FTX’s Sam Bankman-Fried, DOJ tussle over his communications
By Michael Liedtke
Federal prosecutors are trying to prohibit FTX founder Sam Bankman-Fried from privately contacting current and former employees of the bankrupt cryptocurrency exchange to prevent potential witness tampering in a criminal case accusing him of bilking investors and customers.
The request, made in a letter filed late Friday by U.S. Justice Department lawyers, prompted an indignant response from Bankman-Fried’s lawyer, who accused prosecutors of twisting the facts to cast the FTX founder in a sinister light ahead of his trial scheduled later this year.
The testy exchange prompted U.S. District Judge Lewis Kaplan in New York to issue a Saturday order that included admonishment for the opposing lawyers in the case to refrain from “pejorative characterizations” of each other’s actions and motives.
Bankman-Fried, 30, has been under confinement at his parents’ home in Palo Alto, California, since pleading not guilty earlier this month to charges against him. He is accused of diverting massive sums of FTX customer funds to buy property, donate to politicians and finance risky trades at Alameda Research, his cryptocurrency hedge fund trading firm.
Federal prosecutors raised their concerns about Bankman-Fried’s attempts to connect with potential witnesses in the case after discovering he sent an encrypted message over the Signal texting app on Jan. 15 to the general counsel of FTX US, according to their letter to Kaplan.
“I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other,” Bankman-Fried wrote to the FTX general counsel, dubbed “Witness 1,” in the prosecutors’ letter.
Federal prosecutors told Kaplan that Bankman-Fried’s communications are a sign that he may be trying in influence a witness with incriminating evidence against him. As a safeguard, the prosecutors want Kaplan to revise the conditions of Bankman-Fried’s bail so he can’t communicate with current or former employees of FTX and Alameda Research outside the presence of a lawyer without a waiver from the Justice Department.
But Bankman-Fried’s attorney, Mark Cohen, painted a much different picture in his fiery retort to the prosecutors. Cohen described Bankman-Fried’s effort to reach the FTX general counsel as “an innocuous attempt to offer assistance in FTX’s bankruptcy process.”
In his Saturday order, Kaplan demanded complete copies of Bankman-Fried’s electronic communications to be provided by Monday.
Federal prosecutors also want Kaplan to change the conditions of Bankman-Fried’s bail to prevent him from communicating through Signal, which has an auto-delete option to make messages quickly disappear in addition encryption technology to help shield the contents from outsiders.
“Using Signal to contact potential witnesses increases the likelihood that detection of any attempt to obstruct justice by influencing a witness will itself be obstructed,” the prosecutors told Kaplan.
But Cohen wrote that the message sent to the FTX general counsel didn’t have an auto-delete feature. Cohen also assured the judge that Bankman-Fried has turned off the disappearing messages option in his Signal account.
“The government cannot justify a bail condition based on an unfounded concern about what Mr. Bankman-Fried might do, when there is no evidence that he is, in fact, doing it,” Cohen said.
Before prosecutors asked the judge to impose broad restrictions that would prevent Bankman-Fried from privately communicating with any current or former FTX employees, Cohen said the two sides had already been in negotiations to reach a “reasonable” compromise before prosecutors “sandbagged” the talks with their late Friday letter to Kaplan.
By Cohen’s estimate, FTX and Alameda Research have about 350 current and former employees who would be blocked off from Bankman-Fried by a blanket ban, including some that might have crucial information for his defense during a trial tentatively scheduled to begin in October.
Bankman-Fried was willing to voluntarily agree to a prohibition against him communicating with several top FTX executives in exchange for being allowed to remain in contact with others such as his father, his therapist still employed by the cryptocurrency exchange and a range of other unidentified workers who directly reach out to him.
Kaplan told federal prosecutors to respond to Cohen’s claims in his seven-page letter by Monday.
Alberta moves to force oilpatch to pay owed taxes above ‘threshold’ amount
The Alberta government says it’s moving to force oilpatch companies to make good on their unpaid municipal taxes.
Energy Minister Peter Guthrie says he’s issued an order that blocks companies from acquiring or transferring licences on wells or other assets if their unpaid taxes exceed a threshold amount.
That threshold is yet to be determined and will be set by the Alberta Energy Regulator and Alberta Municipal Affairs.
Alberta Energy says in a release that once the threshold has been established, companies that don’t meet it will be targeted for collection.
Rural Municipalities Alberta has said energy companies owe the municipal districts in which they operate a total of $268 million.
Paul McLauchlin of the group says the order will help reduce the unpaid tax burden on its members.
This report by The Canadian Press was first published March 20, 2023.
