National

Sequoia Capital partner Alfred Lin said on Thursday at an event in San Francisco that the firm believes it was misled by FTX when it invested in the company. 

Why it matters: Sequoia, which is widely regarded as the most successful venture capital firm in Silicon Valley, has faced a lot of questions over its investment in the collapsed crypto exchange. 

Flashback: Sequoia Capital invested a total of $225 million into FTX in 2021 ($150 million of it came from its $6.5 billion growth fund, the rest from its hedge fund).  

After the exchange's collapse in November, the firm wrote down both investments to zero.  

What he's saying: “We looked at balance sheets and organizational charts of where the subsidiaries were … Alameda [Research] was not in any of the organizational charts,“ Lin told StrictlyVC's Connie Loizos on stage. 

"We asked if those companies are independent and we were told that they were." 

Both FTX and trading firm Alameda Research were founded by Sam Bankman-Fried, though their close relationship (Alameda had the ability to borrow FTX customer funds) was not disclosed. 

Between the lines: "What gets me is not that we made the investment, it's the year-and-a-half of working relationship after the investment and I still didn't see it — and that's difficult," Lin added. 

He also explained that, while in theory Sequoia Capital could have asked for a seat on FTX's board, it owned less than 1% of the company, so it's not something it would have gotten. 

On FTX founder Sam Bankman-Fried, Lin said he feels bad for him that he felt he had to resort to the actions he took to raise funding and prop up the company. But he added that the CEO, who has pleaded not guilty to charges that include fraud and money laundering, will get his day in court and be judged by a jury. 

1 VC thing: Lin also disclosed that Sequoia Capital is currently charging limited partners fees based on capital invested (instead of capital committed) for both its crypto fund and its ecosystem fund. 

Sequoia Capital partner says firm was "misled" by FTX

The firm has faced a lot of questions over its investment in the collapsed crypto exchange.

Alfred Lin of Sequoia Capital speaks onstage during TechCrunch Disrupt NY 2016. Photo: Noam Galai/Getty Images for TechCrunch. 

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Disgraced former FTX CEO Sam Bankman-Fried on Tuesday pleaded not guilty to charges of fraud, conspiracy, campaign finance law violations and money laundering in a New York federal court.

Why it matters: Since the crypto exchange began to unravel in early November, Bankman-Fried has publicly claimed he was unaware of the depth of the company's financial troubles, and those at trading firm Alameda Research, FTX's sister company. 

Yes, but: Ex-Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang  pleaded guilty last month to criminal charges, with Ellison acknowledging that she knew what both firms were doing was "wrong." 

What's more: During her plea hearing on Dec. 19, Ellison said that she and Bankman-Fried created misleading financial statements last year for Alameda's lenders, and that the trading firm had "access to an unlimited line of credit without being required to post collateral" or other typical guardrails. 

Wang made similar statements in his own hearing, adding that he was directed to change FTX's code to enable Alameda's borrowing.  

Details: During the hearing, Bankman-Fried was granted a request to publicly redact the identities of the individuals who will co-sign his bond in addition to his parents.

The judge set a trial date for Oct. 2, 2023, though it could be moved. 

He also approved prosecutors' request that Bankman-Fried be prohibited from accessing or transferring any assets from FTX and Alameda, per Inner City Press. 

Prosecutors cited recent reports of Alameda-linked digital wallets transferring out funds, as well as Bankman-Fried's transactions at the request of Bahamian regulators in November. 

Flashback: After a meteoric rise over the past couple of years, FTX quickly collapsed in early November, after it was revealed it didn't have enough funds to fulfill customer withdrawals. 

Since there, it's been revealed that the company had been secretly lending out customer funds to Alameda Research, a trading firm co-founded by Bankman-Fried prior to FTX, for years. 

In turn, Alameda had been making loans to Bankman-Fried and other execs, while misleading investors and lenders about its finances. 

The big question: What's the next shoe to drop? Federal prosecutors hinted last month that more announcements in this case will be coming out. 

Editor's note: This story is breaking and will be updated.

Sam Bankman-Fried pleads not guilty in charges stemming from FTX collapse

The former crypto mogul faces a range of charges stemming from the dramatic collapse of FTX.

