Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Cyber Security, Quantum, Hacks, Fraud Alerts, Risks, InsurTech
UK Leading Charge in Global Crypto Tax Crackdown
Crypto Taxes | Nov 13, 2023
Image created by DALL-E3
On November 10, 2023, the United Kingdom has reached a landmark agreement with 48 countries through a joint statement, aimed at combating the use of crypto-assets by criminals to evade and avoid taxes amounting to billions.
The United Kingdom has taken a leading role in an international effort to combat tax evasion in the realm of cryptocurrencies. This initiative, announced on November 10, 2023, marks a significant step in addressing the challenges posed by the digital economy to global tax systems. The UK's commitment to this cause is not a new endeavor. It follows the UK's influential role in the historic G20/OECD global tax deal in 2021, aimed at clamping down on corporate tax avoidance. This deal ensured that taxes are paid correctly and fairly, particularly by large multinational enterprises.
See: Canada: Release Of Draft Tax Legislation For Consultation including GST/HST for Crypto Mining
The rapid growth of the global crypto market has brought new challenges in tax compliance. Estimates suggest that tax non-compliance on crypto-asset holdings could range from 55% to 95%. The CARF aims to address this gap, potentially recouping hundreds of millions of pounds for the UK.
The Crypto-Asset Reporting Framework (CARF)
At the heart of this initiative is the Crypto-Asset Reporting Framework (CARF), spearheaded by the UK and endorsed by the OECD. This framework is a tax transparency standard requiring crypto platforms to share taxpayer information with tax authorities. This level of information exchange is unprecedented in the crypto world and is expected to significantly enhance tax compliance.
See: New U.S. Crypto Accounting Rules Come Into Effect in 2024
The CARF is set to take effect in time for exchanges with other countries to start from 2027. It builds upon the existing Common Reporting Standard, which has already been successful in tackling offshore tax evasion, recovering almost £100 billion in additional tax revenue since 2014.
The initiative has received backing from the 'Global Forum on Transparency and Exchange of Information for Tax Purposes', a forum of 168 countries under the OECD, and has been endorsed by the G7.
Outlook
This initiative not only aims to recoup lost revenue but also sends a strong message against the misuse of digital assets for tax evasion.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Cavelo Inc. Raises CAD$5M to Advance Cybersecurity Solutions
Funding | Nov 10, 2023
Cavelo Inc., a leader in attack surface management technology, has successfully secured CAD$5M in venture capital financing, led by Inovia Capital with contributions from Graphite Ventures.
A Comprehensive Cybersecurity Solution
Cavelo's platform aligns with stringent data privacy and security regulations like GDPR and HIPAA, simplifying compliance and risk management. The platform's effectiveness is echoed by customers like William Ercolano, Vice President of Client Technology at ECI, who praised its ability to intelligently present data leakage risks. Despite market challenges, Cavelo has achieved a notable 272% year-over-year revenue growth.
Taha Mubashir, Principal at Inovia Capital:
"Cavelo represents the future of cybersecurity investments. Their customer-first approach and commitment to innovation in attack surface management are driving significant growth."
See: Blakes: Cybersecurity Trends in Canada: A 2023 Perspective
James Mignacca, Founder and CEO of Cavelo, highlights the platform's design, focusing on customer needs in an era of increasing digitalization and cloud service adoption.
"Our success is a direct result of our customers' trust. The Cavelo platform is a turnkey product that mitigates risk and exposure by identifying sensitive data, its location, access, and prioritizing software vulnerability remediation."
This investment marks a significant milestone for Cavelo, enabling it to enhance its support for customers and channel partners in navigating the evolving cybersecurity landscape. View the original press release here.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SBF Found Guilty and Convicted on All 7 Charges
Regulation | Nov 3, 2023
Image: Unsplash/Ye Jinghan
In a verdict that has sent shockwaves across the financial technology sector, Sam Bankman-Fried, the former crypto golden boy and head of the now-defunct FTX exchange, has been convicted on all counts of fraud and money laundering.
