against Noiraz Mohammed Mirren, previously known as the Mobile Coin Exploiter. It turns out that Mirren, a Mauritian citizen, is a rather prolific cryptocurrency scammer and is the very same Humpy the Whale behind governance attacks on protocols including compound finance, balancer, and sushi swap. He also, according to the debtors, quote, has been linked to money laundering operations and Ponzi schemes dating back more than a decade and has extensive ties to Polish, Romanian, and Ukrainian organized crime networks, including groups linked to human trafficking, as well as

to Islamic extremist networks linked to terrorist financing. The negligence and incompetence, that FtX when it came to Mirren suggests that it is truly miraculous that more exploits of this nature didn't occur. An outside company had to alert FtX to Mirren's activities, and even then FtX did almost nothing to stop him from accumulating massive positions in illiquid tokens that would later cost the company hundreds of millions. Instead, FtX executives said it, quote, would be cool to keep him as a friend, though, since he's like 50% of our margin platform, L.O.L. Even as Miran opened new accounts to bypass the limited restrictions FTX did put in place. And although you might think FTX's know-your-customer system should help them identify all of these accounts he was opening,

Mirren exposed that the KYC processes were clearly intended only to provide plausible deniability that the company was complying with regulations, rather than to actually allow FTX to definitively establish account operator's identities. Miran had no trouble using fake identification to open accounts, occasionally even reusing the same documents across multiple accounts or photoshopping IDs with the same photos, and using fictional addresses and even non-existent area codes. Several accounts were accessed from the same devices, and Miran almost seemed to taunt FTX by using silly and distinctive food-themed email addresses, like King of the Pudding and Donner Kabab Very Spicy.

Sasha Ivanov, Waves, and Viris. Another shady operator on FTX was Alexander Sasha Ivanov, founder of the Waves Protocol and the VIRUS lending platform. In March 2022, Alameda Research decided to deposit around $80 million into the project, which boasted quite literally unbelievable yields of 30 to 70% APY. As is often the case with projects boasting of such high-eastern. yields. It turned out that Ivanov was, allegedly, inflating the Waves token price to siphon $530 million from users. When things began to unravel and the Waves' stable coin began to lose its peg, Ivanov blamed Alameda Research,

tweeting, get your popcorn ready. Alameda Research manipulates wave price and organizes FUD campaigns to trigger panic selling. I hope I caught your attention. Follow me. Despite smearing the company on Twitter, Ivanov was reportedly trying behind the scenes to get Alameda to publicly announce their earlier $80 million investment into waves, hoping that the endorsement of such a then-influential player in the crypto world might stabilize the rapidly deteriorating situation. Ivanov threatened that if they didn't, the Viras Dow would liquidate Alameda's position. When Alameda refused, the Dow indeed passed a proposal to limit stable coin withdrawals to $1,000 a day, ostensibly to prevent bots from draining the project. This change meant that Alameda would

need over 200 years to withdraw their assets $1,000 at a time. Later, the project forced users to convert their USDC and USDT or tether stablecoin positions into USDN, the project's own so-called stablecoin, which by that point routinely fell below its supposed $1 peg, and which would later collapse entirely. When FDX and its related entities collapsed, the projects refused to return Alameda's money to the bankruptcy estate, despite Ivanov's public statements that Alameda's funds on virus, quote, could help to repay those users affected by what is being called the worst collapse in crypto history. Ivanov then dissolved the legal entities operating waves and virus, and falsely claimed that the debtors had failed to respond to his communications about returning the funds.

Chinese money laundering ring. The third adversary case against FTC's customers allegedly involved in criminal activity differs from the other two, and that the criminal activity wasn't directly targeting FTX. Instead, the bankruptcy estate is trying to reclaim funds from a, quote, international criminal syndicate that allegedly laundered billions of dollars in criminal proceeds via FTCS. The case names 24 defendants plus John Doe's 1 through 20, representing accounts opened under fake names or stolen identities, which FTX says were Chinese nationals operating a money laundering ring. While the case doesn't detail the money's origin, it definitely wasn't from their day jobs.