The Canadian Press
Fed’s tough challenge: Confront inflation and bank jitters
Federal Reserve chair Jerome Powell speaks during a news conference, Wednesday, Feb. 1, 2023, at the Federal Reserve Board in Washington. With inflation still high and anxieties gripping the banking industry, the Federal Reserve and its chair, Jerome Powell, will face a complicated task at their latest policy meeting Wednesday and in the months to follow: How to tame inflation by continuing to raise interest rates while also helping to restore faith in the financial system – all without triggering a severe recession. (AP Photo/Jacquelyn Martin, File)
By Christopher Rugaber in Washington
WASHINGTON (AP) — Still grappling with persistently high inflation, the Federal Reserve faces an entirely new — and in some ways conflicting — challenge as it meets to consider interest rates this week: How to restore calm to a nervous banking system.
The two simultaneous problems would normally push the Fed in different directions: To fight elevated inflation, it would raise its benchmark rate, perhaps substantially, for the ninth time in the past year. But at the same time, to soothe financial markets, the Fed might prefer to leave rates unchanged, at least for now.
Most economists think the Fed will navigate the conundrum by raising rates by just a quarter-point when its latest policy meeting ends Wednesday. That would be less than the half-point hike that many economists had expected before the recent collapse of two large banks. But it would still mark another step by the Fed in its continuing drive to tame inflation.
If the Fed were instead to leave rates alone, which some analysts last week had suggested it might do given the banking turmoil, it could alarm Wall Street traders by suggesting that significant problems remain in the banking system.
Vincent Reinhart, a former top Fed economist now at the investment bank Dreyfus-Mellon, noted that the central bank prefers to manage financial stability issues separately from its rate decisions. One goal of a series of emergency steps the Fed announced Sunday to bolster the banking system is to allow it to separately address inflation through its rate policies.
“If you are obviously seen as adjusting your monetary policy because of concerns about financial strain, then you’re admitting you’re not (successfully) doing … crisis management,” Reinhart said.
Last week, the European Central Bank imposed a half-point rate hike to try to reduce an 8.5% inflation rate despite jitters caused by the struggles of Switzerland’s second-largest lender, Credit Suisse. ECB President Christine Lagarde said she saw “no tradeoff” between fighting inflation and preserving financial stability.
On Sunday, the Swiss banking giant UBS bought troubled Credit Suisse for $3.25 billion in a deal orchestrated by banking regulators to try to prevent potentially calamitous turmoil in global markets.
The Fed intervened in the banking emergency a little over a week ago by joining with the Treasury Department and the Federal Deposit Insurance Corporation to announce that the government would protect all of the banks’ deposits. It also unveiled an expansive emergency lending program to provide ready cash for banks and other financial institutions. And it sweetened the terms for the banks to borrow from a long-standing Fed facility known as the “discount window.”
On Thursday, the Fed said it had lent nearly $300 billion in emergency funding to banks, including a record amount from the discount window.
Assuming that those programs work as intended, the Fed can focus on its ongoing campaign to cool inflation. Most recent economic reports point to a still-hot economy with strong hiring, steady consumer spending and persistent inflation.
Consumer prices rose 6% in February from a year earlier, down from a peak of 9.1% last June. Most of that decline reflected a shift in consumer spending away from goods — such as used cars, furniture and appliances, which have been falling in price — and toward services, including traveling, dining out and entertainment events.
That spending surge has kept inflation high in services categories, which Fed Chair Jerome Powell has singled out as a major concern because inflation tends to be particularly persistent in services.
“Inflation — it’s still got some legs, unfortunately,” said Nathan Sheets, a former Treasury official and Fed economist, now chief global economist at Citi. “The labor market is still booming.”
Hiring and inflation figures accelerated earlier this year after having shown signs of cooling in late 2022. In response, Powell and other Fed officials suggested that the central bank would likely raise rates higher than they had forecast in December and probably keep them at a peak for longer.
When the Fed raises its key rate, it typically leads to higher rates on mortgages, auto loans, credit cards and many business loans. Typically, consumer and business spending slow in response.
“The recent data indicate that we haven’t made as much progress as we thought,” Christopher Waller, a member of the Fed’s Board of Governors, said this month. The Fed’s efforts to reduce inflation to its 2% target, Waller said, “will be slower and longer than many had expected just a month or two ago.”
The banking troubles have also intensified fears among many economists that the economy could soon tumble into recession.
One reason for the pessimism is that some banks will likely curtail lending to help shore up their finances and avoid running the risk of a collapse. Economists at Goldman Sachs estimate that credit tightening by the banking sector could reduce economic growth this year by as much as a half-percentage point.
Ironically, though, that slowdown in growth could help the Fed, which has had only limited success in trying to cool the economy through its rate hikes.
The potential slowdown in lending “is going to do some of the Fed’s work for it,” said John Roberts, a former Federal Reserve economist said. “So the Fed won’t have to raise rates as high as otherwise.”
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