You may not be too familiar with LA County Assessor Jeffrey Prang. You’ve probably never heard of the office of the LA County Assessor, or you might only have a vague notion of what it does.
But with a career in city politics spanning nearly thirty years, he’s among the longest-serving openly gay elected officials in the United States, and for his work serving the people of Los Angeles and championing the rights of the city’s LGBTQ people, the Stonewall Democratic Club is honoring him at their 50th Anniversary Celebration and Awards Night Nov 15 at Beaches Tropicana in West Hollywood.
Prang moved to Los Angeles from his native Michigan after college in 1991, specifically seeking an opportunity to serve in politics as an openly gay man. In 1997, he was elected to the West Hollywood City Council, where he served for 18 years, including four stints as mayor.
“I was active in politics, but in Michigan at the time I left, you couldn’t really be out and involved in politics… My life was so compartmentalized. I had my straight friends, my gay friends, my political friends, and I couldn’t really mix and match those things,” he says.
“One of the things that was really impactful was as you drove down Santa Monica Boulevard and saw those rainbow flags placed there by the government in the median island. That really said, this is a place where you can be yourself. You don’t have to be afraid.”
One thing that’s changed over Prang’s time in office is West Hollywood’s uniqueness as a place of safety for the queer community.
“It used to be, you could only be out and gay and politically involved if you were from Silver Lake or from West Hollywood. The thought of being able to do that in Downey or Monterey Park or Pomona was foreign. But now we have LGBTQ centers, gay pride celebrations, and LGBT elected officials in all those jurisdictions, something that we wouldn’t have thought possible 40 years ago,” he says.
Prang’s jump to county politics is emblematic of that shift. In 2014, amid a scandal that brought down the previous county assessor, Prang threw his name in contention for the job, having worked in the assessor’s office already for the previous two years. He beat out eleven contenders in the election, won reelection in 2018 and 2022, and is seeking a fourth term next year.
To put those victories in perspective, at the time of his first election, Prang represented more people than any other openly gay elected official in the world.
Beyond his office, Prang has lent his experience with ballot box success to helping get more LGBT people elected through his work with the Stonewall Democrats and with a new organization he co-founded last year called the LA County LGBTQ Elected Officials Association (LACLEO).
LACLEO counts more than fifty members, including officials from all parts of the county, municipal and state legislators, and members of school boards, water boards, and city clerks.
“I assembled this group to collectively use our elected strength and influence to help impact policy in Sacramento and in Washington, DC, to take advantage of these elected leaders who have a bigger voice in government than the average person, and to train them and educate them to be better advocates on behalf of the issues that are important for us,” Prang says.
“I do believe as a senior high-level official I need to play a role and have an important voice in supporting our community,” he says.
Ok, but what is the LA County assessor, anyway?
“Nobody knows what the assessor is. 99% of people think I’m the guy who collects taxes,” Prang says.
The assessor makes sure that all properties in the county are properly recorded and fairly assessed so that taxes can be levied correctly. It’s a wonky job, but one that has a big impact on how the city raises money for programs.
And that wonkiness suits Prang just fine. While the job may seem unglamorous, he gleefully boasts about his work overhauling the office’s technology to improve customer service and efficiency, which he says is proving to be a role model for other county offices.
“I inherited this 1970s-era mainframe green screen DOS-based legacy system. And believe it or not, that’s the standard technology for most large government agencies. That’s why the DMV sucks. That’s why the tax collection system sucks. But I spent $130 million over almost 10 years to rebuild our system to a digitized cloud-based system,” Prang says.
“I think the fact that my program was so successful did give some impetus to the board funding the tax collector and the auditor-controller to update their system, which is 40 years behind where they need to be.”
More tangible impacts for everyday Angelenos include his outreach to promote tax savings programs for homeowners, seniors, and nonprofits, and a new college training program that gives students a pipeline to good jobs in the county.
As attacks on the queer community intensify from the federal government, Prang says the Stonewall Democrats are an important locus of organization and resistance, and he encourages anyone to get involved.
“It is still an important and relevant organization that provides opportunities for LGBTQ people to get involved, to have an impact on our government and our civic life. If you just wanna come and volunteer and donate your time, it provides that, if you really want to do more and have a bigger voice and move into areas of leadership, it provides an opportunity for that as well,” he says.