One defendant, a schoolteacher, deposited over $581 million into his FTCS account. In September 2022, FTCS's compliance team noticed a link between the accounts and questioned group members about the source of the funds. The members all told the compliance team that the money was coming from various other members, many of whom were family. It's unclear if FTX reported the incident to law enforcement, although the debtors do note that a team of law enforcement investigators contacted FTX to request information on the same group in October 2022. FTX closed the member's accounts on November 3, 2022, days before FTX would collapse. Binance. One of the most notable of the adversary cases is the one against Binance, which helped push

FTCS into its full-on collapse and was briefly also its last hope of survival. In this case, the FTCS bankruptcy team is digging all the way back to July 2021, when Sam Bankman-Fried bought back Binance's stake in FTCS. To recap, Binance had purchased a 20% stake in the then-fledgling company in late 2019. but the relationship between the two companies soured as they became competitors. As Sam Bankman-Fried told it, when FDX was seeking regulatory approval in Gibraltar and was thus required to provide details about its major shareholders, Binance's reluctance to divulge necessary information to regulators prompted Bankman-Fried to buy back Binance's stake in the company.

However, according to both Binance CEO Chang Peng Zhao and the recent lawsuit by FTC's debtors, it was Zhao who initiated the buyback, due to, quote, personal grievances he had against Bankman-Fried. Regardless of who started it, Bankman-Fried eventually forked over around $1.76 billion in Binance's B&B token and BUSD stable coin, and in FTX's native FTT token. Now, the FTX bankruptcy team is arguing that FTX and associated companies, quote, may have been insolvent from inception, and certainly were balance sheet insolvent by early 2021, and as such the transfer was fraudulent. They also tack on claims of injurious falsehood, fraud, intentional misrepresentation, and unjust enrichment against both Binance and Zhao, claiming that Zhao's quote campaign to destroy FTX ruined shareholder value.

This so-called campaign refers to Zhao possibly being the one to leak the balance sheet showing Alameda's precarious finances, tweeting about offloading Binance's FTT holdings, allegedly doing so in a way that would most dramatically hurt the FTT price, and offering to acquire FTCS then rescinding the offer very shortly after. While it seems pretty uncontroversial to say that Zhao was hoping to sink FTCS with these actions, these portions of the complaint seem like kind of a stretch. Zhao's behavior certainly didn't help matters, but it was FTCS's insolvency, caused by massive fraud that caused the customer losses.

And it seems unlikely Zhao could have ruined the company with tweets alone if everything had been on the up and up. Finance has not yet filed a response to the lawsuit. Alameda's trading activities. Some adversary cases seek to clawback funds that FTX entities held on external cryptocurrency exchanges where Alameda Research and other subsidiaries traded. It's somewhat remarkable how many exchanges have just flat out refused to return the funds, despite bankruptcy laws requiring it.

Some of the cases seem simple, where exchanges are, for some reason, refusing to return assets and accounts that were opened under Alameda Research's name. The debtors claim that MECC is holding assets priced at $6 million as of FTX's bankruptcy date, and that the South Korean Exchange Q-Coin is holding on to $30 million. Some cases are made more complex, because Alameda Research was trying to hide its trading activities on those outside platforms by using accounts in names of its employees or associates. 53.4 million dollars in assets, for example, are stuck on the upbit exchange and an account opened, again, in the name of the father of Genesis Block trader Charles Yang. Some refusals to return funds may stem from FTCS and other exchanges being

locked in a sort of standoff, with frozen funds on each other's platforms. An Alameda account on gate.io, opened under Gary Wong's name, contains around $30 million, left over after debtors were able to regain around $10 million of the original balance. However, Gate.io in turn, has a claim against FtX for $13.3 million. An Alameda account at Crypto.com, under the name Cayu Tin, the CFO of Genesis Block, holds 11. $1.4 million. This case is complicated by Crypto.com's claims against FtX, totaling around $18.6 million from Crypto.com and its co-founders. Finally, an adversary case against the Justin's son owned Huobi, now HOTX, and Poloniac's