The decision concludes a saga that has captivated and alarmed investors and regulators worldwide. Bankman-Fried, who once stood at the forefront of the cryptocurrency revolution, now faces the stark reality of a potential maximum sentence of 115 years in prison. This outcome is the result of a jury's finding that he was integral to a scheme that misused billions of dollars of customer funds—a severe breach of trust and a violation of the law.
See: Key Moments Inside the SBF Trial: Days 1-12
The trial, which lasted five weeks, delved into the intricate details of how FTX and its sister company, Alameda Research, crumbled nearly a year ago. The prosecution presented a compelling narrative, supported by the testimonies of former colleagues and confidants turned government witnesses, that Bankman-Fried knowingly engaged in fraudulent activities that led to significant financial losses for thousands of investors.
Attorney General Merrick Garland:
Sam Bankman-Fried thought that he was above the law. Today’s verdict proves he was wrong. This case should send a clear message to anyone who tries to hide their crimes behind a shiny new thing they claim no one else is smart enough to understand: the Justice Department will hold you accountable.
Bankman-Fried's defense hinged on the claim that there was no fraudulent intent behind the borrowing of customer funds by Alameda Research. However, the evidence and subsequent jury verdict firmly placed the responsibility for the misuse of funds and the resulting financial devastation on his shoulders.
See: SBF’s Trial: Insight into Chaos & Mismanagement
As the crypto community grapples with the implications of this high-profile conviction, the next steps are clear.
- The sentencing, set to be determined by a judge, is scheduled for March 28 (typically decided within 90 days).
- In the interim, the government must decide by February 1 if it will proceed with a second trial on additional charges.
This case is a watershed moment for the cryptocurrency industry, emphasizing the need for stringent oversight and ethical conduct. It serves as a cautionary tale that even the most innovative sectors are not immune to the age-old risks of financial misconduct. This conviction will undoubtedly influence the approach to regulation and compliance in the digital asset space.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SBF’s Trial: Insight into Chaos & Mismanagement
Crypto | Oct 30, 2023
Image: Unsplash/Wesley Tingey
SBF Testifies, Revealing Chaos and Mismanagement at FTX
Sam Bankman-Fried took the stand and testified last Friday in the ongoing FTX trial providing insight into the chaotic environment that led to the collapse of one of the most prominent cryptocurrency exchanges.
SBF's testimony was a blend of admissions of incompetence and steadfast denials of wrongdoing. He claimed that the collapse of FTX was a result of maladministration rather than fraudulent activities. In a strategic move, SBF shifted the blame onto former colleagues, including Caroline Ellison, Gary Wang, and Nashid Singh, all of whom have already testified against him. This tactic aimed to paint a picture of a chaotic environment where mismanagement was rampant, but intentional deception was absent.
As the trial unfolds, it is impossible to ignore the cultural context in which SBF's actions and the subsequent legal proceedings are taking place. SBF's relationship with media, optics, and influencers has been a topic of much discussion and analysis of how SBF navigated the complex world of public perception and influence.
See: Key Moments Inside the SBF Trial: Days 1-12
Tiffany Fong, a prominent crypto influencer, has been at the forefront of this cultural exploration and had extensive interactions with Sam Bankman-Fried, visiting him more than 10 times at his childhood home during his house arrest. She documented her experiences and interactions with SBF, sharing them with her followers.
Her interactions with SBF provide a unique insight into his approach to media and public relations. SBF, aware of the power of optics and narrative, engaged with influencers like Fong to shape the narrative around him and FTX. Fong's relationship with SBF is explored in detail in this Rolling Stones article, highlighting her unique access to him during his house arrest and her efforts to share insights and information with the public.
SBF, facing seven charges of fraud and money laundering and claimed that the downfall was a result of maladministration rather than intentional fraud. This high-stakes legal battle is set to leave a lasting impact on the crypto industry. The trial is set to be with the jurors soon, with the jury's verdict eagerly anticipated by many.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Rising Threats: The Global Impact of Push Payment Fraud
Oct 27, 2023
Photo by Sora Shimazaki from Pexels
In this article we’ll discuss, what Push Payment Fraud is and whether it’s a real threat as well as what problems it can cause.
