Sam Bankman-Fried’s parents are facing scrutiny over their roles in FTX, as reports have it that the multibillion-dollar crypto empire was run primarily by “grossly inexperienced and unsophisticated individuals” who failed to institute basic corporate controls and even relied on QuickBooks to do their accounting, according to investigators, CNN reports.
But standing by Bankman-Fried as his companies FTX and Alameda grew (and subsequently collapsed) were two respected Ivy-League trained lawyers who, potentially, should have spotted the red flags, the report added.
Sam Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, may face legal troubles of their own.
According to CNN, Sam Bankman-Fried’s parents, Bankman-Fried himself, and other employees “used FTX customer funds for a variety of personal expenditures, including luxury real estate purchases, private jets, documented and undocumented personal loans and personal political donations,” according to a civil lawsuit filed this week by the Commodity Futures Trading Commission, the US derivatives market regulator.
A representative for Bankman and Fried didn’t immediately respond to requests for comment. Bankman-Fried’s lawyer declined to comment when asked about scrutiny of his parents, CNN report add.
Bankman-Fried, who was arrested on Monday night at his luxury residence in the Bahamas on eight federal criminal counts, told the New York Times before his arrest that his parents “weren’t involved in any of the relevant parts” of the business.
Bankman and Fried, both Stanford University law professors, were not identified by name in the CFTC suit, and haven’t been charged in their son’s case, which prosecutors are calling one of the biggest financial frauds in US history.
But now their role in their son’s crypto business is under investigation by FTX’s new management, which is working closely with federal prosecutors and US markets regulators.
Bankman is a Yale-educated scholar in the field of tax law, as well as a clinical psychologist who writes on the intersection of law and psychology. That expertise could become a liability if he is eventually charged with wrongdoing.
“He is a highly knowledgeable and deeply expert person in areas that concern the set-up and operation of complex companies,” said Yesha Yadav, professor of law at Vanderbilt University.
“Arguably, his qualifications and academic stature can work against him as part of any legal case, because the argument may be made that he really should have spotted problems.”
Fried, whose “scholarly interests lie at the intersection of law, economics, and philosophy,” according to her Stanford bio, earned her law degree from Harvard.
“I can’t imagine a world where Bankman-Fried’s parents were not his financial and legal advisers,” said Matthew Barhoma, a criminal defense attorney in Los Angeles, who is not involved in the case.
The new CEO of FTX is John Ray III, a restructuring expert tasked with shepherding the company through its complex bankruptcy. Testifying before a House committee on Tuesday, Ray confirmed that his team is investigating his predecessor’s parents.
“We indicated that Mr. Bankman had given legal advice,” Ray told lawmakers, noting he wasn’t sure whether the father had employee status but that “the family did receive payments.”
Bankman and Fried have been in the Bahamas with their 30-year-old son for more than a month as his troubles piled up, according to the Wall Street Journal. They have told friends that their son’s legal bills will likely wipe them out financially, according to the paper.
“This appears to be a really tragic part of this fallout,” said Yadav. “His parents, by all accounts, appear deeply devoted to their son and have long been viewed as stand-up members of the Stanford faculty and legal academy.”
On Tuesday, the couple were in the Nassau courtroom for their son’s arraignment. A judge ordered that Bankman-Fried must remain in custody after denying a request for bail, calling him a flight risk.
Bankman-Friend’s legal team has said it will fight US extradition efforts.