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The Morning Risk Report: FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy
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Good morning. U.S. authorities leveled a barrage of civil and criminal charges against FTX founder Sam Bankman-Fried on Tuesday, with federal prosecutors in Manhattan and regulators at the Securities and Exchange Commission and Commodity Futures Trading Commission responding to what they called “one of the biggest financial frauds in American history.”
An indictment by the U.S. attorney’s office for the Southern District of New York, unsealed Tuesday morning, accuses him of misappropriating FTX.com customers’ deposits and using those to pay expenses and debts of Alameda Research, his crypto hedge fund. Mr. Bankman-Fried also is charged with defrauding the U.S. and violating campaign finance rules for conspiring with others to make illegal political contributions.
The SEC alleged in a civil lawsuit that Mr. Bankman-Fried diverted customer funds from the start of FTX to support Alameda and to make venture investments, real-estate purchases and political donations. The CFTC filed a separate lawsuit Tuesday linking his alleged fraudulent conduct at Alameda and FTX to markets that the CFTC regulates.
Separately, John J. Ray III, the new chief executive of FTX, said at a congressional hearing Tuesday that FTX has incurred losses “in excess of $7 billion.” Mr. Ray, who oversaw the Enron Corp. bankruptcy in the early 2000s, said funds were taken from FTX and misused by affiliated trading firm Alameda Research, which incurred trading losses.
The charges are the latest twist in a saga that has rattled the world of cryptocurrencies, a largely unregulated market that boomed during the pandemic stimulus period but has been hammered this year by rising interest rates and the failure of several significant industry players.
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Danske Bank previously booked provisions to cover the amount of its settlement.
PHOTO: MADS CLAUS RASMUSSEN/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Danske Bank resolves Estonia probes. Danske Bank A/S, Denmark’s largest bank, has agreed to pay about $2 billion to settle long-running probes into anti-money-laundering failures that led to hundreds of billions of dollars of suspicious transactions flowing largely unchecked through a former branch in Estonia.
The Copenhagen-based bank on Tuesday said it had reached coordinated settlements with the U.S. Justice Department, U.S. Securities and Exchange Commission and Denmark’s Special Crime Unit, under which it pleaded guilty to conspiracy to commit bank fraud and agreed to a three-year probation.
The resolutions bring to an end U.S. and Danish investigations, although scrutiny of the bank’s anti-money-laundering controls will likely continue for years. The bank came under investigation in 2018 after it disclosed that more than $230 billion had flowed from Russia and other former Soviet states through its Estonia branch. The bank said a large portion of the transactions were likely illicit.
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New York City delays AI bias rules. New York City is delaying the enforcement of a law requiring bias audits of artificial intelligence systems used in hiring, following questions from industry over the specifics of how in practice the groundbreaking legislation would apply, Risk & Compliance Journal's Richard Vanderford reports.
The city will wait until April 15 to begin enforcing the statute, which aims to shine light on any hidden biases in the automated systems that are becoming increasingly ubiquitous in recruitment.
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States demand changes to TikTok content ratings. A group of 15 state attorneys general demanded on Tuesday that executives at Alphabet Inc.’s Google and Apple Inc. strip TikTok of its content rating that classifies the video-sharing app as appropriate for teens.
In letters sent to Google Chief Executive Sundar Pichai and Apple Chief Executive Tim Cook, the state officials, all Republican, said TikTok contains frequent adult content, including about sex and drug use, and can only plausibly qualify for a mature or “17+” rating, not the current teen classifications listed on the Google Play Store and Apple’s App Store.
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Doel Nuclear Power Station at the Dutch-Belgian border in Berendrecht, Belgium. The EU will tax imports based on the greenhouse gases emitted in their manufacture.
PHOTO: OLIVIER HOSLET/SHUTTERSTOCK
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Europe reaches deal to tax imports over emissions. The European Union reached an agreement to impose a tax on imports based on the greenhouse gases emitted to make them, inserting climate-change regulation for the first time into the rules of global trade.
The deal on Tuesday morning between European national governments and the European Parliament ends more than a year of negotiations on the details of the plan. The EU is expected to adopt it in the coming weeks as part of a sweeping package of legislation that would step up the bloc’s efforts to limit global warming.
The plan, known as the carbon border adjustment mechanism, would be the world’s first tax on the carbon content of imported goods. It has rattled supply chains around the globe and angered the EU’s trading partners.
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In other risk-related news...
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Tether Holdings Ltd. said it is winding down its practice of lending out its own stablecoins to customers by next year, addressing a broad risk to the wider crypto world.
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The U.S. is finalizing plans to give Kyiv its coveted Patriot missile-defense systems, U.S. officials said, following months of Russian missile and drone attacks on Ukraine.
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Ken Griffin was among the wealthy individuals whose data was published by news organization ProPublica.
PHOTO: BRYAN VAN DER BEEK/BLOOMBERG NEWS
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Ken Griffin sues IRS over tax privacy breach. Billionaire hedge-fund manager Ken Griffin sued the Internal Revenue Service and Treasury Department on Tuesday, seeking damages after disclosure of his tax records.
Tax data about wealthy people such as Elon Musk and Jeff Bezos were published by the news organization ProPublica starting in June 2021, in an unusual breach of the confidentiality of tax returns. The news site published articles mentioning Mr. Griffin and using information from his tax records in April and July this year.
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EU advances data-flow deal. The European Union took a significant step toward completing a deal with the U.S. that would allow personal information about Europeans to be stored legally on U.S. soil, reducing the threat of regulatory action against thousands of companies that routinely transmit such information.
The European Commission, the EU’s executive arm, on Tuesday published a draft approval of the preliminary deal it struck in March with the U.S. government. The agreement would re-establish a framework that makes it easy for businesses to transfer such information again following the invalidation of a previous agreement by an EU court in 2020.
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Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, is building a second factory in Arizona.
PHOTO: CAITLIN O’HARA/BLOOMBERG NEWS
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New bill targets supply-chain shortfalls. With Congress facing pressure to help fix U.S. supply-chain problems exposed by the Covid-19 pandemic, a Republican and a Democratic lawmaker are proposing steps to force federal agencies to take the lead in preventing future shortfalls while better coordinating existing federal programs to build up domestic manufacturing.
Sen. Marco Rubio (R., Fla.) and Rep. Ro Khanna (D., Calif.) introduced legislation on Tuesday that would force leaders at cabinet-level agencies to identify weaknesses in U.S. supply chains that could hurt national security and domestic manufacturing growth.
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EquityBee hires compliance chief. EquityBee Inc., a company that helps startup employees fund the purchase of their stock options, has hired a former BlackRock Inc. executive as its new compliance chief, Risk & Compliance Journal's David Smagalla reports.
Susan Woodard, who worked with BlackRock’s suite of packaged investment products, also will serve as chief executive of the company’s EquityBee Securities LLC affiliate. Ms. Woodard in her new role will work with regulators to adapt EquityBee’s policies for the changing private market, according to the company.
She most recently worked as chief compliance officer for investment firm Victory Capital, and before that as compliance chief at financial advisory firm Eqis Capital Management.
EquityBee raised $55 million in venture capital in September 2021, in a funding round led by Group 11.
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