Sins of the father: Could Joe Bankman go to jail for helping his son run FTX?

Bankman-Fried’s bankrupt FTX exchange, now led by a caretaker CEO, is suing Bankman and Fried to recover a $10 million gift from their son that was paid with corporate funds. More seriously, the parents—Bankman in particular—might face the risk that federal prosecutors charge them for abetting their son’s criminal enterprise.

White-collar criminal lawyers interviewed by Fortune were divided on whether Bankman might ultimately be charged. But each made clear that Bankman’s intimate role advising his son and FTX—on everything from the company’s byzantine offshore tax structure to how to navigate its ultimate collapse—puts him in very real jeopardy.

$10 million and a luxury villa

Long before Bankman-Fried launched his ill-fated crypto empire, his parents enjoyed substantial financial security and cultural status. They live in a house on the immaculate campus of Stanford University at which they hosted gatherings of the Bay Area’s academic and political elite, and enjoyed access to the very top ranks of the Democratic party thanks, in part, to Fried’s fundraising prowess.

When their son left the hedge fund Jane Street Capital to launch his own crypto venture, Bankman and Fried provided legal and political guidance. Indeed, the clawback lawsuit filed by FTX—whose current CEO, John J. Ray III is a blistering critic of his predecessor’s behavior—quotes Bankman-Fried’s description of the operation as a “family business.”

The benefits to the parents were enormous. As FTX rode the 2021 crypto boom to a $32 billion valuation, Bankman took a leave from Stanford to devote more time to the exchange. But as the new FTX lawsuit recounts, Bankman soon complained to his son, in an email that copied his wife, that the initial $200,000 salary allotted to him was insufficient, and asked instead for $1 million.

“Gee, Sam I don’t know what to say here. This is the first [I] have heard of the 200K a year salary! Putting Barbara on this,” Bankman wrote to his son, according to the lawsuit. Soon after his wife would weigh in by writing, “That would be right if you were giving dad $10 million in cash, but I thought you were giving him only $7.2 million in cash plus the $2.8 mill in the account in his name.”

The parental pressure worked, and FTX soon paid Bankman $10 million. The FTX lawsuit also alleges that Bankman used company money to “shower family and friends with gifts,” including a trip to France and F1 Grand Prix tickets for a Stanford student and future FTX employee.

Then there is the $18.9 million that Bankman-Fried spent on a 30,000-foot Bahamian luxury villa known as Blue Water. While the property was nominally a corporate residence, the lawsuit alleges that Bankman-Fried deeded it to his parents, who enjoyed the exclusive use of it and referred to it as “our house.”

Unlike most politicians and others who received largesse from Bankman-Fried, his parents appear to have repaid none of the money. Meanwhile, they have spent heavily on gold-plated legal representation—likely with the gift they received from their son, according to BusinessWeek, which published a damning profile of the pair. The parents have also retained the services of the prominent public relations maven Risa Heller, whose firm bills as much as $50,000 a month for crisis communications, according to PR industry sources.

Heller did not respond to repeated requests for comment from Fortune about her fees, nor did she respond to questions about whether the legal and PR services Bankman and Fried obtained are being paid for with funds that FTX says belong to its customers.

Requests for comment sent to the email addresses for the pair listed on Stanford’s website came back as undeliverable. Heller did not reply to request for comment on their behalf. Lawyers for the couple have previously said the allegations in the FTX suit “are “completely false” and “a dangerous attempt to intimidate Joe and Barbara.”

In any case, situation amounts to a deeply unflattering look for the couple—not least because Bankman is an authority on corporate law while Fried is a leading scholar of ethics. But it does not mean they broke the law.

“In a criminal case, proof is beyond a reasonable doubt. It’s not enough that the dad was aware of criminal activity or that the parents were around or even benefiting from it,” says Renato Mariotti, a former prosecutor who’s now a partner at Bryan Cave Leighton Paisner. “At a bare minimum, they had to know of criminal activity and [have] helped it succeed in some way.”

‘Red flags’ and Signal chats

In conversations with Fortune about potential criminal charges Bankman could face, attorneys pointed to the same federal statute, Title 18, Section 2 of the U.S. Code, which spells out that anyone who “aids, abets, counsels, commands, induces or procures” the commission of an offense can be charged as if they had committed it directly.