In an increasingly interconnected world, where digital transactions are the norm, push payment fraud has emerged as a significant global threat. This insidious form of cybercrime affects not only individuals but also organisations, causing widespread financial losses and eroding trust in online financial systems.
This article delves into the rising risk of push payment fraud, explores its worldwide implications, and highlights preventive measures, cybersecurity trends, and legal actions aimed at countering these evolving threats.
The Escalating Risk of Push Payment Fraud
Push payment fraud, also known as authorised push payment (APP) fraud, is a type of cybercrime in which individuals are manipulated into transferring money to a fraudulent account willingly. Unlike traditional unauthorised transactions, push payment fraud relies on deception and manipulation rather than hacking.
Push payment fraud schemes have become more sophisticated, and fraudsters employ various tactics to deceive victims. One common method is impersonating legitimate organisations or individuals, such as a bank, a vendor, or even a close friend.
Through carefully crafted emails, phone calls, or messages, fraudsters convince victims to make payments or divulge sensitive financial information.
The global scale of push payment fraud is striking. In the United Kingdom, for example, the UK Finance report revealed a staggering £479 million lost to APP fraud in 2020, affecting thousands of individuals and businesses. The ramifications extend far beyond monetary losses, as victims often experience emotional distress and reputational damage.
The Widespread Consequences
The consequences of push payment fraud are not confined to a single nation; it's a global issue with cascading effects. Here's a closer look at how it affects individuals and businesses worldwide:
Individuals
1. Financial Loss
The immediate impact of push payment fraud is financial. Victims lose their hard-earned money to criminals, often with little hope of recovery.
2. Emotional Toll
Being deceived in a push payment scam can be emotionally devastating. Victims experience a range of emotions, from anger and betrayal to shame and embarrassment.
Photo by Sora Shimazaki from Pexels
3. Trust Erosion
The loss of trust in digital transactions can have far-reaching effects. Individuals may become more sceptical, leading to slower adoption of digital financial services.
Businesses
1. Monetary Loss
For businesses, push payment fraud can result in substantial financial losses. This affects their profitability, hindering growth and sustainability.
2. Operational Disruption
Detecting and addressing fraud can disrupt business operations. This can involve investigations, legal proceedings, and the need for enhanced cybersecurity measures.
3. Reputational Damage
Falling victim to payment fraud can tarnish a business's reputation. Customers may lose trust, impacting long-term relationships and competitiveness.
Preventive Measures and Cybersecurity Trends
Addressing the global impact of push payment fraud requires a multifaceted approach involving individuals, businesses, and regulatory bodies. Here are some key preventive measures and cybersecurity trends that are emerging in response to this growing threat:
Education and Awareness
Educating individuals and employees about the tactics used by fraudsters is crucial. Raising awareness can help people recognise and avoid falling victim to push payment scams.
Two-Factor Authentication (2FA)
Implementing 2FA can add an extra layer of security to financial transactions. This requires users to provide two different authentication factors, such as a password and a one-time code, making it more challenging for fraudsters to gain access.
Real-Time Payment Monitoring
Businesses are increasingly using real-time monitoring systems to detect and prevent fraudulent transactions. These systems can spot suspicious activities and halt transactions before money is transferred.
Legal Action and Regulation
Governments and regulatory bodies are taking legal actions to combat push payment fraud. In the UK, the introduction of the Contingent Reimbursement Model (CRM) Code is a significant step toward protecting consumers.
Collaboration
Collaboration between financial institutions, law enforcement agencies, and businesses is essential to address push payment fraud effectively. Sharing information and best practices can improve collective defences.
Artificial Intelligence (AI) and Machine Learning
AI and machine learning are being employed to identify patterns and anomalies associated with fraud. These technologies can enhance the detection of fraudulent activities.
Protective Legal Actions Have Been Taken
In response to the rising threat of push payment fraud, the UK introduced the CRM Code in 2019. This voluntary code sets out standards for banks and other payment service providers to adhere to when determining whether victims should be reimbursed.