Photo of former FTX chief executive Sam Bankman-Fried arriving to enter a plea in Manhattan federal court. 

Former FTX chief executive Sam Bankman-Fried. Photo: ED JONES/AFP via Getty Images. 

Markets

Axios Markets

Sam Bankman-Fried has been released on a $250 million bond as he faces the fallout of FTX's collapse. But that doesn't mean he has $250 million. 

Why it matters: Last month, SBF told Axios Pro's Lucinda Shen that he was down to his last $100,000. But as Thursday's events showed, the economics of bail for rich people can get very complicated — and very bespoke — very quickly. 

The big picture: Bankman-Fried has promised to turn up for his next court date. If he doesn't, some unknown group of people, to be finalized by Jan. 5, will be on the hook for $250 million. 

Among those people: Bankman-Fried's parents, who are putting up their Palo Alto home. That will be forfeited if Bankman-Fried skips bail.

Between the lines: Palo Alto real estate is expensive, but not that expensive. Bankman-Fried is going to have to find other people, collectively worth $250 million or more, who can guarantee his bail. 

They don't need to put up the whole sum in cash. Instead, they can put up a fraction — maybe 10% — and promise to pay the rest should the accused not show up, leaving them significantly exposed if he doesn't.

Given that Bankman-Fried has given up his passport and will be confined to his parents' home while wearing an ankle monitor, the chances of him skipping bail are low.

The bottom line: Bankman-Fried and his parents have some very rich friends. The risk involved is low — but there's no obvious reason why anybody would take that risk at all. 

What is a $250 million bond?

SBF made bond, but that doesn't mean he actually has $250 million.

Illustration of the silhouette of Sam Bankman-Fried crumbling and falling. 

FTX founder Sam Bankman-Fried was released Thursday on $250 million bond after appearing in a New York court.

Why it matters: The controversial crypto wunderkind was extradited to the U.S. Wednesday following his arrest in the Bahamas last week. He has been accused in a U.S. criminal complaint of defrauding FTX customers.

What to know: Bankman-Fried is required to live at his parents' Palo Alto, Calif. home, which would be put up as bond collateral. Both of his parents are professors at nearby Stanford University. 

He has also surrendered his passport, is subject to electronic monitoring, and can receive mental health treatment. 

Context: Bankman-Fried faces eight counts of fraud, conspiracy, campaign finance law violations and money laundering. The charges carry a maximum sentence of 115 years in prison.

Two of his former associates, FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison, have pleaded guilty to federal charges and are cooperating with prosecutors.

Of note:  The Commodity Futures Trading Commission and Securities and Exchange Commission both filed separate civil complaints against Bankman-Fried, with the latter saying he orchestrated "a scheme to defraud equity investors in FTX." That complaint seeks to ban SBF from the crypto industry.

What's next: Bankman-Fried's next hearing, presided over by Judge Ronnie Adams, is scheduled for Jan. 3 at the Thurgood Marshall U.S. Courthouse in New York.

Two major FTX figures plead guilty to federal charges

Sam Bankman-Fried accused of fraud by SEC

Editor's note: This story has been updated with additional reporting and background.

Sam Bankman-Fried released on $250 million bond

He has been accused in a U.S. criminal complaint of engaging in a fraud scheme for FTX customers.

Sam Bankman-Fried leaves New York courthouse.

Sam Bankman-Fried leaves Manhattan Federal Court. Photo by Michael M. Santiago/Getty Images.

Sam Bankman-Fried

Crypto

Axios Crypto

Sam Bankman-Fried allegedly directed FTX employees to manipulate the price of the crypto token associated with his exchange, FTT, according to an updated civil complaint submitted by the U.S. Securities and Exchange Commission.

Why it matters: Uncertainty about the FTT token moved investors to begin withdrawing billions of dollars from FTX in early November, which precipitated the company's collapse and exposure of alleged fraud by Bankman-Fried and others. 

Details: The updated complaint, which now also includes FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison, contains a section titled: "Alameda Manipulated the Market Price of FTT and, as a Result, Further Inflated the Value of Its Collateral."