exchanges, alleges that they are improperly holding on to a combined $27.5 million. Though both accounts belonged to Alameda Research, the Huobi account was opened in the former employee's name, and the Polonex account was nominally registered to Sam Bankman-Fried. A Huobi subsidiary also withdrew around $14 million from an FTCS account in the preference period prior to its collapse, which FTCS is trying to claw back, and various Justin Sun-affiliated entities have filed roughly $30 million in claims on assets held at FTCS. The Justin Sun entity's refusal to return assets are shrouded in the same sort of suspiciousness that tends to follow Sun everywhere he goes,

and the excuses provided to the FTX debtors are troubling. First, a member of Huobi's legal team told the FTX bankruptcy team he didn't work at the, quote, correct, Huobi entity, but refused to identify which entity the correct one was or provide details for anyone who worked there. Then Huobi claimed Chinese police were investigating the Alameda-owned accounts on Huobi, but refused to provide any further information. At Polonex, employees made, quote, seemingly arbitrary requests for the debtors, which they satisfied, and then claimed that Poloniacs was undergoing a, quote, internal restructuring and cut communications.

Personally, if I were on the FTCS bankruptcy team seeking to regain access to funds held on these Justin Sun-owned platforms, I would be very concerned about whether the money was there at all. cronyism. Several of the adversary cases reveal the extent to which FTX's lavish spending benefited friends and associates of its top brass. It's no shock that a company funneling tens or hundreds of millions of dollars in commingled company and customer funds to its top executives for real estate and other luxuries was doing so elsewhere. But the absolute uselessness of that spending was almost impressive. For example, FTCS spent 20,000. $25 million to acquire good luck games, a company which just so happened to have been founded by Sam Bankman-Freid's childhood friend and godbrother Matthew Nass, along with several others.

All the company had to show for it was Storybook Brawl, a prototype of an auto-battler game whose only claim to fame was that Bankman-Freed was publicly a fan, often playing the game during business meetings. And later during public Q&A sessions, during the media tour where he tried to establish an innocent explanation for his company's collapse. The game never left beta, and it shut down only a few months after FTX's collapse, though not before NAS tried to buy back the rights to the game for a piddling $1.4 million. According to the debtors, quote, the speed with which NAS and his co-founders were unjustly enriched was indeed comical.

Their employees, some related to Good Luck Games as founders, were understandably excited to receive bonuses as high as almost $200,000 in a single month, with one remarking, quote, fucking sick these bonuses, LOL, amazing. NASA agreed it was, quote, so fun being Santa, with FtX's customers' money. Neil Patel, a search engine optimization and digital marketing guru, also landed a $30.8 million windfall, thanks to his, quote, years-long pre-existing relationship with a top in-house lawyer at the FTX group. Although Patel and his company NP Digital were expected to work on marketing for FTX,

the work was allegedly horrendous or non-existent. According to the debtors, Patel was paid $14.8 million, quote, to spend four months merely attempting to find another consultant, which it never actually did. Patel also allegedly double-charged for his work across multiple FTX entities and even submitted and was paid invoices after being fired. Some contracts he negotiated with FTX were kept secret from other employees, which debtors surmise related to potential discontent if employees found out the guy who produced work they described as, quote, so sloppy and as having, quote, terrible performance was being paid millions. Political contributions. In the year or so prior to FTCS's collapse, Sam Bankman-Fried undertook a political strategy

that became the template for the industry-wide influence campaign in 2024. He spent heavily across political parties, though some of these contributions were concealed as Bankman-Fried tried to maintain a progressive image, to both install favored candidates and to buy favors. He met with Congresspeople to pitch specific proposals he had, crafted for cryptocurrency industry regulation. He backed a crypto-focused super PAC called GMI, short for Gonna Make It, founded by FTCS's own Ryan Salem, and which pulled in over $10 million from