The code outlines circumstances under which victims can expect to be reimbursed and encourages better industry cooperation to combat fraud. The CRM Code has been a significant development in the fight against push payment fraud, offering consumers greater protection.
Photo by Tima Miroshnichenko from Pexels
The rising threats of push payment fraud…
Push payment fraud is not just a local or regional problem, it's a global issue with far-reaching consequences. Its impact on individuals and businesses extends beyond financial losses, affecting trust, emotional well-being, and reputation. As the world becomes more digitally connected, the threat of push payment fraud continues to grow.
In response to these challenges, a combination of education, awareness, technological advancements, and legal actions is essential to mitigate the global impact of push payment fraud. By staying informed, implementing security measures, and collaborating across sectors, we can work toward a safer digital space for individuals and businesses worldwide.
See: Trust Fallacy: 75% of Payment Fraud in Crypto is Carried Out by KYC-verified Accounts
The rise of push payment fraud is a global concern with significant consequences. Preventive measures and trends in cybersecurity are emerging to counter this threat, and legal actions, such as the CRM Code in the UK, offer consumers greater protection. Push payment fraud requires a collective effort to safeguard the global community from its damaging effects.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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FinCEN Proposes New Rules Targeting Crypto Mixers
Regulation | Oct 25, 2023
Image: Unsplash/Vitaly Taranov
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has proposed a new regulation targeting Convertible Virtual Currency Mixing (CVC mixing).
FinCEN has announced a Notice of Proposed Rule Making (NPRM), identifying international CVC mixing as a primary concern in money laundering activities. This proposal aims to increase transparency around CVC mixing, preventing its misuse by malicious entities such as Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK). The proposal is available for viewing in the federal register here.
In May 2022, the US Treasury of Foreign Assets Control designated crypto mixer Blender.io as a Specially Designated National ("SDN"), marking the first time a virtual currency mixer had been sanctioned.
See: Russian Duo Charged in Historic Mt. Gox Hack and BTC-e Money Laundering Operation
Andrea Gacki, FinCEN Director:
CVC mixing offers a critical service that allows players in the ransomware ecosystem, rogue state actors, and other criminals to fund their unlawful activities and obfuscate the flow of ill-gotten gains. This is FinCEN’s first ever use of the Section 311 authority to target a class of transactions of primary money laundering concern, and, just as with our efforts in the traditional financial system, Treasury will work to identify and root out the illicit use and abuse of the CVC ecosystem.
The proposed rule aims to deny illicit actors access to the U.S. and global financial systems by increasing transparency and reporting requirements for financial institutions.
The NPRM is currently available for public viewing, and written comments can be submitted within 90 days of its publication in the Federal Register.
See:
US Treasury Demands DeFi Adhere to Anti-Money Laundering Rules
Cullen Commission Money Laundering Report Estimates Billions Laundered in B.C. Every Year
By targeting CVC mixing, the Treasury aims to combat the illicit use of virtual currencies by various actors, safeguarding the integrity of the financial system. This initiative reflects the government’s proactive approach to adapting to the evolving landscape of virtual currencies and ensuring that innovation does not compromise security.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Key Moments Inside the SBF Trial: Days 1-12
Crypto | Oct 20, 2023
The high-profile trial of FTX founder Sam Bankman-Fried is happening now. Days 1-12 unveils startling revelations and financial discrepancies in the cryptocurrency industry.
The cryptocurrency world has been rocked by the high-profile trial of Sam Bankman-Fried (SBF), the founder of FTX. As the courtroom drama unfolds, revelations from key witnesses, financial discrepancies, and the intricate web of relationships between FTX, Alameda Research, and other entities have captivated audiences globally.
There is a plethora of coverage on the web from media and industry who are providing full covering of SBFs trial from Blockworks, Wired, CryptoSlate, Crypto.News, CoinDesk, Coinpedia, and many more that we've drawn upon to produce the daily summaries below highlighting the pivotal moments and testimonies from the first 12 days of the trial, thus far, shedding light on the complexities and implications of the case.
