Sam Bankman-Fried used Taxpayer funds given to his father to pay legal fees

Former entrepreneur Sam Bankman-Fried is reportedly paying for his expensive legal defenses using money from a “multi-million-dollar gift” he gave to his father – with funds taken from his now defunct cryptocurrency hedge fund, Alameda Research.

The young former CEO handed his father the money as a gift last year with the idea of using it to pay for his legal expenses, according to the New York Post. The source of the gift’s funding is unclear, though.

According to Forbes, Bankman-Fried gave his father, longtime Stanford University law professor Joseph Bankman, a “large monetary present” in 2021, according to the publication.

Following the investigation, Bankman-Fried transferred money to his father using a “lifetime estate and gift tax exemption” after obtaining a loan from Alameda Research to secure at least $10 million.

Two sources with operational knowledge of both FTX and Alameda Research claim that the large monetary gift was made to Bankman-Fried’s father, Joseph Bankman, who is a longtime law professor at Stanford University. The funds were allegedly used to pay for Joseph Bankman’s expensive legal defense in a case involving the IRS and the taxation of cryptocurrency.

The transfer of funds was reportedly made without the approval of Alameda’s board of directors, and it was not disclosed to investors. This raises concerns about transparency and governance in the cryptocurrency industry, particularly given the size and source of the gift.

Bankman-Fried and his parents’ representatives did not immediately respond to The New York Post’s inquiry regarding their comments.

The Securities and Exchange Commission (SEC), which is purportedly looking into the subject, has reportedly become aware of the situation. As a result of the scandal, other investors have also stated their desire to withdraw money from Alameda.

In a statement to Forbes, Bankman-Fried admitted the shift, but he insisted that it was a personal choice and had no impact on Alameda’s operations. He added that he did not know at the time that his father would use the money to pay for legal expenses and that the transfer was meant to be a present to his father.

This controversy comes at a time when the cryptocurrency industry is facing increased scrutiny from regulators and the public. The lack of transparency and governance in the industry has been a concern for many, and this latest development is unlikely to help alleviate those concerns.

With FTX’s bankruptcy filing last fall, Alameda Research closed its doors. The CEO of the hedge firm was Bankman-ex-girlfriend Fried’s Caroline Ellison.

Ellison was one of the many members of Bankman-Fried’s inner circle, such as former FTX executives Gary Wang and Nishad Singh, who have admitted guilt and cooperated with investigators. The SEC has reportedly been investigating the company since last fall.

The company has reportedly come under investigation from Chinese officials for bribing them with $40 million in cryptocurrency to unlock some of Alameda Research’s trading accounts. Bankman-Fried and those acting under his direction allegedly tried for months to recover the money legally by hiring lawyers to lobby government officials.

Then they made an illegal attempt, creating fictitious accounts at Chinese exchanges in the names of individuals who weren’t FTX employees so they don’t get caught by the Chinese authorities. The indictment claimed that SBF and his associates attempted to “circumvent the Chinese authorities’ freeze orders” by transferring the frozen cryptocurrency to these fake accounts.

In conclusion, the allegations that Sam Bankman-Fried used funds from his cryptocurrency hedge fund to pay for his father’s legal defense are troubling and raise questions about transparency and governance in the industry. The situation is still unfolding, and it remains to be seen how it will ultimately be resolved and what impact it will have on Alameda and the wider cryptocurrency market.

References:

Gara A 2023. Sam Bankman-Fried’s Legal Defense Is Being Funded With Alameda Money He Gifted His Father. Accessed from: https://www.forbes.com/sites/antoinegara/2022/03/25/ftx-founder-sam-bankman-fried-used-crypto-hedge-fund-to-fund-fathers-legal-defense-sources-say/?sh=2fbb2c04571a, 2023-3-29.

Barrabi T 2023. Sam Bankman-Fried reportedly paying legal bills with Alameda funds gifted to his dad. Accessed from: https://nypost.com/2023/03/29/sam-bankman-fried-reportedly-paying-legal-fees-using-alameda-funds-gifted-to-dad/