The SEC argues this is under its purview as a security regulator by explaining how FTT was sold as an investment contract, detailing how early buyers were convinced to expect FTT to rise in value because of the work FTX would do.

FTT was sold for between $0.10 and $0.80 around the time of its July 2019 launch. It sold for around $23 before CoinDesk raised questions about solvency at FTX and Alameda.

It alleges instances in 2019 and 2021 when Bankman-Fried directed Ellison to make purchases of FTT in order to support the token's price. 

Bombshell: After the CoinDesk story, Binance CEO Changpeng Zhao indicated that he would start selling FTT his company had received in order to buy back Binance's equity stake in FTX. 

Caroline Ellison then tweeted that she would repurchase Binance's supply at $22 per token. 

The SEC offers a new detail about this crucial moment: "When Ellison sent this message she knew, or was reckless in not knowing, that in order for Alameda to be able to actually purchase Binance’s FTT for $22 per token, Alameda would have to draw down additional funds from FTX itself, further extending its line of credit, or obtain funds from third party lenders without disclosing its own tenuous financial condition."

The bottom line: On Nov. 19, according to a complaint by the Commodity Futures Trading Commission, Ellison would confess to her staff  that Alameda had been using customer funds to make investments. The complaint says, "Shortly after this meeting, most of Alameda’s staff resigned."

Go deeper: Sam Bankman-Fried to be released on $250 million bond

U.S. securities regulator alleges price manipulation by FTX

The SEC has disclosed new details about the final days of FTX and Alameda Research.

 In this photo illustration, the FTX logo is seen on a computer on November 10, 2022 in Atlanta, Georgia.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

Pro Rata

Axios Pro Rata

Coinbase co-founder and CEO Brian Armstrong this week wrote a blog post about the future of crypto regulation, as the industry writhes under the weight of rival FTX's collapse.

Axios spoke with Armstrong about FTX, what he wants Congress to do and his company's future. The following transcript has been edited for length.

Is the crypto industry in an existential crisis?

No, not existential. It basically has a black eye because it’s attracted its unfair share of scammer[s] and fraudulent people over the years. Some of it was just bad management if you look at something like Mt. Gox, but with FTX it appears to be actual fraud.

But that’s not representative of the entire industry, and crypto isn’t going anywhere. It’s just like Bernie Madoff or someone like that in the traditional financing system. It’s frustrating and makes everyone look more closely at everything.

Madoff was a relatively small player. Wouldn't it be more like if something like Fidelity had gone under?

Sort of, but it’s a new industry. Fidelity has been around a long time. FTX only started a few years ago, and kind of rocketed up and it was too good to be true. 

I went to an a16z [Andreessen Horowitz] Crypto conference a few weeks ago and there were around 100 companies in the audience that were all working hard — legitimate — but they don’t get the headlines.

That’s one of the frustrating things, that sometimes the people who are the most attention seeking, or flamboyant, get too much of the attention. But for every one of those companies there’s so many doing good work — heads down computer science; They’re nerds, so they’re not the most outgoing people.

Where does this crypto winter fall on the severity spectrum?

It’s kind of like Mt. Gox... after 18 months people moved on and nobody asked me about it after that.

I think there could be a little more contagion from FTX, but my hope is that [everything moves] through the system in the next couple of months, or quarters at most.

SEC chair Gary Gensler has said he has enough tools to regulate crypto. Is he wrong?

It’s not my place to say if he’s right or wrong.

Crypto is a variety of things, so there are crypto commodities that should be regulated by the CFTC, there’s crypto securities that should be regulated by the SEC, and there’s other things in crypto like stablecoins that should be maybe regulated by the Treasury, or even crypto not related to financial services like artwork.

The CFTC and SEC have the tools they need to regulate their respective areas of crypto, but what they don’t have is clear agreement on which crypto assets are commodities and which are securities. There’s been a missed opportunity to come together to publish that clarity and protect U.S. citizens. Since that hasn’t happened, I think we’re going to have to see Congress pass new legislation that forces clarity so those two regulators stop having a turf battle.

