The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

US prosecutors have downplayed the whistleblower role performed by FTX’s former Bahamas head in demanding that he be sentenced to up to seven years’ in prison.

Damian Williams, the southern New York district attorney and his team, in their sentencing submissions sought to counter Ryan Salame’s actions in alerting the Securities Commission and Bahamian authorities to the extent of the multi-billion dollar fraud and misuse of client funds perpetrated by the now-jailed Sam Bankman-Fried and his FTX inner circle.

They argued that the former FTX Digital Markets chief was instead acting “in his own financial interests”, using his inside knowledge of the crypto exchange’s impending collapse to withdraw more than $5m in digital assets from accounts he controlled just prior to its Chapter 11 bankruptcy filing. These funds were purportedly spent on hiring a public relations firm and settling bills and debts.

“While Salame did not know of Bankman-Fried’s theft of customer funds or the related dire financial condition of FTX before November 2022, he withdrew a substantial amount of money upon learning of such circumstances,” the US district attorney and his team alleged.

“Salame argues that when he did learn of those facts in November 2022, he solely acted benevolently, informing Bahamian authorities and blowing the whistle. But his November 2022 transfers also indicate that he acted in his own financial interests, withdrawing and later spending millions of dollars that appropriately belonged to FTX’s creditors.”

These assertions are designed to negate arguments by Mr Salame and his attorneys that he should receive a much lighter sentence based, in part, on his actions in informing the Securities Commission, the regulator for FTX Digital Markets, that a colossal fraud may have been committed.

They are pushing for a jail term “of no more than 18 months” for breaching US campaign finance laws and operating an unlicensed money transmission business. US prosecutors are, at a minimum, seeking a sentence that is more than three times’ greater, urging judge Lewis Kaplan to send Mr Salame to jail for between five to seven years.

Mr Salame’s attorneys, in their own sentencing submissions, called for as light a sentence as possible, and argued that the FTX Digital Markets chief was not part of the “innermost circle” surrounding Bankman-Fried. They asserted their client was “duped” - along with thousands of FTX customers - into believing the enterprise was “legitimate, solvent and wildly profitable”.

“Indeed, when he finally understood the FTX fraud, he was the first person to blow the whistle to authorities in The Bahamas who regulated FTX Digital Markets, FTX’s Bahamian subsidiary Ryan headed,” Mr Salame’s sentencing submissions stated.

“Ryan contacted the Securities Commission of the Bahamas, FTX Digital Markets’ regulator, as soon as he learned about the fraud that Bankman-Fried and others had committed. Ryan contacted the Securities Commission to alert them to the fact that ‘assets which may have been held with FTX Digital were transferred to Alameda Research’, and that ‘such transfers were not allowed and therefore may constitute misappropriation, theft, fraud or some other crime’.

“Ryan further informed the Securities Commission that the only three people who had the necessary codes or passwords to transfer clients’ assets were Bankman- Fried, Nishad Singh and Gary Wang. This information appears to have initiated the Bahamian investigation into FTX and those three individuals.”

But, moving swiftly to counter this, the US prosecutors claimed: “While Salame did not have contemporaneous knowledge of Bankman-Fried’s theft of billions of dollars of customer funds he, like many others at FTX, began to learn the truth soon after Alameda’s balance sheet was leaked to and then published by CoinDesk on November 2, 2022.”

Alameda Research was the private trading entity controlled by Bankman-Fried, FTX’s disgraced founder, to which he misappropriated funds belonging to the crypto exchange’s clients to finance its speculative, risky investments and repay loans it had taken out.

“When FTX began experiencing huge customer outflows around November 6, 2022, Salame was involved in the efforts to try to staunch the bleeding and raise necessary funds. On November 6 and 7, he recognised there was a meaningful chance FTX would go bankrupt, and even told an associate on November 7 that FTX needed more than $1bn to meet ongoing and accelerating customer withdrawals,” prosecutors claimed.

