Securities Industry Commentator by Bill Singer Esq

Intellivest Securities Hunts Down Raiders Who Allegedly Gutted The Brokerage Firm (BrokeAndBroker.com Blog)

United States of America v. Samuel Bankman-Fried a/k/a "SBF," Defendant (Indictment, United States District Court for the Southern District of New York, 22-CR-673)

US Attorney SDNY @SDNYnews / 6:52 PM Dec 12, 2022 / USA Damian Williams (Arrest/Indictment of Samuel Bankman-Fried)

Danske Bank Pleads Guilty To Fraud On U.S. Banks In Multi-Billion Dollar Scheme To Access The U.S. Financial System / Largest Bank in Denmark Agrees to Forfeit $2 Billion

Maryland U.S. Attorney's Office Announces the Seizure of 55 Domain Names that Violated Copyrights by Illegally Live Streaming the World Cup (DOJ Release)

SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX / Defendant concealed his diversion of FTX customers' funds to crypto trading firm Alameda Research while raising more than $1.8 billion from investors (SEC Release)

SEC Charges Danske Bank with Fraud for Misleading Investors about Its Anti-Money Laundering Compliance Failures in Estonia / Bank Agrees to Pay More than $400 Million to Settle SEC Charges (SEC Release)

SEC Charges Brokerage Firm with Anti-Money Laundering Violations (SEC Release)

SEC Awards Over $20 Million Whistleblower Award to Claimant

Order Determining Whistleblower Award Claims

CFTC Charges Sam Bankman-Fried, FTX Trading and Alameda with Fraud and Material Misrepresentations (CFTC Release)

CFTC Orders Minnesota Registrant to Pay $550,000 for Cross-Product, Cross-Calendar, and Single-Product Spoofing in Soybean Complex Futures (CFTC Release)

Rep Alleges Termination Without Cause and  Seeks 14 Days Pay and Personal Time Off

In the Matter of the Arbitration Between Yusuf A. Hai, Claimant, v. CIG Securities, Osman Radwan Minkara, Kenneth Gerard Chaput, CIG Capital Advisors Inc., and CIG Asset Management, Inc., Respondents (FINRA Arbitration Award)

Public Customer Cites Churning and Unsuitability in FINRA Arbitration

In the Matter of the Arbitration Between Ronald F. Gagnon, Claimant, v. Worden Capital Management LLC, Jamie John Worden, Richard Foerster Reynolds, and Michael Richard Rosalia, Respondents (FINRA Arbitration Award)

Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the SDNY.  We expect to move to unseal the indictment in the morning and will have more to say at that time.

Samuel Bankman-Fried ("Bankman-Fried") co-founded Alameda Research LLC ("Alameda"), a digital asset trading and investment firm, in Berkeley, California in 2017. In May 2019, he and others launched FTX Trading Ltd. b/d/a FTX.com ("FTX Trading") and various subsidiaries, affiliates, and related entities, collectively doing business as "FTX.com" or simply "FTX," a centralized digital asset exchange. (These parties are collectively referred to as "Defendants"). Alameda and FTX were large and well-known players in the digital asset industry, and Bankman-Fried was their young, high-profile leader. 

2. At its peak, the daily trading volume on FTX.com was over $20 billion, and it had garnered a $32 billion valuation. FTX had prominent paid sponsorships, including the naming rights to a professional sports arena in Miami, celebrity endorsements, and a 2022 Super Bowl commercial that touted FTX as "the safest and easiest way to buy and sell crypto." 

3. On November 11, 2022, Bankman-Fried's empire abruptly collapsed. FTX customers and the world at large discovered that FTX, through its sister-company Alameda, had been surreptitiously siphoning off customer funds for its own use-and over $8 billion in customer deposits were now missing. 

4. Beginning no later than May 2019 and continuing through at least November 11, 2022 (the "Relevant Period"), Bankman-Fried owned, operated, and/or controlled FTX Trading, along with its numerous subsidiaries and related entities around the world, all doing business as FTX.com. He also owned, operated, and/or controlled Alameda and its various subsidiaries and related entities, as well as numerous other related entities in the digital asset industry. Throughout the Relevant Period, Alameda operated as a primary "market maker" on FTX.com, providing liquidity to its various digital asset markets, and also performed a number of other key functions for the exchange. Bankman-Fried operated Defendant entities as a common enterprise. 

5. Throughout the Relevant Period, and unbeknownst to all but a small circle of insiders, FTX customers deposits, including fiat currency and digital assets such as bitcoin (BTC) and ether (ETH), that were intended to be used for trading or custodies on FTX, were regularly accepted, held by, and/or appropriated by Alameda for its own use. 

6. At Bankman-Fried's direction, FTX executives created features in the underlying code for FTX that allowed Alameda to maintain an essentially unlimited line of credit on FTX. FTX Trading executives also created other exceptions to FTX's standard processes that allowed Alameda to have an unfair advantage when transacting on the platform, including quicker execution times and an exemption from the platform's distinctive auto-liquidation risk management process. 

7. Throughout the Relevant Period, at the direction of Bankman-Fried and at least one Alameda executive, Alameda used FTX funds, including customer funds, to trade on other digital asset exchanges and to fund a variety of high-risk digital asset industry investments. 

8. Bankman-Fried and other FTX executives also took hundreds of millions of dollars in poorly-documented "loans" from Alameda that they used to purchase luxury real estate and property, make political donations, and for other unauthorized uses. 

9. Throughout the Relevant Period, Defendants, through a web of subsidiaries, affiliates, and other related entities (collectively the "FTX Enterprise") misappropriated customer funds for their own use and benefit. 