FTCS executives, Andrew San Horowitz's co-founders, and other crypto industry figures. The PAC pushed for legislation to remove cryptocurrency tokens from the Securities and Exchange Commission's authority. The efforts were nakedly transactional. buying access and influence for Bankman Freed, his political right-hand man Ryan Salem, and political operatives like his brother, Gabe Bankman-Fried. A spreadsheet maintained by Gabe's guarding against pandemic super PAC, which was, quote, almost entirely funded, if not entirely funded by Sam Bankman-Fried, and was used to conceal millions of dollars in FTX-funded political contributions, boasted that, quote, several

dozen candidates, backed across both parties, quote, are in Congress and O.S. us favors. After FTC's collapse, some recipients sheepishly returned the money, embarrassed to be associated with the uncovered fraud. Others kept or had already spent it, and have now been targeted with adversary cases seeking to claw back the contributions. In these cases, we gain insight into the tangled web of money transfers behind many of these contributions, as the co-mingled FTCS company and customer funds were transferred between FTCX entities, executives, and various connected groups to obscure the true source. These include $15.5 million to one nation, a 501c4 that has contributed heavily to Republicans and conservative causes, including efforts to restrict anti-racism,

curricula, and schools, and abortion access. These contributions were routed through Ryan Salem and Sam Bankman-Fried. $3.5 million to the Senate leadership. fund, a super PAC supporting Senate Republicans. Some money was routed via Ryan Salem, while some was contributed directly by FTXUS. $3.2 million to the American Prosperity Alliance, a 501c4 that serves as a primary arm of the Koch brothers' libertarian political influence. These contributions were routed through Ryan Salem. $2.8 million to the American Action Network, a conservative 501c4 quote, action tank that has in the past worked to oppose the Consumer Financial Protection Bureau, the Green New Deal, and the Affordable Care Act. These contributions were routed through Ryan Salem.

$2.75 million to the Congressional Leadership Fund, a super PAC supporting House Republicans. Some money was routed via Ryan Salem, while some came directly from FTXUS. $2 million to Fair Democracy, a 501C4 supporting Democratic candidates, voter education, and engagement. These contributions were routed via Sam Bankman-Fried, guarding against pandemics, and planning for tomorrow. $1.8 million to Forward U.S., a 501C4 founded by Mark Zuckerberg, and claiming to support criminal justice and immigration reform. These contributions were routed via Sam Bankman-Freed, planning for tomorrow, and guarding against pandemics. One point six million to the Common Sense Leadership Fund, a conservative 501C4 supporting D-Rae,

regulation and lower taxes. These contributions were routed via Ryan Salem. $1.5 million to the American Values Coalition, an evangelical Christian nonprofit, claiming to, quote, reject extremism and misinformation. These contributions were routed via Ryan Salem. 1.17 million dollars to prosperity alliance, a 501C4 supporting Republicans and conservative causes, mainly focused on the economy. These contributions were routed via Sam Bankman-Fried, with some going directly to Prosperity Alliance from him, while the rest was routed first through guarding against pandemics. $1.1 million to the New York Solidarity Network, a 501c4 for pro-Israel efforts.

The contributions were routed through Sam Bankman-Fried and Ryan Salem, with Salem's funds also detouring through prosperity through enterprise before going to the NYSN. $1 to Working America, a 501C5 labor organization, claiming to, quote, empower workers who do not belong to labor unions. This contribution was routed through San Bankman-Fried. $1 million to Voto Latino, a 501C4, quote, focused on educating and empowering a new generation of Latinx voters, as well as creating a more robust and inclusive democracy.

The contribution was routed through planning for tomorrow and guarding against pandemics. And $750,000 to Heartland Resurgence Action, a conservative 501C4, funded by agriculture executives. Some money was routed via Ryan Salem, while some was contributed directly by FTX U.S. Again, these were only a portion of all the political donations made by FTCS and its affiliates. Another nine political organizations not listed here have just returned a combined $14 million as a result of settlements with the bankruptcy estate. Charitable Contributions Sam Bankmanfried and FTCS also spent heavily on ostensibly charitable causes,

most of which were related to the effective altruism movement and which seemed more designed to enrich those working on those projects. As an overtly EA-aligned organization, Bankman Fried was diligent about his and his company's austere image. In one case, according to the adversary case against Ryan Salem, Bankman Fried had Salem purchase a $15.9 million private jet for him and the company, something Bankman Fried considered a, quote, extremely sensitive topic, not to be mentioned due to, quote, concern about PR.

