SBF’s Parents Played an Integral Role in the Rise and Collapse of the FTX Crypto Empire

FTX founder Sam Bankman-Fried was arrested by Bahamian authorities this Monday with the expectation that he will be extradited to the US.

The US attorney's office for the southern district of New York has filed eight criminal charges against Sam, including wire fraud, securities fraud, money laundering, and violating campaign finance laws. This follows the civil charges brought by the US Securities and Exchange Commission (SEC) accusing the former billionaire of defrauding investors by building a company that was a “house of cards.”

Despite being nearly broke, Sam has hired defense attorney Mark Cohen, who previously represented convicted sex offender Ghislaine Maxwell.

In the court this week, Sam was seen embracing his parents after the judge denied his bail petition, citing his high risk of flight, and ordered the former FTX chief executive sent to the country's Department of Corrections until February 8.

His family, parents Joseph Bankman and Barbara Fried, both popular faculty members at Stanford Law School, along with his brother Gabe Bankman-Fried were all involved in the FTX. They were not only supportive parents who supported their son's businesses but also politically powerful in Democratic circles.

In a statement, FTX's spokeswoman, Risa Heller, said that while Bankman worked for FTX for 11 months, his wife had no role at the firm. Sam, 30, meanwhile said in an interview that his parents “weren't involved in any of the relevant parts” of the business.

“None of them were involved in FTX balances or risk management or anything like that,” he said.

Since the FTX debacle, the careers of Sam's parents have been upended. His mother resigned last month as chairwoman of the board of the political donor network, Mind the Gap, which she had helped start to support Democratic campaigns.

Mr. Bankman-Fried, meanwhile, has postponed a Stanford class on tax policy he had been scheduled to teach in the winter, and he's recruited a white-collar criminal defense lawyer to represent him. The family is facing huge legal bills, and they have reportedly become the subject of gossip on Stanford's campus.

Sam's parents have remained by his side throughout the rise and now the collapse of one of the world's largest crypto exchanges. His parents were also present at the Bahamas hearing and were seen at times laughing or putting their fingers in their ears, according to a CoinDesk report.

Shaping the Narrative

Born in 1992, Sam studied at the Massachusetts Institute of Technology (MIT) and began his professional career at the trading firm Jane Street Capital where he specialized in arbitrage trading strategies. He co-founded Alameda Research, a quantitative trading firm, in November 2017 and then launched FTX in 2019.

When Sam was a student at MIT, he was reported to be planning on working on animal welfare issues until a key conversation with Will MacAskill, who told him that, due to his math skills, he could probably do more good working as a quantitative analyst in the financial industry, and giving away his healthier earnings to effective charities, than he would ever be able to hand out leaflets advocating for veganism.

The former CEO was one of the Democratic Party's largest donors and revealed in a recent interview that he donated an equal amount to Republicans using “dark” or non-publicly disclosed methods.

Earlier this year, Sam painted the now-bankrupt FTX crypto exchange as a rescuer for the cryptocurrency sector, bailing out crypto lender BlockFi and buying assets from Voyager Digital when the latter went bust.

In the middle of the crash in November, Sam reached out to his parents about the impending collapse of his firm but was being officially advised by a whirlwind of other lawyers, including David Mills, another Stanford Law School professor.

In the months leading up to FTX's bankruptcy filing last month, Sam's father was an important defender of the company, helping shape a narrative in which Sam was using cryptocurrency to save the world, giving donations to charities, and giving lower-income people access to the financial system.

FTX filed for bankruptcy on November 11, leaving about one million customers and other investors facing losses that reached billions of dollars. If the filing was not bad enough for those invested in FTX, the worst was yet to come.

According to John J. Rae III, the recently appointed CEO of FTX, the files revealed a vast array of errors, as well as an overall lack of company oversight.

Indictments by the SEC and Commodity Futures Trading Commission (CFTC) indicated FTX had mixed customers' funds with his hedge fund, Alameda Research, and billions of customers' deposits were lost in the process. While the public believed Sam's lies and sent billions to FTX, it improperly transferred customer funds to his affiliated crypto hedge fund, the SEC said in court documents.

He continued to shift FTX customers' funds, the SEC said, even when it became increasingly clear Alameda and FTX were not in a position to pay customers back.

The disgraced FTX chief is now facing an array of legal and regulatory investigations, including a current class-action suit brought by angry FTX customers and a federal investigation of whether he engaged in market manipulation in the crypto industry.

Mr. and Ms. Bankman Fried's Involvement

Sam's father, Joseph Bankman, 67, is a leading taxation expert who has been an outspoken advocate for simplifying the tax filing system.

He has pushed for a system where the government would perform the role of a tax preparer for American workers. While tax preparers lobbied against it, he poured his own money into counter-lobbying in California.

“He said, ‘Look, Jay, I could remodel my kitchen, or I can do this on behalf of taxpayers,'” said Jay Soled, a professor at Rutgers Business School who has known Bankman-Fried for about two decades.

Mr. Bankman-Fried, who also has a degree in clinical psychology and practices as a therapist, was deeply involved in FTX. He helped the company recruit its first lawyers. Last year, he joined FTX staff in meetings on Capitol Hill and advised his son as Sam prepared to testify to the House Financial Services Committee. FTX employees also occasionally consulted him on tax-related matters.

“From the start, whenever I was useful, I'd lend a hand,” said Mr. Bankman-Fried on an FTX podcast in August. He further shared that he started working at FTX at Sam's request, adding, “I think any parent would love to hear that.”

Bankman was a big cheerleader for his son's company, propagating that he was trying to save the world. Bankman also organized an event to select teams of high school students to compete for $1 million worth of FTX grants pitching “Shark Tank”-style business ideas to a panel of judges that included Kevin O'Leary and David Ortiz.

He also leveraged family connections to expand the reach of the exchange. His sister, Barbara Miller, a political consultant, introduced him to Newton Sanon, the chief executive of OIC of South Florida. This non-profit organization helps people become self-sufficient through workforce development training.

According to Newton, following the collapse of the exchange, some participants in the FTX venture might have lost funds that had been stored on the platform, including money the students had received as scholarships to participate in the program.

Unlike Mr. Bankman, Sam's mother, Barbara Fried, did not work for the company, but her son was among the donors in a political advocacy network that she orchestrated.

Ms. Fried, 71, has been a Stanford law professor since 1987, specializing in tax policy, property theory, and political theory. She is an influential philosopher known for her arguments that consequentialist moral theories, such as effective altruism and utilitarianism, which focus on the practical outcomes of an individual's actions, are more appropriate to the complex real-world tradeoffs one faces in society.

The parents were also tied up in FTX's suspicious Bahamas real estate empire. FTX provided a place for them to stay whenever they visited their son in the Bahamas, where the beleaguered exchange is based.

The family is also accused of buying a $16.4 million vacation home, which is owned by FTX, before the exchange's crash. His parents are reportedly listed on the deed for the beach house within the exclusive Old Fort Bay gated community. In bankruptcy court, Sam and his allies have been accused of pillaging company resources to grab $300 million in ritzy real estate on the island.

Sam also helped bankroll the non-profit organization Guarding Against Pandemics, run by his 27-year-old brother, who resigned from NPO in November.

This week, Sam's successor as CEO, John Ray, was called to testify before the House Financial Services Committee in the US Congress, where he revealed that Sam's family received payments from FTX.

Both Mr. and Mrs. Bankman-Fried are currently under scrutiny for their connections to the now-defunct FTX. Sam's “legal bills will likely wipe them out financially,” the parents have told friends, as per sources close to the family.