Day 1: Sam Bankman-Fried Trial
- The trial commenced at the Daniel Patrick Moynihan United States Courthouse, with a significant turnout of potential jurors, media personnel, crypto influencers, skeptics, and more. The atmosphere was likened to the "first day of school," with many notable figures in the crypto industry present.
- The primary focus of the day was jury selection. Judge Lewis B. Kaplan read out the charges against SBF and provided an overview of the case. He emphasized the importance of impartiality and instructed potential jurors not to engage in any research or read press coverage related to the trial.
- Several potential jurors shared their experiences and knowledge about the case. Notably, one juror mentioned having learned about SBF's situation from "The Joe Rogan Experience," another worked at Insight Partners and claimed the company had invested in both Alameda and FTX, and another questioned the government's approach to presenting its case without evidence.
- An assistant U.S. attorney listed potential witnesses for the prosecution, including Caroline Ellison, Gary Wang, Nishad Singh, Ryan Salame, and others. Institutions like Jane Street Capital, Sequoia Capital, BlockFi, and Genesis were also mentioned.
- By the end of the day, the jury had not been finalized, but Judge Kaplan was optimistic about completing the selection process by the following morning. Once the jury is finalized, opening statements from both the defense and prosecution are expected.
"Sam Bankman-Fried made FTX.com for trading digital coins, like stocks on an exchange." - Judge Lewis B. Kaplan
Day 2: Sam Bankman-Fried Trial
- Sam Bankman-Fried is accused of seven counts of fraud and conspiracy, including wire fraud and conspiracy to commit money laundering.
- Prosecutor Thane Rehn claimed that from 2019 to early 2022, Bankman-Fried knowingly stole FTX customer money, which was used for real estate in the Bahamas, political donations, and to pay off loans to creditors of Alameda Research.
- The defense, led by Mark Cohen, portrayed Bankman-Fried as a "math nerd" who acted in "good faith" and made sound business decisions, denying any fraudulent activities.
- Former FTX developer Adam Yedidia, a close friend of Bankman-Fried, testified that he quit FTX after learning that customer funds were used to repay Alameda creditors.
- The prosecution alleges that Bankman-Fried secretly gave Alameda "special access" to FTX accounts, allowing them "unlimited withdrawals" without customer consent.
"Prosecutor Thane Rehn told the jury that while Bankman-Fried was living his best life, all of it was built on lies, and he was actively stealing FTX customer money."
Day 3: Sam Bankman-Fried Trial
- FTX co-founder Sam Bankman-Fried is accused of misappropriating billions of dollars of customer funds for various purposes, including real estate and political contributions.
- Adam Yedidia, a former FTX engineer and college roommate of SBF, testified that SBF encouraged employees to use Signal and set messages to auto-delete.
- Yedidia revealed that he quit FTX after learning that customer funds from FTX were being used to pay Alameda creditors.
- Paradigm co-founder Matt Huang testified that Paradigm invested roughly $278 million in FTX and FTX.US. He expressed concerns about the lack of a traditional corporate governance model at FTX.
- Gary Wang, co-founder and former CTO of FTX, admitted to committing wire fraud and conspiring to commit commodities fraud alongside Bankman-Fried and others.
"Former FTX CTO Gary Wang admitted, “We gave special privileges to Alameda Research” to withdraw unlimited funds from FTX, and he also confessed to lying to the public."
See: How Will FTX’s Collapse Impact North Korea? The Answer Will Surprise You!
Day 4: Sam Bankman-Fried Trial
- Gary Wang continued his testimony, revealing that Alameda Research had an $11 billion fiat liability to FTX and could withdraw unlimited funds.
- Bankman-Fried sought to shut down Alameda ahead of a revealing Bloomberg article, but Alameda couldn't be shut down as it had borrowed $14 billion from FTX.
- In November 2022, Bankman-Fried tweeted that "FTX is fine. Assets are fine," but Wang testified that the assets were not fine, and FTX sought protection from the courts shortly after.