I hope that FTX is a catalyst, just like after Enron we saw Sarbanes-Oxley and after the 2008 financial crisis we saw Dodd-Frank.

Do you think we'll get a crypto bill passed in 2023?

It could start with a stablecoin bill, and I think there’s a good chance to have that passed in Q2 because there seems to be a lot of interested in it from everyone from Rep. Maxine Waters (D-Calif.) to Rep. Patrick McHenry (R-N.C.). Even Sen. Sherrod Brown (D-Ohio) sent a letter to Treasury Secretary Yellen calling for guidance. I think it’s relatively uncontroversial. 

Then, if we can get that clarity, I think something for the centralized actors could also happen in 2023. A bill that includes things like AML/KYC programs for centralized exchanges and custodians, and clarity about what’s a security vs commodity. 

It's also important to preserve the decentralized aspects of crypto in terms of innovation potential. 

FTX was based in the Bahamas. How do you envision the U.S. regulating offshore actors?

We have to see a level playing field enforced. I can sympathize with the regulators because their general operating mandate is to focus on their domestic markets … so they’re not always thinking about how to engage with a foreign company seeking to serve domestic citizens. But the world’s major financial markets do have global arms, and they’re going to have to work with international law enforcement to collaborate on more of these things. 

DOJ, for example, does have international reach, which is why they’re engaging on the FTX situation.

What was Sam Bankman-Fried's legacy when it came to crypto regulation? 

He was very active in D.C. In some ways he drove some parts of the conversation forward, but ultimately didn’t add very much to the discussion given the fraud that all blew up.

Is Coinbase's core business transitory, given the growth of DeFi?

No. We’ll be sitting here two decades from now and people will still be trading a lot of crypto through centralized exchanges. But decentralized exchanges and self-custodial wallets will also grow, and Coinbase is participating in both of those areas as well. For instance, Coinbase Wallet is the most downloaded self-custodial wallet in the U.S. over the past year or so. 

I think it’s important for people to get into crypto first by converting fiat into crypto through centralized products, but then they often want to graduate from that into the decentralized economy. 

Coinbase succeeds when crypto trading volume and prices rise. So what's the argument for buying Coinbase stock, as opposed to just buying bitcoin or a basket of crypto assets? 

I think people should do both. The bull case for Coinbase is we’re the leader in the market from a trust point of view and the largest [exchange] in the U.S. The market is giving us very clear feedback that they want to work with trusted companies if they’re going to be centralized actors ... 

We’ll also be a beneficiary of increased regulation and diversifying our revenue stream away from trading fees. For example, 36% of our Q3 revenue was subscriptions and services. We planted these seeds years ago and they’re beginning to come to fruition and make us more resilient. 

Your stock is down around 86% this year, and your debt is trading at around 50 cents on the dollar even though you have plenty of cash on hand. So which annoys you more, equity investors or debt investors?

I don’t know what to say about that. We’ve been tempted at times to think about our options there...

We’ve considered all kinds of options but have nothing to share at this time.

Coinbase CEO Brian Armstrong talks FTX, crypto regulation and DeFi

The crypto industry suffered a big black eye, but it isn't going anywhere, Armstrong says.

Photo Illustration of Coinbase CEO Brian Armstrong surrounded by shapes and binary code

Photo Illustration: Natalie Peeples/Axios. Photo: Patrick T. Fallon/Getty

Cryptocurrencies

Two major figures in the FTX scandal, company co-founder Gary Wang and former Alameda Research CEO Caroline Ellison, on Wednesday both pleaded guilty to several federal wire fraud and conspiracy charges. Each also was charged with fraud by the SEC and the CFTC. 

Why it matters: The close confidants of disgraced crypto entrepreneur Sam Bankman-Fried are cooperating with federal prosecutors, according to U.S. Attorney Damian Williams.

Williams added that Bankman-Fried, charged last week with fraud, money laundering and campaign finance violations, was in FBI custody after waiving extradition from the Bahamas and due to arrive in New York Wednesday evening.

Details: Ellison pleaded guilty to seven counts total of wire fraud and conspiracy to commit wire fraud, commodities fraud, securities fraud, and money laundering, and faces up to 110 years in prison, according to her unsealed plea agreement. 