As boilerplate in the philanthropy-related adversary cases puts it, quote, FtX philanthropy claimed on its website that it, quote, works to save lives, prevent suffering, and help build a flourishing future. In reality, very few of FTCX philanthropy's donations directly benefited the needy. Its largest donations went to associates of FTCS insiders in the, quote, effective altruism movement. The adversary cases against philanthropic groups reveal the extent to which these funds were outright wasted on enriching Bankman Free's personal friends. Without ever reaching the vulnerable people, Bankman Fried claimed he had devoted his life to helping. For example, FTCS contributed around $570,000 to a nonprofit called non-linear.

founded by effective altruists, Emerson Sparts, and Cat Woods. The group had, quote, formed relationships with FTX insiders and were invited to the Bahamas to visit. Although the corporation was ostensibly focused on streamlining charity grantmaking, it seems to have since pivoted to so-called AI safety. Another $750,000 went to a newly created company on 10 productions, which planned to make a documentary film on the origins of the COVID-19 virus. The debtor stayed in the adversary case that no film was ever created, although in 2024, On 10 did release a 90-minute film on the COVID-19

lab leak hypothesis titled Spiked, the Hunt for the Origin of COVID-19. Another $1.2 million went to the nonprofit, effective altruist-led pandemic prevention organization called Secure Bio. $680,000 went to the Goodly Institute to quote, build AI decision-making tools for human utilization, and $508,000 went to manifold markets to fund their so-called charity markets, a program where the fake money used in their betting markets could be converted to real money and given to effective altruist causes. Other shady business. The last remaining adversary cases are tough to categorize, but again exemplify the shady business that is an everyday part of operations in the crypto world. The mooch. FtX is trying to recover over $100 million from transactions with entities associated with Anthony Scaramucci,

who I'll note is still, more than seven years later, earning snarky comments in legal filings over his 10-day, quote, brief stint as a White House communications director. The adversary case aims to regain funds transferred to Scaramucci's Skybridge investment funds and related conference series. FtX's investments in Skybridge's crypto funds made no financial sense, with employees questioning why an experienced crypto trading firm like Alameda Research would spend $45 million to obtain interest in a, quote, basket of cryptocurrencies that the FTCX Group could have easily purchased itself less expensively, which were purchased by an investment fund with little crypto trading experience, and which were only worth about $12 million.

The money was plainly intended to buy access to Skaramucci's network of celebrities and investors, and Skaramucci is portrayed in the adversary case as far more of a shrewd networker than he is a capable investor. Both Scaramucci and Bankman Freed are depicted by the debtors as mercenary. Scaramucci allegedly cultivated the relationship with Bankman Freed out of desperation over his rapidly failing crypto fund, hoping that Bankman Freed was someone who would, quote, spend money while asking very few questions. Bankman Freed, realizing that the FTX entities were in a dangerous position after spending so much of his customer's money, was eyeing Scaramucci as a connection to wealthy investors who might provide an eventual bailout and thus helped to cover up his fraud. Both were ultimately correct. Bankman Freed poured millions into Scaramucci's lackluster crypto funds on,

quote, highly unfavorable terms, in what, quote, was for all intents and purposes a bailout of Skybridge, while Scaramucci took Bankman Fried on an influence tour with, quote, major financiers, former White House officials, and Middle Eastern heads of state, including Saudi Arabia's crown prince, Muhammad bin Salman. The adversary case, though it is only a civil matter seeking, to recover funds from Scaramucci seems to accuse the influential investor and his business partner of serious wrongdoing. According to the debtors, quote, Scaramucci and his partner, defendant Brett Messing, both managers of Skybridge 2, ignored the bargain for restrictions on Skybridge's ability to sell the tokens and rated plaintiff's segregated cryptocurrency account no later than

December 2023. By late 2023, it became apparent that Scaramucci and Messing at best grossly mismanaged Skybridge's assets, and at worst, may have looted the assets for themselves. The debtors add that despite the fund's poor performance, Scaramucci and Messing paid themselves over $22 million, more than the fund brought in in management fees. Amidst all this, Scaramucci has just announced he's buying a new Lamborghini. Farmington State Bank Another entry in my stones left unturned piece dealt with FTX's acquisition of Farmington State Bank, later renamed to Moonstone Bank, a deeply weird moment in FTC's history when Alameda Research spent