- Wang and Bankman-Fried traveled to the Bahamas Securities Commission, where Bankman-Fried asked Wang to transfer FTX assets to Bahamian liquidators, believing they would be more deferential than American regulators.
- Wang revealed that the backstop or insurance fund that FTX advertised had "fake" numbers, and the actual amounts in those accounts were lower than advertised.
"Wang testified that after the $11 billion hole was uncovered in June 2022, Bankman-Fried wanted Alameda to return the borrowed money to lenders, and the funds to pay back would come from FTX customer assets."
Day 5: Sam Bankman-Fried Trial
- Caroline Ellison, Alameda Research CEO, testified that under SBF's direction, she was instructed to divert billions of dollars from FTX customer funds. Alameda then used these funds for failed investments and to pay off its debt.
- Ellison revealed that SBF had aspirations of becoming the U.S. President. She met SBF at Jane Street, a renowned New York-based trading firm, and dated him for several years before becoming Alameda's CEO.
- Ellison's testimony highlighted that Alameda had been granted direct deposits ranging between $10-$20 billion from FTX in 2020 and 2022. From these funds, $2 billion was designated for repaying loans, investing, and converting capital to USDC.
- She also mentioned that Alameda had a significant amount of Solana, referred to as “Sam coins”. SBF donated $10 billion to Biden’s administration, while Ryan Salame, CEO of FTX Digital Markets, borrowed $35 million from the exchange for contributions to the Republicans.
- Gary Wang, FTX’s CTO and Co-founder, took the stand, detailing his surprise when SBF asked him to compute interest charges on Alameda’s borrowings. He also explained FTX’s operations, pointing out significant customer withdrawals and how Alameda transactions affected FTX’s balance.
"According to Ellison, SBF had instructed her to divert billions of dollars from FTX customer funds, which Alameda used for failed investments, to pay off its debt."
See: Claw-back Risk: 1 in 3 Members of Congress Received ‘Cash Donation’ from FTX/SBF
Day 6: Sam Bankman-Fried Trial
- Caroline Ellison, former CEO of Alameda Research, testified about the diversion of billions of dollars from FTX customer funds under SBF's direction. These funds were used by Alameda for failed investments and debt repayment.
- Ellison revealed that Alameda had open-ended loans and faced challenges when lenders recalled loans as the market declined in 2022. Genesis, in particular, wanted back $400 million from their open-term loan, which Ellison had to source from FTX customer funds.
- SBF directed Ellison to continue repaying Alameda's loans using FTX's line of credit. He also instructed Gary Wang and Nishad Singh to facilitate this process.
- Ellison highlighted that there was a discrepancy in FTX's finances: while there were $13 billion worth of Customer Deposits on FTX, only $3 billion was available for withdrawals. The remaining $10 billion had been loaned out to Alameda.
- The trial also touched upon bribery allegations, with Ellison stating that FTX/Alameda had $1 billion stuck in China and resorted to bribing Chinese officials with $100 million in crypto to resolve the issue.
“Keep paying loans, don’t worry, withdraw from FTX balances,” Ellison quoted Bankman-Fried. She also mentioned that Alameda forged seven different balance sheets, with SBF deciding which ones to disclose to lenders.
Day 7: Sam Bankman-Fried Trial
- Caroline Ellison, a former top deputy to FTX founder Sam Bankman-Fried (SBF), concluded her testimony. The day was marked by emotional revelations, critical audio recordings, and frequent judicial interventions. Ellison's account detailed her intricate relationship with SBF, from personal breakups to professional disagreements.
- Ellison's testimony touched upon key moments, such as the end of her personal relationship with SBF in April 2022 and a dramatic FBI search at her family home on Nov. 16, 2022. These events had profound impacts on her personal and professional life.
- Christian Drappi, a former software engineer at Alameda, testified about his astonishment upon discovering the illicit activities and misuse of FTX customer funds. Audio clips from an all-hands meeting held by Ellison on Nov. 9 were presented, where Ellison disclosed to Alameda Research employees that the crypto hedge fund had misused billions in FTX customer funds for high-risk venture investments and to repay Alameda’s loans.