Marjorie Taylor Greene came under fire on social media when she hit out at Democratic Representative Maxine Waters, after the 85-year-old criticized her for having a government Paycheck Protection Program (PPP) loan written off during the coronavirus pandemic.
Taylor Commercial Inc., the company Greene owned with her then-husband, received a $183,504 PPP loan write-off in April 2020, according to publicly available records. This consisted of the original $182,300 loan, plus the interest that had been accrued. PPP loans were introduced during the Donald Trump administration in 2020 to support small businesses during the pandemic, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
After being criticized over the loan forgiveness by Waters, Greene replied in a lengthy post on X, formerly Twitter: “Maxine Waters is attacking me for taking a PPP loan (like so many had to), before I was a member of congress, when the tyrannical government shut us all down. Maxine is 85 yrs old and has held government office since 1976!!!
Maxine Waters is attacking me for taking a PPP loan (like so many had to), before I was a member of congress, when the tyrannical government shut us all down.
Maxine is 85 yrs old and has held government office since 1976!!!
She has no idea what it’s like to meet payroll and…
“She has no idea what it’s like to meet payroll and keep a business running. Maxine is everything wrong with politicians today. Too old. No real life experience. Corrupt and tyrannical. Is she going to cling to power until she dies like so many of her peers?” Greene added.
The post went viral, receiving more than 6,600 shares, 1.3 million views and garnering 8,500 comments. Newsweek has contacted Rep. Marjorie Taylor Greene for comment by telephone and voicemail message.
Ryan Shead, an X user from Tucson, Arizona, with over 84,000 followers, replied: “She is attacking your hypocrisy in taking the loan and chastising the government you just allowed to save your sorry a**.
She is attacking your hypocrisy in taking the loan and chastising the government you just allowed to save your sorry a**.
If you were a woman of principles you wouldn’t have taken the massive loan from the tyrannical government.
The American people would have received zero help…
“If you were a woman of principles you wouldn’t have taken the massive loan from the tyrannical government,” Shead added. “The American people would have received zero help from you, but you took it for yourself. That’s why we criticize you.”
A second Twitter user, ChrisfromCali added: “And she voted against loan forgiveness for students. Her hypocrisy makes me so sick.”
And she voted against loan forgiveness for students. Her hypocracy makes me so sick.
A third wrote: “But young people struggling to pay rent and buy food can’t get $10,000 in student loan relief?”
Ron Fancy, an X user from California, commented: “She comes after frauds like you. Did she ask for a pardon? Did she plan an insurrection? She has been around for a long time b/c [because] she does an excellent job. When Kev[in McCarthy, former speaker] lost his job you lost your leverage.”
Maxine Waters is the so corrupt and vile. She is a disgrace to Congress and everyone despises her. She is one of the nastiest people I’ve ever seen.
However, not all social-media users disagreed with Greene’s post. Rhonda Lynn replied: “Maxine Waters is so corrupt and vile. She is a disgrace to Congress and everyone despises her. She is one of the nastiest people I’ve ever seen.”
A second user added: “I believe that Maxine Waters, due to her age and alleged corrupt practices, is out of touch with the current political landscape. I argue that she should be removed from office ASAP [as soon as possible].”
Marjorie Taylor Greene raises a finger while speaking at a news conference on border security outside of the U.S. Capitol on November 14, 2023 in Washington, DC. The Republican came under fire on Friday after attacking Democratic Rep. Maxine Waters on X in a row over PPP loans. Anna Moneymaker/GETTY
During an appearance on Tucker Carson’s X show, released on Thursday, Greene named five “powerful Republicans in the House” whom she said have been undermining her in the House, and in particular her efforts to impeach prominent Biden administration figures.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
WASHINGTON — House Democrats on Wednesday will release a slate of reform bills in response to the recent bank failures that triggered the worst crisis for the sector since 2008.
Members of the House Financial Services Committee, led by ranking member Rep. Maxine Waters, D-Calif., are seeking an expansion to federal regulatory authorities and more oversight for bank executives, including clawbacks on compensation, fines and the closure of loopholes that allowed some banks to escape standards established under the 2010 Dodd-Frank Act.
The committee has closely scrutinized the actions of the Treasury Department, the Federal Deposit Insurance Corporation, or FDIC, and other federal regulators along with executives of Silicon Valley Bank and Signature Bank leading up to and in the aftermath of the banks’ collapse.
Waters urged committee Republicans to follow the lead of the Senate Banking Committee and work with Democrats to advance bipartisan legislation to protect the economy from future harm.
