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Column-In the SEC Lawsuit Against Bankman-Fried, What About Customers?: Frankel By Reuters

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© Reuters. FILE PHOTO: FILE PHOTO: FILE PHOTO: FILE PHOTO: Representations of cryptocurrencies are seen in front of the displayed FTX logo and decreasing stock graph in this illustration taken November 10, 2022. REUTERS / Dado Ruvic / Illustration / File Photo / File Photo / File

Written by Allison Frankel

(Reuters) – Federal prosecutors and regulators from the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission told a similar story on Tuesday about Sam Bankman Fred’s scheme to funnel billions of dollars in client funds from cryptocurrency exchange FTX to Alameda Research LLC.

They all accused Bankman-Fried of fraud, asserting that he had repeatedly lied when he insisted that FTX clients’ funds were safe, secure and completely separate from Alameda’s affiliate but purportedly independent.

According to the indictment unsealed Tuesday in Manhattan federal court and separate complaints filed Tuesday by the Securities and Exchange Commission and the Commodity Futures Trading Commission, Bankman-Fried knew or should have known that funds were stolen from FTX clients’ accounts to fund Alameda speculatively traded and that, despite its repeated protests to the contrary, FTX granted Alameda special trading concessions which ultimately proved disastrous for the platform and its customers.

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Who are the victims of this alleged fraud?

The CFTC complaint highlighted how FTX users were tricked, the regulator said, into believing their funds were safe. The Manhattan district attorney’s indictment also cited the FTX clients as victims of the wire fraud and commodity fraud charges against Bankman-Fried.

But the SEC’s lawsuit focused on a different set of alleged victims: investors who invested $1.8 billion in FTX in a series of stock purchases between 2019 and 2022.)

Reuters reported that equity investors in FTX included companies like Sequoia Capital, SoftBank Group Corp, BlackRock (NYSE:) Inc, and Temasek — not exactly small crypto clients who wanted to trade on the FTX platform and trusted their Bankman-Fried promises. The money will be safe.

An important note here: Bankman Fried’s attorney, Mark Cohen of Cohen & Gresser, told Reuters on Tuesday that his client is “reviewing the charges with his legal team and considering all of his legal options.” Meanwhile, the SEC has not responded to my inquiry about the wording of its lawsuit.

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And to be fair, the SEC complaint, as you mentioned, made FTX clients victims as well, albeit in a parental fashion.

I’m being verbatim: The second sentence of the SEC’s complaint reads, “Unbeknownst to these investors (and to FTX trading clients), Bankman-Fried has been orchestrating a massive, years-long scam, diverting billions of dollars from clients of the trading platform’s money for his own personal benefit and to help grow his crypto empire.” “.

My point is that the SEC’s pleading strategy in Tuesday’s lawsuit shows that crypto remains a significant challenge for US regulators. An alleged fraudster is accused of misappropriating billions of dollars from clients who wanted to buy and sell cryptocurrency, yet the first US Investor Protection Agency is not soliciting securities fraud on behalf of those clients.

This may be due to regulatory uncertainty about what crypto assets meet the definition of security, said Anne Lipton, a professor of securities law at Tulane University School of Law. (As you know, this question, in turn, is the subject of intense litigation between the SEC and Labs Inc.)

“The SEC is limited to suing for securities fraud — that requires a security,” Lipton said by email. “At the very least, each crypto-asset needs to be analyzed individually to determine if it is a security, which is probably not possible for clients who have traded different types of assets.”

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Focusing instead on the individuals and funds that have taken a stake in FTX, Lipton said, “The SEC is ditching this issue — these investors definitely bought the securities in the form of shares.”

“It’s easier and more direct for the SEC to focus on equity investors,” agreed former Manhattan federal prosecutor Timothy Howard of Freshfields Bruckhaus Deringer.

Unlike private shareholders who are sued for securities fraud, the SEC does not have to prove that investors relied on alleged misrepresentations. (The US Department of Justice, which has charged Bankman-Fried with defrauding FTX stock investors as well as FTX clients, similarly does not have to show reliance on proof of securities fraud.)

“This greatly mitigates prosecutions in the SEC and DOJ because it removes all questions associated with the adequacy of investor due diligence,” Stanford Law School professor Joseph Grundqvist said by email.

Many of the SEC’s allegations include allegations that FTX lied in publicly released statements and reports on its websites. But, perhaps anticipating arguments from Bankman-Fried that it could not be held responsible for the company’s public statements, the SEC complaint cited two instances in which FTX investors were allegedly misled by Bankman-Fried himself.

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According to the Securities and Exchange Commission, an American investor who bought $35 million in FTX shares in July 2021 gave a document promising that FTX and Alameda did not link up the funds. And in late summer 2021, the complaint alleges, Bankman-Fried told a potential US investor who eventually acquired a $30 million stake that FTX does not hold its native cryptocurrency, known as FTT.

According to the SEC, Bankman Fried knew or should have known that its statement to the investor was false.

These specific allegations appear to be intended to show Bankman-Fried that FTX investors are cooperating with the government, said Howard of Freshfield – and that he could not evade responsibility simply by claiming he was unaware of FTX’s public statements.

Given the potential repercussions of FTX’s collapse, I’ll be interested to know if any of FTX’s clients or creditors try to blame the equity investors deemed victims in Tuesday’s complaint from the SEC, arguing that they failed to do the due diligence that later enabled the platform. of alleged misconduct.

If that happens, it will be interesting to see if FTX equity investors point to their portrayal in the SEC complaint as evidence that they, too, were victimized by Sam Bankman-Fried.

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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