Wang pleaded guilty to four counts total of wire fraud and conspiracy to commit wire fraud, commodities fraud, and securities fraud, and faces up to 50 years behind bars, per his unsealed plea agreement. 

Both have been released on $250,000 bonds. They could still be prosecuted for tax violations and by other authorities, though the DOJ says it will recommend lighter sentences if they end up being significantly helpful in their cooperation. 

Between the lines: Williams noted that Wednesday's announcement is not the last in the case, suggesting more individuals will be charged. Ellison and Wang are cooperating with federal prosecutors. 

The SEC's complaint similarly noted that "Defendants, together with Samuel Bankman-Fried and others, engaged in a scheme to defraud equity investors." (Italics added by Axios for emphasis.)

Read the SEC complaint, via DocumentCloud:

SEC v. Ellison and Wang - 22-cv-10794

Editor's notes: The story has been updated with additional about the charges and plea agreements. 

Two close confidants of Sam Bankman-Fried are cooperating with federal prosecutors.

Illustration of a cracked coin with the FTX logo on it

Crypto exchange Binance.US is beefing up its D.C. lobbying operation as erstwhile competitor FTX comes under withering regulatory and criminal scrutiny, Axios has learned.

Between the lines: Palo Alto-based Binance.US is legally independent from Binance, the Caymans-based crypto giant. The U.S. firm licenses Binance's technology and is chaired and partially owned by its CEO, Changpeng Zhao.

What's happening: Binance.US has hired three D.C. firms to expand its PR and government relations efforts:

Former senior George W. Bush White House official Kirk Blalock will lead a lobbying team at Fierce Government Relations.

FS Vector partner Peter Freeman, a former senior aide to ex-Rep. Ed Royce (R-Calif.), will also lead a lobbying effort for the company.

Binance.US is bringing on the Bullpen Strategy Group to work on its policy communications efforts.

Binance.US previously hired B.J. Kang, a veteran FBI financial crimes investigator, to lead a new "investigations unit."

Its general counsel is a former attorney at the Securities and Exchange Commission and the Federal Reserve Bank of New York.

The big picture: Its recent hires come as U.S. authorities step up pressure on the industry.

Binance.US was reportedly under SEC scrutiny this year over its ties to a pair of trading firms operating on its exchange.

In news that shook the crypto world this week, FTX founder Sam Bankman-Fried was indicted on eight federal criminal charges.

The Justice Department is also said to be eyeing charges against Binance and Zhao.

What they're saying: “Binance.US is strengthening and expanding our Washington team to center the digital assets policy agenda on our customers’ interests," the company told Axios in a statement on its new K Street hires.

"We are looking forward to seeing our team grow and continuing to elevate the new economy and the overall digital asset exchange industry.”

Between the lines: The company is filling a gap left by Binance's exit from the U.S. market in 2019, and it stresses its independence from its eponymous affiliate.

The U.S. company holds itself out as a compliance-focused player in the crypto space, saying it "was established to serve U.S. consumers and adhere to U.S. regulations," the company says.

Scoop: Binance.US goes big on D.C. lobbying

Its recent hires come as U.S. authorities step up pressure on the industry.

Illustration of the Binance logo on a compass. 

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

Sam Bankman-Fried is escorted out of the Magistrate Court building in Nassau, Bahamas, on Tuesday. Photo: Dante Carrer/Reuters

Disgraced crypto kingpin Sam Bankman-Fried was charged Tuesday with illegally steering tens of millions of dollars to federal political campaigns — a key footnote in what prosecutors are calling "one of the biggest financial frauds in American history."

Why it matters: The campaign finance allegations have intensified the political shockwaves of FTX's collapse and Bankman-Fried's arrest, following his dramatic ascendance as one of the country's most prolific political donors.

"All of this dirty money was used in service of Bankman-Fried's desire to buy bipartisan influence and impact the direction of public policy in Washington," U.S. attorney Damian Williams said at a press conference.

Bankman-Fried's attorney, Mark S. Cohen, said in a statement that he "is reviewing the charges with his legal team and considering all of his legal options.”