“The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank make clear that it is past time for legislation aimed at strengthening the safety and soundness of our banking system and enhancing bank executive accountability,” she said.
Here are the bills to be considered:
Failed Bank Executives Accountability and Consequences Act:This bill would expand regulatory authority on compensation clawbacks, fines and banning executives who contribute to a bank’s failure from future work in the industry. President Joe Biden called for these actions shortly after the FDIC took over SVB and Signature Bank in March. The bill is cosponsored by Waters and fellow Democratic Reps. Nydia Velazquez, of New York; Brad Sherman and Juan Vargas, both of California; David Scott, of Georgia; Al Green and Sylvia Garcia of Texas; Emanuel Cleaver, of Missouri; Joyce Beatty and Steven Horsford, both of Ohio; and Rashida Tlaib, of Michigan. Some Republicans have expressed support for this act, which is similar to the bipartisan bill the Senate Banking Committee is considering.
Incentivizing Safe and Sound Banking Act: This measure would expand regulators’ authority to prohibit stock sales for executives when banks are issued cease-and-desist orders for violating the law. It would also automatically restrict stock sales by senior executives of banks that receive poor exam ratings or are out of compliance with supervisory citations. The bill would have prevented SVB bank executives from cashing out after repeated warnings by regulators, according to Democrats. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Horsford and Tlaib.
Closing the Enhanced Prudential Standards Loophole Act: This will aim to close loopholes surrounding the Dodd-Frank Act’s enhanced prudential standards for banks that do not have a bank holding company. Neither Signature Bank nor SVB had a bank holding company before they collapsed. The bill would ensure that large banks with a size, complexity and risk equal to that of big banks with holding companies will be subject to similar enhanced capital, liquidity, stress testing, resolution planning and other related requirements. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Vargas, Garcia and Tlaib.
H.R. 4204, Shielding Community Banks from Systemic Risk Assessments Act: This measure would permanently exempt banks with less than $5 billion in total assets from special assessments the FDIC collects when a systemic risk exception is triggered, which was done to protect depositors at Silicon Valley Bank and Signature Bank. The FDIC would be allowed to set a higher threshold while requiring a minimal impact on banks with between $5 billion and $50 billion in total assets. It is sponsored by Green.
H.R. 4062, Chief Risk Officer Enforcement and Accountability Act: This measure would have federal regulators require large banks to have a chief risk officer. Banks would also have to notify federal and state regulators of a CRO vacancy within 24 hours and provide a hiring plan within seven days. After 60 days, if the CRO position remains vacant, the bank must notify the public and be subject to an automatic cap on asset growth until the job is filled. The bill is cosponsored by Sherman, Green, and fellow Democratic Reps. Sean Casten, of Illinois;Josh Gottheimer, of New Jersey; Ritchie Torres, of New York; and Wiley Nickel, of North Carolina.
H.R. 3914, Failing Bank Acquisition Fairness Act: This bill would have the FDIC only consider bids from megabanks with more than 10% of total deposits if no other institutions meet the least-cost test. This would ensure smaller banks have a chance to purchase failed banks, according to Democrats. It is sponsored by Rep. Stephen Lynch, D-Mass.
H.R. 3992, Effective Bank Regulation Act: This legislation wouldrequire regulators to expand stress testing requirements. Instead of two stress test scenarios, the bill would require five. It would also ensure that the Federal Reserve does stress tests for situations when interest rates are rising or falling. It is sponsored by Sherman.
H.R. 4116, Systemic Risk Authority Transparency Act: This bill would require regulators and the watchdog Government Accountability Office, or GAO, to produce the same kind of post-failure reports that the Federal Reserve, FDIC and GAO did after Silicon Valley Bank’s and Signature Bank’s failure. Initial reports would be required within 60 days and comprehensive reports within 180 days. It would be applicable to any use of the systemic risk exception of the FDIC’s least cost resolution test. The bill is sponsored by Green.
H.R. 4200, Fostering Accountability in Remuneration Fund Act of 2023, or FAIR Fund Act: The legislation would require big financial institutions to cover fines incurred after a failure and/or executive conduct through a deferred compensation pool that would be funded with a portion of senior executive compensation. The pool would get paid out between two and eight years, depending on the size of the institution. The bill is sponsored by Tlaib.
