The Justice Department on Friday asked a federal judge to bar FTX founder
Sam Bankman-Fried
from communicating with current and former employees of the collapsed crypto exchange without a lawyer present after prosecutors alleged he recently contacted a potential witness in his criminal case.
Mr. Bankman-Fried, who faces federal charges related to the implosion of FTX, reached out to the general counsel of the company’s U.S. operation through an encrypted messaging application earlier this month, federal prosecutors said in a filing. Prosecutors said Mr. Bankman-Fried has also contacted other current and former FTX employees and are concerned that the communications could lead to witness tampering.
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Prosecutors also requested the judge prohibit Mr. Bankman-Fried from communicating through encrypted messaging applications like Slack and Signal, saying that when he headed FTX he directed employees of the company and his crypto-investment firm Alameda Research to set their communications on these platforms to auto-delete after 30 days. That policy has impeded the government’s investigation, prosecutors said.
“Potential witnesses have described relevant and incriminating conversations with the defendant that took place on Slack and Signal that have already been autodeleted because of settings implemented at the defendant’s direction,” prosecutors said in the filing.
Lawyers for Mr. Bankman-Fried in a letter to the judge said the government was mischaracterizing innocuous conduct by their client in “an apparent effort to portray our client in the worst possible light.” They said the government’s request was overbroad and unnecessary, proposing instead that Mr. Bankman-Fried be prohibited from contacting certain limited witnesses, not all of FTX’s current and former employees.
FTX’s U.S. general counsel, Ryne Miller, couldn’t immediately be reached.
The Manhattan U.S. attorney’s office charged Mr. Bankman-Fried last month with stealing billions of dollars from FTX customers while misleading lenders and investors. He pleaded not guilty and is currently under court-ordered confinement in his parents’ Palo Alto, Calif., home while he awaits trial.
Mr. Bankman-Fried sent a Jan. 15 Signal message to the general counsel in which prosecutors allege he said he “would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other.”
Prosecutors didn’t identify the other employees that Mr. Bankman-Fried has allegedly tried to contact but called the communications to the general counsel and others troubling.
“Were the defendant to ‘vet’ his version of relevant events with potential witnesses, that might have the effect of discouraging witnesses from testifying in a manner contrary to the defendant’s narrative,” the Justice Department said in the filing.
Mr. Bankman-Fried’s lawyers said the message to Mr. Miller was more reasonably read as an attempt by Mr. Bankman-Fried to offer his assistance to FTX, not a “sinister attempt” to influence testimony at trial.
The Justice Department is seeking the breakup of Google’s business brokering digital advertising across much of the internet, a major expansion of the legal challenges the company faces to its business in the U.S. and abroad.
A lawsuit filed Tuesday, the Justice Department’s second against the
Alphabet Inc.
GOOG -1.98%
unit following one filed in 2020, alleges that Google abuses its role as one of the largest brokers, suppliers and online auctioneers of ads placed on websites and mobile applications. The filing promises a protracted court battle with wide-ranging implications for the digital-advertising industry.
Filed in federal court in Virginia, the case alleges that Google abuses monopoly power in the ad-tech industry, hurting web publishers and advertisers that try to use competing products. Eight states, including California and New York, joined the Justice Department’s lawsuit.
The lawsuit asks the court to unwind Google’s “anticompetitive acquisitions,” such as its 2008 purchase of ad-serving company DoubleClick, and calls for the divestiture of its ad exchange.
“For 15 years Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics, insulate itself from competition, and forced advertisers and publishers to use its tools,” Attorney General
Merrick Garland
said at a press conference Tuesday. “Google has engaged in exclusionary conduct that has severely weakened if not destroyed competition in the ad-tech industry.”
Attorney General Merrick Garland said Tuesday that the digital-advertising industry was harmed by Google’s allegedly monopolistic conduct.
Photo:
Al Drago/Bloomberg News
A Google spokesman said the lawsuit “attempts to pick winners and losers in the highly competitive advertising technology sector.”
“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” the spokesman said.
By calling for specific divestitures from Google’s ad-tech business, the Justice Department lawsuit went further in seeking a breakup than some antitrust experts had expected. Shares of Alphabet fell by about 2% in trading on Tuesday.
Though largely invisible to internet users, the ad-tech tools controlled by Google facilitate much of the buying and selling of digital ads that helps fund online publishers. Google’s business includes a tool publishers can use to offer ad space, a product for advertisers to buy those slots and an exchange that automatically links bidders with webpages as they are being loaded for individual users.
Big tech companies such as Google are under a barrage from lawmakers and regulators across multiple continents who have targeted the companies’ dominance in online markets. Justice Department officials also are investigating
Apple Inc.