Whether or not Bankman’s role at FTX amounted to abetting in the criminal sense, there is evidence he was directly involved in major decisions at the firm. That evidence includes numerous group chats on the messaging app Signal, produced as evidence at Sam Bankman-Fried’s trial, in which Bankman participated during a time frame up to and including the exchange’s collapse.

I thought it was interesting earlier in the trial that SBF’s father, Joe Bankman, was in the “small group chat” Signal war room that was trying to handle the impending collapse.

Now that we have the Signal chat summary document, here are all the chats JB and SBF were both in. pic.twitter.com/Z5792qMUhd

— Molly White (@molly0xFFF) October 29, 2023

BusinessWeek’s report also points to law firm invoices that show Bankman attended meetings that focused on the development and marketing of the FTT token—the funny-money cryptocurrency that FTX relied upon to paper over gaping holes in its balance sheet.

There is also the balance sheet itself, which listed obscure tokens that had little real-world value and included surreal entries like “Hidden, poorly internally labeled ‘fiat@’ account.” If Bankman had seen it—which seems plausible, given his role as lawyer and close advisor to the firm—it’s hard to fathom how he could accept the validity of such a document, which would have received a failing grade from a high school accounting teacher.

As for Bankman’s precise role at FTX, it was amorphous like everything else at the company his son ran as a personal fiefdom. The only formal documentation about its corporate structure, drawn up by an executive and published on the dust jacket of Michael Lewis’s book about Bankman-Fried, lists Bankman as a direct report to his son.

Finally, there is the new civil lawsuit filed by FTX, which notes Bankman observed the company’s inner workings with the “training and knowledge of a sophisticated law professor and the perceptiveness of a clinically trained psychologist. But when red flags about the operations and business practices surfaced, Bankman chose to ignore them.”

Lawyers interviewed by Fortune speculate that Ray and his team drafted the lawsuit in such a way as to make it as useful as possible to prosecutors at Southern District of New York, who successfully filed charges against Bankman-Fried. (FTX did not immediately respond to a request for comment.) SDNY, as it is known in legal circles, is the country’s preeminent forum for pursuing white-collar criminals, and it’s staffed by lawyers who are both smart and aggressive.

Reasonable doubt and wild cards 

But despite numerous facts suggesting Bankman had intimate knowledge of his son’s crooked empire, a criminal case would hardly be a slam dunk. The Justice Department’s challenge is bigger still given Bankman’s familiarity with the law.

“It’s hard to prosecute lawyers. They know what to put in writing,” said Mariotti, the former prosecutor.

The multiple challenges of proving beyond a reasonable doubt that Bankman was actively complicit indicate prosecutors are unlikely to bring charges, according to Mariotti. He added that the time elapsed—Bankman-Fried was first charged last December—suggests that if they were planning to do so, they would have done it by now.

Other lawyers are not sure about that. Chris LaVigne, a white-collar defense specialist at the law firm Withers, says that previous cases involving massive fraud saw the Justice Department first convict the principal actors, then move on to lesser players. He points to the examples of convicted hedge fund fraudster Raj Rajaratnam, whose brother was arrested following his trial (though not convicted), and of Bernie Madoff, whose sibling was likewise charged (and eventually convicted) after Madoff’s conviction.

LaVigne adds that while Bankman’s legal training makes it unlikely he would put anything in writing that could directly implicate him, the overall circumstances could persuade a jury to convict him and his wife all the same.

“They were living high on the hog while advising a bunch of twentysomethings who had no idea what they were doing,” said LaVigne. “There’s a certain level of info smart folks can have before it becomes apparent something strange is going on—especially if they’re advising in a way to sweep stuff under the rug or obfuscate.”

In determining whether Bankman will be charged, there is a final wild card to consider: his son, who is in the best position to tell prosecutors whether his dad was blind to the fraud or actively helped to design it.

At a recent crypto forum that barred citing comments with attribution, a senior lawyer at a well-known company predicted that prosecutors would charge the parents—and suggested that Bankman-Fried has described FTX’s downfall in ways that minimize their involvement.

“It’s the natural instinct of every child to try and protect their parents,” said the lawyer, who added that he was skeptical Bankman-Fried could have built FTX to such a size without their help.

For now, Bankman-Fried has said that any blame for criminal activity at FTX should only fall on his former girlfriend Caroline Ellison and onetime friends who have already pleaded guilty to fraud-related charges. But as he prepares to face a second trial and awaits a sentencing hearing that could put him in prison for life, there is the possibility he could point the finger in other directions.