Stopping Bonuses for Unsafe and Unsound Banking Act: This measure would freeze bonuses for executives of any large bank that doesn’t submit an acceptable remediation plan for what’s known as a Matter Requiring Immediate Attention, or MRIA, or a similar citation from bank supervisors by a regulator-set deadline. It is sponsored by Brittany Pettersen, D-Colo.
Bank Safety Act: Large banks would be prevented from opting out of the requirement to recognize Accumulated Other Comprehensive Income, or AOCI, in regulatory capital under this bill. AOCI reflects the kind of unrealized losses in SVB’s securities portfolio. It is sponsored by Sherman.
Correction: This story was updated to reflect that the bills are being released Wednesday.
Sam Bankman-Fried’s arrest in the Bahamas on Monday marks the beginning of a new chapter in the FTX saga, one that will pit the former crypto billionaire against the Southern District of New York.
The indictment is expected to remain sealed until Tuesday morning. U.S. prosecutors haven’t commented, and neither the Attorney General of the Bahamas nor the Royal Bahamas Police Force would confirm the nature of the charges against Bankman-Fried.
The New York Times reported that the charges against Bankman-Fried included conspiracy to commit wire fraud and securities fraud, as well as standalone charges of securities fraud, wire fraud and money laundering.
The SEC has initiated a separate set of charges against Bankman-Fried, relating to “violations of our securities laws, which will be filed publicly tomorrow in the Southern District of New York,” enforcement director Gurbir Grewal said in a statement on Monday.
A spokesperson for the SEC declined further comment.
The charges could land Bankman-Fried in prison for decades, legal experts told CNBC. But before he ever serves time, U.S. prosecutors have to secure an extradition from the Bahamas back to New York.
An effort to extradite
“It is inconceivable to me that the Justice Department would have charged this case unless they were confident that they could extradite him,” Renato Mariotti, a former federal prosecutor, told CNBC.
Mariotti anticipates an extradition will take weeks to complete.
“The statement by the Bahamian government suggests that they’re going to cooperate,” Mariotti said.
Read more about tech and crypto from CNBC Pro
The U.S. and the Bahamas have had an extradition treaty in place since 1931, with the most recent iteration codified in 1990. Because Bankman-Fried hasn’t been convicted in the Bahamas yet, U.S. prosecutors had to secure an arrest warrant and provide sufficient evidence to the Bahamians that he had committed a crime.
Extradition is the first step in a process that could take years to finish. Given the magnitude of Bankman-Fried’s alleged crimes, prosecutors and regulators will be pursuing concurrent cases around the world.
A trial in the U.S. “may not occur for years,” Mariotti said.
“The more that they charge, the bigger that the case is, the more time they’re going to need to get in motion,” he said. “I would say late 2023 is the earliest a trial would occur.”
Prosecutors could argue that FTX breached its fiduciary duty by allegedly using customer funds to artificially stabilize the price of the company’s self-issued FTT coin, Mariotti said.
Intent is also a factor in fraud cases, and Bankman-Fried insists he didn’t know about potentially fraudulent activity. He told CNBC’s Andrew Ross Sorkin at the New York Times DealBook conference that he “didn’t knowingly commingle funds.”
“I didn’t ever try to commit fraud,” Bankman-Fried said.
In prepared testimony for the House Financial Services committee, new FTX CEO John Ray confirmed that commingling of funds had occurred between FTX and Alameda Research, Bankman-Fried’s hedge fund.
Other legal trouble
Beyond the criminal charges set to be unveiled Tuesday morning, Bankman-Fried is also facing civil action, which could be brought by the SEC, the Commodity Futures Trading Commission and state banking and securities regulators, said Richard Levin, who chairs the fintech and regulation practice at Nelson Mullins Riley & Scarborough.
The CFTC and lawmakers have begun their probes into FTX and Bankman-Fried, who told Sorkin he was down to his last $100,000.
Shortly after Bankman-Fried’s arrest, the SEC appeared to confirm that the agency would pursue a separate set of charges from the criminal indictment.
Lawmakers also expressed their satisfaction at Bankman-Fried’s arrest. Senator Sherrod Brown (D-Ohio), who chairs the Senate Committee on Banking, Housing, and Urban Affairs, applauded both the Justice Department and Bahamian law enforcement “for holding Sam Bankman-Fried accountable.”
Rep. Maxine Waters (D-Calif.), the chairwoman of the House Financial Services Committee, echoed that sentiment, but expressed disappointment that Bankman-Fried was arrested before his House testimony, which was scheduled for Tuesday.
