One of the closest lieutenants of FTX founder, Sam Bankman-Fried, warned Bahamian regulators about improper trades at the cryptocurrency exchange in the days running up to its collapse, according to court filings.
The revelation came in papers published as part of the bail hearing for Bankman-Fried, FTX’s former chief executive, who was arrested in the Bahamas on Monday and charged in the US on Tuesday over alleged fraud, money laundering and conspiracy.
The filing refers to a warning from Ryan Salame, the co-CEO and chairman of FTX Digital Markets, the Bahamian-based portion of Bankman-Fried’s sprawling cryptocurrency empire, about transfers to FTX’s crypto hedge fund, Alameda Research.
On 9 November, Salame told the Bahamian securities commission that “clients’ assets which may have been held with FTX Digital were transferred to Alameda Research to cover financial losses at Alameda”, according to the court documents first published by the Financial Times.
In the filing, published as part of Bankman-Fried’s bail hearing, Christina Rolle, the commission’s director, added that Salame was clear only three people could have made the transfer: Bankman-Fried or his two co-founders, Nishad Singh and Gary Wang. “Such actions may be deemed criminal,” Rolle concluded.
The conversation between Rolle and Salame happened two days before FTX filed for Chapter 11 bankruptcy in the US, and the same day that Binance, the largest cryptocurrency exchange, walked away from a non-binding offer to bail out the company after performing brief due diligence.
Salame has long been one of Bankman-Fried’s closest associates, just outside the innermost circle of the FTX co-founders. While Bankman-Fried built up a reputation as a mega-donor for the Democratic Party, using his newfound influence in Washington DC to push for friendly regulation, Salame was doing the same with the Republicans, ultimately giving more than $20m to various causes within the party.
Those donations are now under the spotlight, after criminal charges filed against Bankman-Fried in New York include campaign finance violations and money laundering offences.
According to the Department of Justice’s allegations, customer funds deposited at FTX were funnelled to Alameda, where they were then used to make political donations in both Bankman-Fried’s name and the names of other un-named “co-conspirators”.
Since the collapse of FTX, Bankman-Fried has publicly maintained that he was largely absent from day-to-day decisions at Alameda, and has blamed the transfer of funds between the two companies on an oversight of a “hidden, poorly labelled internal account” containing $8bn that FTX’s internal records had failed to mark as being actually held in the name of the crypto hedge fund.
But while Bankman-Fried stepped down as chief executive of Alameda in 2021, with his former hedge fund colleague and sometime girlfriend, Caroline Ellison, eventually taking over as sole chief executive the following year, civil charges filed by the Commodity Futures Trading Commission allege that he “maintained direct decision-making authority over all of Alameda’s major trading, investment, and financial decisions”.
The charges add: “This authority was exercised at least in part through Bankman-Fried’s regular, often daily participation in various in-person and mobile chat communications with senior personnel at Alameda.”