- The meeting took place just days before Alameda’s implosion and the subsequent bankruptcy filings for FTX and related companies. Drappi was so shocked by the revelations that he resigned within a day.
- BlockFi founder Zac Prince testified about the extensive dealings between BlockFi and Alameda. BlockFi had made significant loans to Alameda, amounting to hundreds of millions of dollars. BlockFi also held considerable amounts of cryptocurrency on the FTX platform due to its relationship with Alameda.
"In the meeting, Ellison disclosed to Alameda Research employees that the crypto hedge fund had misused billions in FTX customer funds to make high-risk venture investments and to repay Alameda’s various loans."
See: Prime Trust’s Financial Failure and Shift Towards ‘No-Custody Solutions’
Day 8: Sam Bankman-Fried Trial
- Former BlockFi CEO Zac Prince testified, emphasizing the impact of FTX and Alameda's collapse on BlockFi, which was forced into bankruptcy due to their lending to Alameda and exposure to the FTX platform.
- Prince confirmed that BlockFi began lending to Alameda at the end of 2021. However, had they known Alameda was borrowing from FTX, they might not have engaged in such dealings.
- The risk management team at BlockFi had warned Prince of potential risks related to Alameda loans, including concerns about the illiquidity of FTT as collateral.
- Despite these warnings, by the time Alameda declared bankruptcy, it owed BlockFi a staggering $650 million.
- The day concluded with the end of Zac Prince's testimony, who was particularly engaging to the jury, discussing the relationship between BlockFi, FTX, and Alameda.
"As a result of FTX and Alameda’s bankruptcy, because of our lending to Alameda but also some exposure we had to the FTX platform, BlockFi was forced into…bankruptcy," stated Zac Prince.
Day 9: Sam Bankman-Fried Trial
- Nishad Singh, FTX’s former head of engineering, took the stand and admitted guilt to crimes, including defrauding FTX customers and investors, money laundering, and violating campaign finance laws.
- Singh confronted Bankman-Fried about a $13 billion discrepancy in the FTX balance sheet, to which SBF allegedly responded, “Right, that. We are a little short on deliverables.”
- Singh revealed that political donations were made in his name to various Democratic party candidates and political action committees. The money for these donations came from FTX customers and was done for "advantageous optics."
- A document titled “We came, we saw, we researched” was discussed, which outlined reasons to shut Alameda down on FTX. Singh suggested shutting Alameda down specifically on FTX, which would have required changes to the over-the-counter (OTC) system and account closures.
- Singh described Bankman-Fried as a "formidable character" whose respect eroded over time. Singh portrayed SBF as deeply involved in the architecture of FTX, including designing the margin trading system and the auto-liquidation engine.
“Sam’s a formidable character,” Singh said. “Over time,” Singh’s respect for SBF “eroded” and he claimed he grew to be “distrustful.”
Day 10: Sam Bankman-Fried Trial
- FBI Agent Richard Busick presented cell phone records of Sam Bankman-Fried, which were analyzed to determine SBF's location during specific events. The records were obtained from an email exchange between SBF and the Prime Minister of the Bahamas.
- The prosecution used the cell phone data to correlate the dates and times of emails sent to Bankman-Fried with his location in Manhattan. Notably, on March 3, 2022, SBF was near a restaurant where he dined with New York Mayor Eric Adams. He also had meetings with New York Governor Kathy Hochul and "President Clinton" in September 2022.
- Skybridge’s Anthony Scaramucci invited SBF to a Pittsburgh Steelers game in November 2022. There was also mention of a potential meetup between Bankman-Fried and the Saudi Minister of Investment.
- During cross-examination, SBF's attorney Christian Everdell highlighted that the cell site analysis doesn't reveal who was using the phone or its exact location, only an estimate. Busick agreed with this assessment.
- Nishad Singh's cross-examination continued, with discussions about his purchase of a $3.7 million house on Orcas Island, his interactions with SBF, and the auto-deleveraging events on FTX.