“I am surprised to hear that Sam Bankman-Fried was arrested in the Bahamas at the direction of the United States Attorney,” Waters said in a statement.
“[The] American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people,” Waters continued.
Bankman-Fried had also been invited to appear before the Senate prior to his arrest. That hearing will occur on Wednesday.
It’s unclear whether the SEC or the CFTC will take the lead in securing civil damages.
“The question of who would be taking the lead there, whether it be the SEC or CFTC, depends on whether or not there were securities involved,” Mariotti told CNBC.
SEC Chairman Gary Gensler, who met with Bankman-Fried and FTX executives earlier this year, has said publicly that “many crypto tokens are securities,” which would make his agency the primary regulator.
But many exchanges, including FTX, have crypto derivatives platforms that sell financial products like futures and options, which fall under the CFTC’s jurisdiction.
“For selling unregistered securities without a registration or an exemption, you could be looking at the Securities Exchange Commission suing for disgorgement — monetary penalties,” said Levin, who’s represented clients before both agencies.
Investors who have lost their savings aren’t waiting. Class-action suits have already been filed against FTX endorsers, like comedian Larry David and football superstar Tom Brady. One suit excoriated the celebrities for allegedly failing to do their “due diligence prior to marketing [FTX] to the public.”
FTX’s industry peers are also filing suit against Bankman-Fried. Failed lender BlockFi sued Bankman-Fried in November, seeking unnamed collateral that the FTX founder provided for the crypto lending firm.
FTX and Bankman-Fried had previously rescued BlockFi from insolvency in June, but when FTX failed, BlockFi was left with a similar liquidity problem and filed for bankruptcy protection in New Jersey.
Bankman-Fried has also been sued in Florida and California federal courts. He faces class-action suits in both states over “one of the great frauds in history,” a California court filing said.
The largest securities class-action settlement was for $7.2 billion in the Enron accounting fraud case, according to Stanford research. The possibility of a multibillion-dollar settlement would come on top of civil and criminal fines that Bankman-Fried faces.
A life behind bars
If the DOJ were able to secure a conviction, a judge would look to several factors to determine how long to sentence him.
Based on the size of the losses, if Bankman-Fried is convicted on any of the fraud charges, he could be behind bars for years — potentially for the rest of his life, said Braden Perry, a partner at Kennyhertz Perry who advises clients on anti-money laundering, compliance and enforcement issues.
But the length of any potential sentence is hard to predict, said Perry, who was previously a senior trial lawyer for the CFTC, FTX’s only official U.S. regulator.
Federal sentencing guidelines follow a numeric system to determine the maximum and minimum allowable sentence, but the system can be esoteric. The scale, or “offense level,” starts at one, and maxes out at 43.
A wire fraud conviction rates as a seven on the scale, with a minimum sentence ranging from zero to six months.
But mitigating factors and enhancements can alter that rating, Perry told CNBC.
“The dollar value of loss plays a significant role. Under the guidelines, any loss above $550 million adds 30 points to the base level offense,” Perry said. FTX customers have lost billions of dollars.
“Having 25 or more victims adds 6 points, [and] use of certain regulated markets adds 4,” Perry said.
That means Bankman-Fried could be facing life in federal prison, without the possibility of supervised release, if he’s convicted on just one of the offenses that prosecutors will reportedly pursue.
If convicted, his sentence could be reduced by mitigating factors.
“In practice, many white-collar defendants are sentenced to lesser sentences than what the guidelines dictate,” Perry said. Even in large fraud cases, that 30-point enhancement previously mentioned can be considered punitive.
By way of comparison, Stefan Qin, the Australian founder of a $90 million cryptocurrency hedge fund, was sentenced to more than seven years in prison after he pleaded guilty to one count of securities fraud.
FTX CEO Sam Bankman-Fried attends a press conference at the FTX Arena in downtown Miami on Friday, June 4, 2021.
Matias J. Ocner | Miami Herald | Tribune News Service | Getty Images
Sam Bankman-Fried, the disgraced former CEO of FTX — the bankrupt cryptocurrency exchange that was worth $32 billion a few weeks ago — has a real knack for self-promotional PR. For years, he cast himself in the likeness of a young boy genius turned business titan, capable of miraculously growing his crypto empire as other players got wiped out. Everyone from Silicon Valley’s top venture capitalists to A-list celebrities bought the act.
