Sam Bankman-Fried’s lawyers pin hopes on The Bahamas

Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week, we’re revisiting The Bahamas.

Could The Bahamas be about to throw sand into the US machine that is prosecuting Sam Bankman-Fried?

The intriguing question came to light this week in a court document filed in New York by the defence team of the former FTX chief.

His lawyers are fighting the criminal case laid out last December by the Department of Justice, which includes allegations of wire fraud, conspiracy to commit money laundering and conspiracy to violate campaign finance laws.

There were eight original charges, which served as the original basis for Bankman-Fried’s extradition from The Bahamas to the US.

Since arriving back in the US Bankman-Fried has been handed new charges, including securities fraud and conspiracy to violate anti-bribery laws by paying $40mn to allegedly influence Chinese officials. Bankman-Fried has pleaded not guilty to all counts.

But because the later charges were not part of the original agreement to extradite him, his legal team say the counts should be dismissed. Most eye-catching, the US government seems to agree that the later charges may be dropped if The Bahamas government doesn’t play ball.

“The government will proceed on the new charges . . . if The Bahamas consents to trial on these charges, and will not proceed on those counts if The Bahamas denies the government’s request,” the court filing reads.

The Bahamian government did not respond when I asked whether it would consent to the US pursuing the most recent charges facing Bankman-Fried.

This may not come as a surprise considering that the country has sought to divorce itself from the FTX scandal since the company collapsed on its shores eight months ago.

Weeks after the collapse, attorney-general Leo Pinder was eager to emphasise that “over 100 companies” in the FTX web were located outside The Bahamas.

During my November visit to Nassau, Bahamian prime minister Philip Davis said he found no “deficiencies” in his country’s crypto regulations that could have stopped the FTX collapse. As a side note, The Bahamas had already engaged renowned law firm Hogan Lovells to review and help update its crypto rules.

But is the Caribbean nation really about to put a serious dent in the US’s most eye-catching crypto enforcement case?

“From the DoJ’s perspective, the more important the case, the more they will push every button to achieve their aims. And I have to say, this case is among the highest profile cases period, let alone white collar cases, for the DoJ,” one former federal prosecutor in Washington DC told me over the phone.

Teresa Goody Guillén, partner at BakerHostetler, points out that superseding indictments are often filed after an extradition.

“The defendant will object to the new crimes claiming that the extraditing country did not consent to prosecuting or punishing him for the new crimes,” she told me via email.

And although The Bahamas could stand its ground, the US has been asserting the primacy of its own foreign policy interests in the Caribbean for more than a hundred years. The island nation can expect some heat from American prosecutors if it chooses not to play.

“In all likelihood, given The Bahamas’s presumed interest in maintaining good relations with US law enforcement, the country will grant the waiver and the government will proceed with the new charges,” said one American lawyer familiar with the matter.

In any case, the defence lawyers’ filing is the latest unpleasant reminder for The Bahamas that it will probably never divorce itself from the FTX scandal.

What’s your take on the latest FTX salvo between the US and The Bahamas? As always, email me at [email protected].

Weekly highlights

• Singaporean state investor Temasek has cut the pay of the staff responsible for its failed $275mn investment in FTX. The company said it was “disappointed” with the investment and the impact it had on its reputation. Supposedly Temasek had done an “extensive” eight-month due diligence of FTX in 2021.

• Some of the finance industry’s biggest names, including Standard Chartered, Nomura and Charles Schwab, are building their own digital markets trading platforms in the hopes that fund managers will gravitate towards established names over opaque and lesser-known crypto exchanges. My colleague Nikou Asgari has the story here.

• On the subject of opacity in crypto markets, many of the biggest names in the industry are (brace yourself . . .) still dodging basic questions about their businesses. In the wake of the collapse of FTX and many other once-prominent crypto groups, regulators and consumers alike are concerned about industry transparency, yet when the FT asked 21 of the most prominent crypto companies about their governance and handling of customer assets, many declined to share basic information. Check out Martha Muir’s list here.

• Binance’s grip on crypto is dwindling: the industry behemoth has lost a quarter of its market share in the past three months as a regulatory clampdown and the end of a free trading promotion have clipped its wings. The company is also carrying out a round of job cuts. Binance didn’t tell me how many employees were at risk and were quick to say the cuts were not about “right-sizing” but instead about talent re-evaluation. My story here.

• While we’re at it, a mini scooplet on Binance: since the start of the year it has tripled the amount of money it pays to internationally renowned law firm Hogan Lovells for its lobbying efforts on Capitol Hill. We covered the exchange’s lobbying tactics in the US earlier this year. During a time when America’s relationship with crypto is complicated at best, the folks at Hogan Lovells — who declined to comment — are certainly earning their money.

Soundbite of the week: A vanished CEO

Multichain, a . . . cross-chain router protocol (I know, me neither) has served up a crypto classic this week.

The platform explained that the technology issues it had been experiencing recently were down to “unforeseeable circumstances”, which turned out to be the mysterious vanishing of its chief executive. Bad enough but he appeared to be the only individual with access to important servers running the network.

“The team has done everything possible to maintain the protocol running, but we are currently unable to contact CEO Zhaojun and obtain the necessary server access for maintenance.”

Ah, well. Who could have predicted that leaving the virtual office keys in the hands of one person may create problems? In crypto land, this kind of event is just called Wednesday.

Data mining: Tether’s dominance grows

Tether is busy reaching new highs in the stablecoin market. It has been well documented in recent editions of this newsletter that crypto investors are fleeing offshore and Tether’s rivals — such as Circle — have their own issues to worry about before trying to catch up to the stablecoin pacesetter, but this week, Tether hit another milestone.

According to numbers shared with me by CCData, its current market share of 64.4 per cent is the highest point reached by the BVI-registered company since April 2021.

Cryptofinance is edited by Philip Stafford. Please send any thoughts and feedback to [email protected].