$11.5 million, twice the tiny rural bank's entire reported net worth, to obtain a 10% stake in the business. The bank had just been acquired by Jean Chalupin, chairman of the Bahamas-based Deltech bank and trust, a key bank for both Alameda Research and Tether. And Moonstone quickly began to brazenly violate its agreed upon regulatory restrictions when it suddenly tried to pivot to becoming a crypto bank. Unfortunately, the adversary case seeking to claw back Alameda Research's investment money doesn't shed much more light on what the hell was going on here, other than to vaguely mention that FTX entities, quote, opened banks with Moonstone to facilitate a $50 million tax-safe

harbor required by a transaction with another U.S. company. Silver Miller. A case against Florida law firm Silver Miller seeks the return of some or all of nearly $2 million they were paid, mostly in the form of a monthly retainer paid in exchange for, quote, minimal legal work. An internal document revealed that FTX was tracking law firms that were filing class action suits against cryptocurrency companies, and the self-described, quote, cryptocurrency loss and investment fraud-focused team of lawyers at Silver Miller was among them, apparently because they had just brought a complaint against Binance on behalf of a customer whose holdings on the Cracken Exchange were stolen and transferred to an account at Binance. The case would go on to be dismissed a year later due to lack of jurisdiction over the Cayman Islands registered Binance. In order to, quote, conflict out the law firm, that is, to introduce a conflict,

of interest that would prevent Silver Miller from litigating against FTX, FTCS signed a contract to engage Silver Miller for $70,000 a month for 24 months. The pricey contract brought on Silver Miller in exchange for little more than an explicit agreement not to bring action that would conflict with FTC's interests for a period of five years. According to the debtors, quote, from May to September 2022, Silver Miller provided one piece of known work product regarding FtXUS's terms of service and provided occasional high-level counsel regarding a few isolated issues. Ryan Salem. Unsurprisingly, the bankruptcy estate hopes to clawback assets from FTX executive Ryan Salem, although whether he has much left after his substantial criminal restitution is

certainly an open question. According to the debtors, Salem received nearly $100 million in misappropriated funds. Most of the adversary case rehashes, we hash us what we already know about Salem's role in FTX, which I've outlined in issue 59 and my interview with him just before he reported to prison. However, the adversary case does outline some additional details that cast further doubt on Salem's claims of being an innocent victim coerced to plead guilty to crimes he didn't commit. When describing Salem's role in opening bank accounts for an FTCS shell company, contributing to his charge of conspiracy to operate an unlicensed money transmitting business, the debtors note that Salem appears to have deleted messages from a slack

conversation with a bank manager to try to cover his tracks. The adversary case also outlines that Salem continued to spend FTX money, even after its bankruptcy, including to purchase two condos. One was in a complex in Portugal that advertises that purchasing its units can help a person qualify for Portugal's so-called golden visa, a shortcut to obtaining Portuguese residency. From secretly acquiring, quote, gray area cash for crypto businesses, to buying political influence, to paying off lawyers, the FTX adversary cases describe incredibly shady practices that are far from as unusual as the crypto industry likes to claim. Remember, all of these activities happened while FTX ran Super Bowl ads about being a, quote, safe and easy way to get into crypto. And Bankman

Freed described his business at every opportunity as, quote, the most regulated crypto exchange by far. Troulingly, the conditions that enabled FTCS's fraud remain unchanged today. Lack of auditing is the norm. Knee-jerk resistance to regulation remains the default industry-wide, and the industry refined Bankman-Fried's early attempts at political influence, spending over $130 million to install hand-picked surrogates in Washington to further reduce any chance of meaningful oversight.

With the same red flags waving across today's cryptocurrency industry, it's hard to avoid the conclusion that similar frauds have only yet to be discovered. The primary difference may be that the other firms haven't faced their CZ moment yet, the pushing over of the first domino that causes the whole precarious thing to collapse. Thanks for listening to this issue of the citation needed newsletter. To learn how to support my work, visit mollywhite.com.net slash support. If you'd like to read the text versions of these episodes, sign up to receive the newsletter in your email, or support my work on a recurring basis. Go to citation needed.news.