But during Bankman-Fried’s press junket of the last few weeks, the onetime wunderkind has spun a new narrative – one in which he was simply an inexperienced and novice businessman who was out of his depth, didn’t know what he was doing, and crucially, didn’t know what was happening at the businesses he founded.
It is quite the departure from the image he had carefully cultivated since launching his first crypto firm in 2017 – and according to former federal prosecutors, trial attorneys and legal experts speaking to CNBC, it recalls a classic legal defense dubbed the “bad businessman strategy.”
At least $8 billion in customer funds are missing, reportedly used to backstop billions in losses at Alameda Research, the hedge fund he also founded. Both of his companies are now bankrupt with billions of dollars worth of debt on the books. The CEO tapped to take over, John Ray III, said that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” This is the same Ray who presided over Enron’s liquidation in the 2000s.
In America, it is not a crime to be a lousy or careless CEO with poor judgement. During his recent press tour from a remote location in the Bahamas, Bankman-Fried really leaned into his own ineptitude, largely blaming FTX’s collapse on poor risk management.
At least a dozen times in a conversation with Andrew Ross Sorkin, he appeared to deflect blame to Caroline Ellison, his counterpart (and one-time girlfriend) at Alameda. He says didn’t know how extremely leveraged Alameda was, and that he just didn’t know about a lot of things going on at his vast empire.
Bankman-Fried admitted he had a “bad month,” but denied committing fraud at his crypto exchange.
Fraud is the kind of criminal charge that can put you behind bars for life. With Bankman-Fried, the question is whether he misled FTX customers to believe their money was available, and not being used as collateral for loans or for other purposes, according to Renato Mariotti, a former federal prosecutor and trial attorney who has represented clients in derivative-related claims and securities class actions.
“It sure looks like there’s a chargeable fraud case here,” said Mariotti. “If I represented Mr. Bankman-Fried, I would tell him he should be very concerned about prison time. That it should be an overriding concern for him.”
But for the moment, Bankman-Fried appears unconcerned with his personal legal exposure. When Sorkin asked him if he was concerned about criminal liability, he demurred.
“I don’t think that — obviously, I don’t personally think that I have — I think the real answer is it’s not — it sounds weird to say it, but I think the real answer is it’s not what I’m focusing on,” Bankman-Fried told Sorkin. “It’s — there’s going to be a time and a place for me to think about myself and my own future. But I don’t think this is it.”
Comments such as these, paired with the lack of apparent action by regulators or authorities, have helped inspire fury among many in the industry – not just those who lost their money. The spectacular collapse of FTX and SBF blindsided investors, customers, venture capitalists and Wall Street alike.
Bankman-Fried did not respond to a request for comment. Representatives for his former law firm, Paul, Weiss, did not immediately respond to comment. Semafor reported earlier that Bankman-Fried’s new attorney was Greg Joseph, a partner at Joseph Hage Aaronson.
Both of Bankman-Fried’s parents are highly respected Stanford Law School professors. Semafor also reported that another Stanford Law professor, David Mills, was advising Bankman-Fried.
Mills, Joseph and Bankman-Fried’s parents did not immediately respond to requests for comment.
Bankman-Fried could face a host of potential charges – civil and criminal – as well as private lawsuits from millions of FTX creditors, legal experts told CNBC.
For now, this is all purely hypothetical. Bankman-Fried has not been charged, tried, nor convicted of any crime yet.
Richard Levin is a partner at Nelson Mullins Riley & Scarborough, where he chairs the fintech and regulation practice. He’s been involved in the fintech industry since the early 1990s, and has represented clients before the Securities and Exchange Commission, Commodity Futures Trading Commission and Congress. All three of those entities have begun probing Bankman-Fried.
There are three different, possibly simultaneous legal threats that Bankman-Fried faces in the United States alone, Levin told CNBC.
First is criminal action from the U.S. Department of Justice, for potential “criminal violations of securities laws, bank fraud laws, and wire fraud laws,” Levin said.
A spokesperson for the U.S. Attorney’s Office for the Southern District of New York declined to comment.
Securing a conviction is always challenging in a criminal case.
Mariotti, the former federal prosecutor is intricately familiar with how the government would build a case. He told CNBC, “prosecutors would have to prove beyond a reasonable doubt that Bankman-Fried or his associates committed criminal fraud.”