10. Despite this, FTX Trading represented, in its Terms of Service and elsewhere, that customers were the "owner[s]" of all assets in their accounts, had "control" over the assets at all times, and that those assets were "appropriately safeguarded and segregated" from FTX's own funds. 

11. Through this conduct and the conduct further described herein, Defendants violated Section 6(c)(1) of the Commodity Exchange Act (the "Act" or "CEA"), 7 U.S.C. § 9(1), and Commission Regulation ("Regulation") 180.1(a), 17 C.F.R. §180.1(a) (2021). Unless restrained and enjoined by this Court, Defendants are likely to continue to engage in the acts and practices alleged in this complaint and similar acts and practices, as more fully described below. 

12. Accordingly, the CFTC brings this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-l, to enjoin Defendants' unlawful acts and practices and to compel their compliance with the Act. In addition, the CFTC seeks civil monetary penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, disgorgement, restitution, pre- and post-judgment interest, and such other relief as the Court may deem necessary and appropriate,

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. 

Between 2008 and 2016, Danske Bank offered banking services through its branch in Estonia, Danske Bank Estonia.  Danske Bank Estonia had a lucrative business line serving non-resident customers known as the NRP.  Danske Bank Estonia attracted NRP customers by ensuring that they could transfer large amounts of money through Danske Bank Estonia with little, if any, oversight.  Danske Bank Estonia employees conspired with NRP customers to shield the true nature of their transactions, including by using shell companies that obscured actual ownership of the funds.  Access to the U.S. financial system via the U.S. banks was critical to Danske Bank and its NRP customers, who relied on access to U.S. banks to process U.S. dollar transactions.  Danske Bank Estonia processed $160 billion through U.S. banks on behalf of the NRP.

U.S. banks required Danske Bank and Danske Bank Estonia to provide information to open and maintain accounts, including information related to anti-money laundering ("AML") controls, transaction monitoring, and customers.  Danske Bank knew that the U.S. banks expected honest, complete, and accurate responses and that the U.S. banks would not maintain, or open, U.S. dollar accounts for Danske Bank Estonia without the required information. 

By at least February 2014, as a result of internal audits, information from regulators, and an internal whistleblower, Danske Bank knew that some NRP customers were engaged in highly suspicious and potentially criminal transactions, including transactions through U.S. banks. Danske Bank also knew that Danske Bank Estonia's anti-money laundering program and procedures did not meet Danske Bank's standards and were not appropriate to meet the risks associated with the NRP.  Instead of providing the U.S. banks with truthful information, Danske Bank lied about the state of Danske Bank Estonia's AML compliance program, transaction monitoring capabilities, and information regarding Danske Bank Estonia's customers and their risk profile.

To resolve the investigation, Danske Bank pled guilty to one count of conspiracy to commit bank fraud.  Under the terms of the plea agreement, the company has agreed to criminal forfeiture of $2.059 billion.  Danske Bank will also enter into separate criminal or civil resolutions with domestic and foreign authorities, and the Department will credit approximately $850 million in payments the bank makes to the Securities and Exchange Commission ("SEC") and the Danish authorities.

The Department reached its resolution with Danske Bank based on a number of factors, including the nature, seriousness, and pervasiveness of the offense conduct.  This included a bank fraud conspiracy in which Danske Bank misled U.S. banks in order to maintain, and in one case open, U.S. dollar accounts through which Danske Bank processed $160 billion for its non-resident customers; the bank's failure to voluntarily and timely disclose the conduct to the Department; the state of Danske Bank's compliance program and the progress of its remediation; the bank's resolutions with other domestic and foreign authorities; and the bank's continued cooperation with the Department's ongoing investigation.  Danske Bank received full credit for cooperation and remediation because it provided full cooperation with the investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, including by, among other things, providing substantial information from its internal investigation, voluntarily and expediently producing a significant amount of documents located outside the United States in ways that did not implicate foreign data privacy laws, making foreign witnesses available for interviews, collecting and producing voluminous evidence and information, including with translations where necessary, and providing detailed analysis of complex, cross-border transactions.  Danske Bank has also enhanced and committed to continue improving its compliance programs and has agreed to the appointment of an independent expert selected by its regulator.

[W]hen Danske Bank acquired its Estonian branch in 2007, it knew or should have known that a substantial portion of the branch's customers were engaging in transactions that had a high risk of involving money laundering; that its internal risk management procedures were inadequate to prevent such activity; and that its AML and Know-Your-Customer procedures were not being followed and did not comply with applicable laws and rules. The SEC alleges that, from 2009 to 2016, these high-risk customers, none of whom were residents of Estonia, utilized Danske Bank's services to transact billions of dollars in suspicious transactions through the U.S. and other countries, generating as much as 99 percent of the Estonian branch's profits. The complaint further alleges that, although Danske Bank knew of these high-risk transactions, it made materially misleading statements and omissions in its publicly available reports stating that it complied with its AML obligations and that it had effectively managed its AML risks. As the full extent of Danske Bank's AML failures became apparent, its share price dropped precipitously.

To help detect potential securities law and money-laundering violations, broker-dealers are required to file Suspicious Activity Reports (SARs) describing suspicious transactions taking place through their firms. According to the SEC's complaint, from at least January 2018 to January 2020, J.H. Darbie failed to investigate and file SARs for numerous suspicious transactions, even when the transactions raised red flags recognized in J.H Darbie's written anti-money laundering policies and procedures and in regulatory guidance.

• Securities Industry Commentator
• Bill Singer