The Same Day Sam Bankman-Fried Is Hit with a New Count of Bank Fraud, Three Regulators Warn About Crypto Bank Runs

Gunnar Larson g at
Mon Feb 27 07:09:40 PST 2023

By Pam Martens and Russ Martens: February 27, 2023 ~

Damian Williams (Photo Source US Attorney's Office, SDNY, via AP)
Damian Williams, U.S. Attorney for SDNY, Is Leading the Prosecution of Sam

On December 13, the U.S. Department of Justice released an 8-count criminal
indictment against the former crypto kingpin, Sam Bankman-Fried. He was
charged with conspiracy to commit wire fraud, wire fraud, conspiracy to
commit commodities fraud, conspiracy to commit securities fraud, conspiracy
to commit money laundering, and conspiracy to defraud the Federal Election
Commission and commit campaign finance violations.

Last Thursday, the Department of Justice added four additional criminal
counts against Sam Bankman-Fried in a superseding indictment. These
include: bank fraud; conspiracy to operate an unlicensed money transmitting
business; and two counts involving the purchase and sale of derivatives.

Bankman-Fried’s jury trial is scheduled to start in October. The charge of
bank fraud is something that jury members can get their minds around –
particularly when the alleged bank fraud is shown to have taken place at
federally-insured banks which are backstopped by U.S. taxpayers. And while
the new indictment does not name any specific banks, it is well known that
Bankman-Fried’s FTX crypto exchange and his hedge fund, Alameda Research,
were involved with a number of federally-insured banks. (See, for example,
Federally-Insured, Crypto-Focused Silvergate Bank Loses 43 Percent of Its
Market Value Yesterday as Depositors Flee. Silvergate was a $160 stock in
late April of last year. It closed on Friday at $14.33 following a massive
bank run on deposits in the last quarter of 2022 as its ties to FTX became

Here’s a sampling of what’s in the new indictment regarding Sam
Bankman-Fried’s alleged diabolical plan to engage in bank fraud:

“SAMUEL BANKMAN-FRIED, a/k/a ‘SBF,’ the defendant, perpetrated this
multi-billion-dollar fraud through a series, of systems and schemes that
allowed BANKMAN-FRIED, through Alameda, to access and steal FTX customer
deposits without detection. For instance, in 2021, FTX began to accept
customer fiat deposits into an Alameda-affiliated bank account that itself
was established through a fraudulent scheme that BANKMAN-FRIED directed…

“In part to obscure the relationship between FTX and Alameda, and in order
to overcome Bank-1 ‘s refusal to open a bank account for FTX without
extensive due diligence and licensing, in or about August 2020, SAMUEL
BANKMAN-FRIED, a/k/a ‘SBF,’ the defendant, directed the incorporation of a
new U.S.-based entity, North Dimension. BANKMAN-FRIED was listed as sole
owner, CEO, and president of North Dimension, which had no employees or
business operations outside of its bank account. BANKMAN-FRIED and others
chose the name ‘North Dimension’ in part to conceal that there was a
relationship between North Dimension and Alameda from FTX customers and
from banks approving transactions with the North Dimension bank account.
BANKMAN-FRIED also directed the creation of a website for North Dimension
and used a credit card in his name to fund the hosting services for the

“Once the North Dimension bank account was opened, FTX directed customer
dollar deposits to the North Dimension account. Thereafter, when FTX
customers deposited or withdrew fiat currency, Alameda personnel, who
maintained control over the North Dimension account and acted under the
direction and supervision of SAMUEL BANKMAN-FRIED, a/k/a ‘SBF,’ the
defendant, and his co-conspirators, manually credited or subtracted the
customer’s FTX account with the corresponding amount of fiat currency on an
internal ledger system…”

Investigative reporter, Gretchen Morgenson, reported for NBC News in
December that North Dimension went to the trouble of creating a fake
company website that marketed itself like this: “Our vision is to become
most popular website for purchasing mobile phones and electronics by
offering complete product information and a transparent purchasing

It is more than a little noteworthy that the same day that the Justice
Department released details on how easily Bankman-Fried was allegedly able
to commit bank fraud, three federal bank regulators released new warnings
to U.S. banks about getting involved in crypto. The federal regulators are
the Board of Governors of the Federal Reserve System (Federal Reserve), the
Federal Deposit Insurance Corporation (FDIC), and the Office of the
Comptroller of the Currency (OCC).

One paragraph of the various warnings sounds like it is describing the
negative impact to all crypto-related banks when a relationship like that
between Silvergate and FTX/Alameda makes headlines. It reads:

“Deposits placed by a crypto-asset-related entity that are for the benefit
of the crypto-asset-related entity’s customers (end customers). The
stability of such deposits may be driven by the behavior of the end
customer or crypto-asset sector dynamics, and not solely by the
crypto-asset-related entity itself, which is the banking organization’s
direct counterparty. The stability of the deposits may be influenced by,
for example, periods of stress, market volatility, and related
vulnerabilities in the crypto-asset sector, which may or may not be
specific to the crypto-asset-related entity. Such deposits can be
susceptible to large and rapid inflows as well as outflows, when end
customers react to crypto-asset-sector-related market events, media
reports, and uncertainty. This uncertainty and resulting deposit volatility
can be exacerbated by end customer confusion related to inaccurate or
misleading representations of deposit insurance by a crypto-asset-related

There is no such thing as federal deposit insurance for crypto assets.
-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: text/html
Size: 6898 bytes
Desc: not available
URL: <>

More information about the cypherpunks mailing list