"Singh, during the redirect from prosecutor Nicolas Roos, admitted that he was OK with putting himself before customers in September 2022."
Day 11: Sam Bankman-Fried Trial
- Professor Peter Easton testified, revealing that from January 2021 until FTX's collapse on Nov. 11, 2022, all of Alameda's "allow negative"-enabled accounts on the exchange were significantly in the red. Despite this, Alameda continued to pay out billions to meet its obligations, with the source of these funds being FTX customers.
- The government's analysis showed that 68% of Alameda's third-party loans, worth around $4.5 billion, were paid with FTX customer money. Alameda repaid roughly $3.5 billion to Genesis in loans, with $1.7 billion of that taken from FTX customers.
- FBI Agent Paige Owens analyzed thousands of pages of Alameda and FTX bank statements to trace the source of political donations made by Bankman-Fried, Nishad Singh, and Ryan Salame. For SBF, Alameda's Prime Trust account sent seven wires totaling $47 million to his personal Prime Trust account, with much of that money ending up in various political action committees.
- Google records custodian Cory Gaddis testified about metadata in a Google Sheets document tied to SBF's account. However, the testimony faced challenges as Gaddis admitted he was not a metadata expert, leading to Judge Kaplan's criticism of both the prosecution and defense.
- The day also highlighted the extent of the commingling of funds between dozens of Alameda and FTX bank accounts and Sam Bankman-Fried's Paper Bird. The prosecution presented evidence of FTX's investment in Modulo Capital and Genesis Digital Assets, both of which involved significant amounts of customer funds.
"In June 2022, the customer fiat liability hit $11.3 billion, while Alameda and FTX had roughly $2.3 billion for customers to withdraw. This meant there was a $9 billion gap in what Alameda and FTX could cover if every customer chose to withdraw their funds."
Day 12: Sam Bankman-Fried Trial
- Former FTX attorney Can Sun testified, revealing that he was "shocked" to discover FTX was "$7 billion short" on its goal of meeting customer withdrawals. Sun had shared a concerning balance sheet with private equity firm Apollo Global, which ultimately declined to invest.
- Sun worked on updating FTX Digital Markets' terms of service in May 2022, which emphasized the safeguarding of customer assets. However, when FTX's collapse began in early November 2022, Sun was involved in discussions with Apollo Global to secure an investment to address increased customer withdrawals.
- The defense's cross-examination of Sun focused on FTX's terms of service, particularly the margin trading section. The defense aimed to determine the percentage of users engaged in margin trading and how many of those who lost money in the FTX collapse were involved in riskier trading strategies.
- Sun also discussed his interactions with Bankman-Fried in the Bahamas regarding a potential Apollo investment, a $7 billion shortfall, and potential legal explanations for the shortfall. Sun mentioned that none of the "theoretical justifications" for the missing funds were supported by facts.
- Robert Boroujerdi, a managing director at asset manager Third Point, testified that Third Point invested $60 million in FTX International, which is now valued at "zero." Boroujerdi stated that Third Point would not have invested if they had known about Alameda's special privileges or that Alameda could withdraw from customer funds on FTX.
"After Sun relayed this story to the jury, the government showed Bankman-Fried’s Dec. 1, 2022, interview with George Stephanopolous. In the interview, Stephanopolous points out that FTX's terms say customer assets are not to be loaned out. Bankman-Fried sidesteps the question, pointing to the 'borrow-lending facility,' also known as trading on margin."
What's Next?
With the trial's progression, both the U.S. Department of Justice and Bankman-Fried's defense team have recently submitted their proposed jury instructions, marking a pivotal phase in the ongoing trial. These instructions are crucial as they will guide the jury's decision-making process regarding Bankman-Fried's fate. While the prosecution emphasizes the gravity of the accusations, aiming to build a robust case against Bankman-Fried, the defense seeks to present alternative interpretations of the statutes, pinpointing potential issues with the prosecution's arguments.
Judge Kaplan now faces the challenging task of evaluating both proposals and determining the most appropriate jury instructions. The court proceedings were suspended and are set to resume on October 26.
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