“The argument would be that Alameda was tricking these people into getting their money so they could use it to prop up a different business,” Mariotti said.
“If you’re a hedge fund and you’re accepting customer funds, you actually have a fiduciary duty [to the customer],” Mariotti said.
Prosecutors could argue that FTX breached that fiduciary duty by allegedly using customer funds to artificially stabilize the price of FTX’s own FTT coin, Mariotti said.
But intent is also a factor in fraud cases, and Bankman-Fried insists he didn’t know about potentially fraudulent activity. He told Sorkin that he “didn’t knowingly commingle funds.”
“I didn’t ever try to commit fraud,” Bankman-Fried said.
Beyond criminal charges, Bankman-Fried could also be facing civil enforcement action. “That could be brought by the Securities Exchange Commission, and the Commodity Futures Trading Commission, and by state banking and securities regulators,” Levin continued.
“On a third level, there’s also plenty of class actions that can be brought, so there are multiple levels of potential exposure for […] the executives involved with FTX,” Levin concluded.
The Department of Justice is most likely to pursue criminal charges in the U.S. The Wall Street Journal reported that the DOJ and the SEC were both probing FTX’s collapse, and were in close contact with each other.
That kind of cooperation allows for criminal and civil probes to proceed simultaneously, and allows regulators and law enforcement to gather information more effectively.
But it isn’t clear whether the SEC or the CFTC will take the lead in securing civil damages.
An SEC spokesperson said the agency does not comment on the existence or nonexistence of a possible investigation. The CFTC did not immediately respond to a request for comment.
“The question of who would be taking the lead there, whether it be the SEC or CFTC, depends on whether or not there were securities involved,” Mariotti, the former federal prosecutor, told CNBC.
SEC Chairman Gary Gensler, who met with Bankman-Fried and FTX executives in spring 2022, has said publicly that “many crypto tokens are securities,” which would make his agency the primary regulator. But many exchanges, including FTX, have crypto derivatives platforms that sell financial products like futures and options, which fall under the CFTC’s jurisdiction.
“For selling unregistered securities without a registration or an exemption, you could be looking at the Securities Exchange Commission suing for disgorgement — monetary penalties,” said Levin, who’s represented clients before both agencies.
“They can also sue, possibly, claiming that FTX was operating an unregistered securities market,” Levin said.
Then there are the overseas regulators that oversaw any of the myriad FTX subsidiaries.
The Securities Commission of The Bahamas believes it has jurisdiction, and went as far as to file a separate case in New York bankruptcy court. That case has since been folded into FTX’s main bankruptcy protection proceedings, but Bahamian regulators continue to investigate FTX’s activities.
Court filings allege that Bahamian regulators have moved customer digital assets from FTX custody into their own. Bahamian regulators insist that they’re proceeding by the book, under the country’s groundbreaking crypto regulations — unlike many nations, the Bahamas has a robust legal framework for digital assets.
But crypto investors aren’t sold on their competence.
“The Bahamas clearly lack the institutional infrastructure to tackle a fraud this complex and have been completely derelict in their duty,” Castle Island Ventures partner Nic Carter told CNBC. (Carter was not an FTX investor, and told CNBC that his fund passed on early FTX rounds.)
“There is no question of standing. U.S. courts have obvious access points here and numerous parts of Sam’s empire touched the U.S. Every day the U.S. leaves this in the hands of the Bahamas is a lost opportunity,” he continued.
Investors who have lost their savings aren’t waiting. Class-action suits have already been filed against FTX endorsers, like comedian Larry David and football superstar Tom Brady. One suit excoriated the celebrity endorsers for allegedly failing to do their “due diligence prior to marketing [FTX] to the public.”
FTX’s industry peers are also filing suit against Bankman-Fried. BlockFi sued Bankman-Fried in November, seeking unnamed collateral that the former billionaire provided for the crypto lending firm.
FTX and Bankman-Fried had previously rescued BlockFi from insolvency in June, but when FTX failed, BlockFi was left with a similar liquidity problem and filed for bankruptcy protection in New Jersey.
Bankman-Fried has also been sued in Florida and California federal courts. He faces class-action suits in both states over “one of the great frauds in history,” a California court filing said.
The largest securities class-action settlement was for $7.2 billion in the Enron accounting fraud case, according to Stanford research. The possibility of a multibillion-dollar settlement would come on top of civil and criminal fines that Bankman-Fried faces.