“Despite this knowledge, Salame acted in his own interest that day. At about 8.30pm on November 7, 2022, Salame withdrew more than $5m in crypto currency from an account he controlled on FTX.com to a crypto wallet. He tried to withdraw tens of millions more that evening, but the withdrawals failed.

“Over the next few days, Salame was a party to additional conversations about FTX’s doomed position, some of which raised the implication that Bankman-Fried had committed a massive fraud. On the morning of November 9, 2022, Salame learned that FTX’s US affiliate, FTX.US, was also affected and had a deficit of $45m in funds,” the southern district of New York attorney’s office added.

“One senior FTX.US executive recommended shutting down all trading calling the deficit a ‘tier one fire at any financial institution’. Salame nonetheless withdrew nearly $600,000 in crypto currency from his account at FTX.US on November 11, 2022, hours before the bankruptcy.

“FTX and FTX.US declared bankruptcy on November 11, 2022. Despite the bankruptcy and the public revelation that Bankman-Fried had been stealing customer funds, Salame spent millions of dollars from the more than $5m he had transferred from FTX to himself on November 7.

“Among other things, he spent the money on hiring a public relations firm and paying off personal credit card expenses, including a $20,000 charge at Restoration Hardware that he incurred after the bankruptcy.”

However, Mr Salame’s bid for a lighter sentence continues to receive support from former FTX Bahamas employees and those who knew him while he was in this nation. One ex co-worker praised him for always seeking to “bridge the gap” between the crypto exchange’s Bahamian staff and expatriate hires.

Zane Tackett, recalling his time with the crypto exchange, wrote to judge Kaplan: “When I finally made it to Hong Kong, I had to quarantine for two weeks. During this time Ryan was preparing to move to The Bahamas to set up the office there, so he had plenty on his own plate, but would always send me care packages to the hotel room I was quarantined in to keep my spirits high.

“Not long thereafter I moved into Ryan’’s apartment in The Bahamas. Living with Ryan in The Bahamas while working at FTX, I witnessed first-hand his inclusiveness and care for others. He always made it a point to bridge the gap between local Bahamian employees and non-local staff. He would host monthly gatherings at his home with an open invite to all employees.

“These events underscored his ability to treat everyone with respect and ensure a good time was had by all. It is no wonder that he was universally loved by those at the company.” Roshan Daswani, another FTX staffer, added: “When FTX moved to The Bahamas, they asked me to join them there. Ryan helped me with the logistics of moving over 9,000 miles with 24 hours’ notice.

“He gave me the tools I needed to hire staff and get our trading desk up and running.” Another character witness who submitted a letter to the southern New York court was Michelle Cove, who said she “quickly bonded” with Mr Salame after meeting him through her boyfriend when he arrived in The Bahamas.

Jamaron Thompson, a pilot with Trans-Island Airways, the Bahamas-based aviation business that provided transportation services to FTX executives, said he flew Mr Salame several times per week to the US and elsewhere in the Caribbean.

“The additional flights from FTX expanded our business at Trans-Island Airways. Our company added jobs which supported individuals and their families. I thank Ryan for this growth and opportunity,” Mr Thompson wrote.

However, US prosecutors sought to paint a different picture. Mr Salame is especially exposed to the campaign financing violations as these charges were dropped against Bankman-Fried because they were not included in the original extradition warrant that sought to remove him from The Bahamas.

“Salame, who Bankman-Fried prized for loyalty and served many different roles for Bankman-Fried’s empire, committed two serious crimes to foster the growth of FTX and burnish Bankman-Fried’s image. He helped lead efforts to allow customers to send and receive fiat currency to fund their FTX accounts through US-based bank accounts without complying with federal registration requirements,” prosecutors claimed.

“And he acted as a straw donor to help pump more than $100m in illegal contributions through the US political system to help support Bankman-Fried and FTX’s legislative priorities. The campaign finance offence is one of the largest-ever in American history, and the unlicensed money transmitting business exchanged more than $1bn without proper supervision.

“Those are serious crimes, and a substantial sentence is required to ensure that Salame receives just punishment.”