Sam Bankman- Fried vs. Alameda Research: A New Bulls Challenge in the FTX Corridor and The Collapse of the Exchange

Sam Bankman- Fried, the founder of the FTX, pleaded not guilty to fraud charges related to the collapse of his exchange. (His trial is set to begin on Oct. 2.) The back-and-forth on Tuesday between his lawyers and federal prosecutors in a Manhattan courtroom suggests that he is gearing up for a potentially titanic legal fight.

Prosecutors asked the presiding judge for a new condition that would prevent Mr. Bankman- Fried from transferring any funds from FTX or Alameda Research. (The judge authorized the request.)

Mr. Bankman-Fried’s lawyers requested that the names of two other co-signers for his bond, aside from his parents, remain sealed to protect their privacy. This was also approved.

FTX has a growing body of evidence which include documents from banks, employees, politics and internet service providers.

Source: https://www.nytimes.com/2023/01/04/business/dealbook/tesla-bulls-challenges.html

Gemini Earn, Cryptocurrencies, and the Winklevoss Letter: A Class Action against a Crypto Lender, Coinbase, and Coinbase

Late last month, Earn investors filed a proposed class action in New York federal court, naming Gemini and its founders Cameron and Tyler Winklevoss. The lawyers behind the suit, Hee-Jean Kim and James Serritella, told DealBook that they regard the Winklevoss letter as an attempt to shift the blame for investor losses in Earn, which Gemini had marketed as risk-free and akin to a “crypto savings bank.”

Mr. Winklevoss wrote in an open letter that he did not know how the mess was made. He said that 340,000 customers were owed a total of about $900 million on Gemini Earn, a product that allowed customers to earn up to 8 percent interest on their digital coins by lending them to Genesis Global Capital, a DCG subsidiary. Genesis, which has about $175 million frozen on FTX, halted withdrawals in November following FTX’s collapse, ultimately leaving Earn users out of pocket.

There is a question on whether a coin is a security or not. The suit alleges that Gemini failed to register Earn with the S.E.C. and didn’t disclose material information to investors. (In previous cases, BlockFi, the bankrupt crypto lender, settled charges with the regulator last year after failing to register a similar product, and the agency blocked a proposed interest offering from the crypto exchange Coinbase in 2021.)

Unlike Musk’s credit card for Paypal, they advertised on billboards. The Information writes that Gemini approved a surge of new customers that had signed up with stolen identities when the card launched. The fraud cost the company millions of dollars, according to three anonymous sources.

We had decided to give credit cards to absolutely anybody who wanted them. The credit limit is up to $10,000. The lady who was rolling out the service was told by Elon to have a million people use the new credit card by the end of the year. Fortunately, it was about two levels down from the front page, and so not that many people were able to discover this. Some people did; they wrote us back and said, “This is fantastic, I haven’t had credit in years. I can’t believe you’re offering me credit. I haven’t had a checking account for 10 years. People who wrote bad checks were not allowed to have checking accounts. We ended up with a charge-back rate of 50 percent. The companies with the worst ratings were usually in the 4 to 6 percent range. We rolled that product back quickly.

This scenario made Gemini a target for fraudsters initiating ACH transfers using stolen bank account information, two people familiar with the matter said, because they could quickly exploit this loophole to take out crypto. If a bank transfer is disputed and the exchange has to pay the transfer back, there will be even bigger losses.

With something like cryptocurrency, though, a lot of people who are using it are using it for a reason: either they can’t access the regular banking industry or they don’t want to, for instance, because they are trying to get the ransom payment on the hack they did on some business. I mean, the first widespread use for crypto was drugs, people. This is a group that is maybe a little bit more likely to do some shady stuff than the general population, you know?

It is cheap, and a lot of people prefer it. The only problem is if the account information is stolen — or, crucially, if the owner of the account disputes the transfer. As far as banks are concerned, this kind of friendly fraud is a part of their costs and they will only believe their customer. People can withdraw theircryptocurrencies before their deposit is cleared. Here’s The Information on how that worked out:

For example, if a user initiated a transfer of $100 to buy crypto and the value of that crypto rose to $150 before the transfer settled, the user could take out $50 worth of crypto.

What if Gemini had read all the biographies of the Winklevii? I hope you enjoyed the readability of the paper and the case for the PayPal gift cards

I think that if a person in a position of power had read those biographies, Gemini would have avoided all of this. PayPal set out to revolutionize the financial industry pretty recently, after all. I am assuming that there are people in the area who knew what would happen and ripped out their hair. We all have to go to band practice, but the Winklevii did.