But the onus should be on the U.S. government to pursue Bankman-Fried, Carter told CNBC, not on private investors or overseas regulators.
“The U.S. isn’t shy about using foreign proxies to go after Assange — why in this case have they suddenly found their restraint?”
Wire fraud is the most likely criminal charge Bankman-Fried would face. If the DOJ were able to secure a conviction, a judge would look to several factors to determine how long to sentence him.
Braden Perry was once a senior trial lawyer for the CFTC, FTX’s only official U.S. regulator. He’s now a partner at Kennyhertz Perry, where he advises clients on anti-money laundering, compliance and enforcement issues.
Based on the size of the losses, if Bankman-Fried is convicted of fraud or other charges, he could be behind bars for years — potentially for the rest of his life, Perry said. But the length of any potential sentence is hard to predict.
“In the federal system, each crime always has a starting point,” Perry told CNBC.
Federal sentencing guidelines follow a numeric system to determine the maximum and minimum allowable sentence, but the system can be esoteric. The scale, or “offense level,” starts at one, and maxes out at 43.
A wire fraud conviction rates as a seven on the scale, with a minimum sentence ranging from zero to six months.
But mitigating factors and enhancements can alter that rating, Perry told CNBC.
“The dollar value of loss plays a significant role. Under the guidelines, any loss above $550 million adds 30 points to the base level offense,” Perry said. FTX customers have lost billions.
“Having 25 or more victims adds 6 points, [and] use of certain regulated markets adds 4,” Perry continued.
In this hypothetical scenario, Bankman-Fried would max out the scale at 43, based on those enhancements. That means Bankman-Fried could be facing life in federal prison, without the possibility of supervised release, if he’s convicted on a single wire fraud offense.
But that sentence can be reduced by mitigating factors – circumstances that would lessen the severity of any alleged crimes.
“In practice, many white-collar defendants are sentenced to lesser sentences than what the guidelines dictate,” Perry told CNBC, Even in large fraud cases, that 30-point enhancement previously mentioned can be considered punitive.
Bankman-Fried could also face massive civil fines. Bankman-Fried was once a multibillionaire, but claimed he was down to his last $100,000 in a conversation with CNBC’s Sorkin at the DealBook Summit last week.
“Depending on what is discovered as part of the investigations by law enforcement and the civil authorities, you could be looking at both heavy monetary penalties and potential incarceration for decades,” Levin told CNBC.
In the most famous fraud case in recent years, Bernie Madoff was arrested within 24 hours of federal authorities learning of his multibillion-dollar Ponzi scheme. But Madoff was in New York and admitted to his crime on the spot.
The FTX founder is in the Bahamas and hasn’t admitted wrongdoing. Short of a voluntary return, any efforts to apprehend him would require extradition.
With hundreds of subsidiaries and bank accounts, and thousands of creditors, it’ll take prosecutors and regulators time to work through everything.
Similar cases “took years to put together,” said Mariotti. At FTX, where record keeping was spotty at best, collecting enough data to prosecute could be much harder. Expenses were reportedly handled through messaging software, for example, making it difficult to pinpoint how and when money flowed out for legitimate expenses.
In Enron’s bankruptcy, senior executives weren’t charged until nearly three years after the company went under. That kind of timeline infuriates some in the crypto community.
“The fact that Sam is still walking free and unencumbered, presumably able to cover his tracks and destroy evidence, is a travesty,” said Carter.
But just because law enforcement is tight-lipped, that doesn’t mean they’re standing down.
“People should not jump to the conclusion that something is not happening just because it has not been publicly disclosed,” Levin told CNBC.
Could he just disappear?
“That’s always a possibility with the money that someone has,” Perry said, although Bankman-Fried claims he’s down to one working credit card. But Perry doesn’t think it’s likely. “I believe that there has been likely some negotiation with his attorneys, and the prosecutors and other regulators that are looking into this, to ensure them that when the time comes […] he’s not fleeing somewhere,” Perry told CNBC.
In the meantime, Bankman-Fried won’t be resting easy as he waits for the hammer to drop. Rep. Maxine Waters extended a Twitter invitation for him to appear before a Dec. 13 hearing.
Bankman-Fried responded on Twitter, telling Waters that if he understands what happened at FTX by then, he’d appear.
Correction: Caroline Ellison is Bankman-Fried’s counterpart at Alameda. An earlier version misspelled her name.