The big picture: Bankman-Fried gave tens of millions to Democratic candidates and groups this cycle. He has said he also made large contributions to Republican political candidates, but did so in a way that hid the donations.

"All my Republican donations were dark," Bankman-Fried said in an interview last month.

"[R]eporters freak the f**k out if you donate to a Republican because they’re all super liberal. And I didn’t want to have that fight, so I just made all the Republican ones dark."

Bankman-Fried estimated he was actually the "second or third biggest" Republican donor in the country during the 2022 midterms but that he was able to shield those donations from public view.

What's happening: The federal indictment unsealed on Tuesday includes eight charges — including one that Bankman-Fried conspired to violate a federal law barring campaign contributions knowingly made in the name of another person.

That's what's known as a straw donation, and it's often used to illegally mask the true identity of a political donor by routing his or her contribution through another person or organization.

It can also be used by a single donor to circumvent campaign contribution limits by parceling out a large donation among multiple straw donors, or by companies trying to get around corporate donation restrictions by routing money through an individual donor.

In a separate civil complaint, the Securities and Exchange Commission alleged Bankman-Fried illegally steered money from his cryptocurrency trading firm, Alameda Research, to federal political candidates.

He "used commingled funds from Alameda to make large political donations," the SEC alleged.

By law, corporations are barred from donating to federal political candidates, though they can support some independent political groups.

Foreign nationals — including companies, like Alameda, incorporated abroad — are barred from giving to any U.S. political committee.

The intrigue: The Justice Department's indictment and SEC complaint do not name any of the beneficiaries of the donations.

But Bankman-Fried's description of the scale of his Republican giving operation suggests they included independent expenditure groups such as super PACs or party committees, since candidates generally can't accept checks larger than $10,000 per cycle from a single source.

Be smart: Many of the country's top super PACs have sister "dark money" nonprofits, which often pass along funds to their political arms without having to disclose where that money came from.

Rarely are donors so brazen to state outright that they're giving to the dark money group in order to secretly fund its sister outfit's politicking.

What they're saying: Citizens for Responsibility and Ethics in Washington, a watchdog group that filed an FEC complaint last week alleging an SBF straw donor scheme, said the criminal charges could spur key political money reforms.

"I would hope there would be some ground here for at least minimal reforms to improve campaign finance laws," Stuart McPhail, the group's senior litigation counsel, told Axios in an interview.

"This guy got a lot of friends in Congress, on both sides of the aisle. He did it pretty quickly. And it just so happened to happen when he was spreading a lot of money around. That's probably not a coincidence."

SBF's "dirty money"

It's a significant footnote in what prosecutors are calling "one of the biggest financial frauds in American history."

The only thing moving faster than this year's crypto collapse is its aftermath.

Why it matters: Authorities, courts and lawmakers  — who for years largely observed the industry's rapid growth from the sidelines — are now elbowing each other out of the way to get involved as confidence in the industry crumbles, and new shoes drop. 

The latest: Sam Bankman-Fried, whose face became synonymous with crypto, was charged today with eight counts of fraud, conspiracy, campaign finance violations and money laundering.

Only a day earlier, the FTX founder was readying for a remote appearance before the House Financial Services Committee.

The intrigue: He was arrested by Bahamian authorities late Monday at the request of the U.S. Government. But that caught another part of the U.S. Government completely by surprise.

"My staff and I have been working diligently for the past month to secure Mr. Bankman-Fried’s testimony before our Committee tomorrow morning," committee chairwoman Maxine Waters (D-CA) said in a statement. 

SBF was still scheduled to appear, "but then he was arrested," Waters added.

The timing of arrest was "dictated by law enforcement," U.S. Attorney Damien Williams said in a press conference.

Meanwhile, a battle is heating up between FTX's U.S. bankruptcy team and Bahamian authorities: both are claiming jurisdiction, and openly accusing the other of foul play. U.S. regulators also jumped into the fray today.

The SEC filed a civil complaint, while the CFTC charged SBF and his companies with fraud, in connection with the loss of over $8 billion in FTX customer deposits.

The bottom line: Crypto, a once little understood corner of finance, now has everyone's attention.

All FTX stories