The Federal Trade Commission has sued
Meta Platforms Inc.’s
Facebook unit over antitrust allegations and
Microsoft Corp.
to block its planned $75 billion acquisition of
Activision Blizzard Inc.
President Biden recently urged lawmakers from both parties to unite behind legislation seeking to rein in tech giants. The European Union also has opened cases looking at alleged anticompetitive conduct by Google, Meta and other companies.
The Justice Department’s 2020 lawsuit against Google targeted its position in online search markets, including an agreement to make Google search the default in Apple’s Safari web browser. Google is fighting the case, which is expected to go to trial this year.
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Alphabet gets about 80% of its business from advertising. The Justice Department’s new suit targets the subset of that ad business that brokers the buying and selling of ads on other websites and apps. Google reported $31.7 billion in revenue in 2021 from that ad-brokering activity, or about 12% of Alphabet’s total revenue. Google distributes about 70% of that revenue to web publishers and developers.
Last year, Google offered to split off parts of its ad-tech business into a separate company under the Alphabet umbrella to fend off the most recent Justice Department investigation. DOJ officials rejected the offer and decided to pursue the lawsuit instead.
For years, Google has faced allegations from advertising- and media-industry executives, lawmakers and regulators that its presence at multiple points of the online ad-buying process harms publishers and gives it an unfair advantage over rivals. Google also operates the most popular search engine and the largest online video-streaming site, YouTube, giving rise to allegations it has tilted the market in its own favor.
Rivals say that Google’s power in digital advertising stems from a series of acquisitions Google used to build its ad-tech business, beginning with the company’s $3.1 billion purchase of DoubleClick. The FTC approved the merger in a controversial decision. Google went on to purchase a host of other startups including the mobile-advertising company AdMob.
“Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” the complaint read.
Google has said it has no plans to sell or exit the ad-tech business. It has also strongly contested claims in a lawsuit filed by state attorneys general, led by Texas, containing allegations similar to the Justice Department complaint. A federal judge denied the bulk of Google’s motion to dismiss the case last year, allowing it to proceed to the discovery stage and ultimately toward trial.
Google’s Android operating system is the most popular in the world—you can find Android code on everything from Peloton bikes to kitchen appliances and even NASA satellites. WSJ’s Dalvin Brown explains why it is the world’s most-used OS. Illustration: Rami Abukalam
Any divestiture of parts of Google’s ad-tech business would cause big ripple effects across the online advertising industry, which has recently shown signs of weakness as consumers dial back purchases in response to worsening economic conditions.
Breaking off parts of Google’s ad-tech business from the rest of the company could take years of litigation to resolve. Depending on the outcome of the case, ad-tech executives have said the results could range from a higher share of ad dollars flowing to publishers to lower overall spending because digital ads would be less efficient without Google brokering them.
The 149-page complaint makes detailed allegations about the internal workings of Google’s ad-tech operations. The suit alleges, for instance, that Google used anticompetitive tactics to build up the market share of its own ad server, which issues requests for advertisements on behalf of websites, and then used that market power to effectively push publishers into sending their ad inventory only to Google’s in-house ad exchange, AdX.
The Justice Department argues, in part, that this conduct locked out rival ad-tech providers, increasing prices for advertisers and costs of publishers.
“Google keeps at least thirty cents—and sometimes far more—of each advertising dollar flowing from advertisers to website publishers through Google’s ad tech tools,” the lawsuit alleges. “Google’s own internal documents concede that Google would earn far less in a competitive market.”
The lawsuit also alleges that Google executives worked to kill a rival online-bidding technology called “header bidding,” which the lawsuit says the company referred to internally as an “existential threat.” As part of a plan dubbed Project Poirot, the company allegedly changed its own ad-buying tools to underbid on behalf of advertisers when they turned to outside ad exchanges that used header bidding, so those rivals would lose more auctions and “dry out,” the complaint says.
At one point, Google also approached
Amazon.com Inc.,
to ask “what it would take for Amazon to stop investing in its header bidding product,” the complaint alleges, adding that Amazon rebuffed those requests.
“Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves,” the complaint read.
The Justice Department case overlaps in some ways with the late 2020 lawsuit from the group of U.S. states led by Texas.
In Tuesday’s complaint, the Justice Department quotes some of the same internal communications as the Texas-led lawsuit, including how one Google executive compared the company’s control over ad-tech to the financial sector: “The analogy would be if Goldman or Citibank owned the NYSE,” referring to the New York Stock Exchange.
The case also shares similarities with an investigation that the EU’s top antitrust enforcer, the European Commission, opened in 2021, as well as one by the U.K.’s Competition and Markets Authority. Those probes are exploring allegations that Google favors its own ad-buying tools in the advertising auctions it runs, but also look at other elements of Google’s ad-tech business. The EU, for instance, is also looking at Google’s alleged exclusion of competitors from brokering ad-buys on its video site YouTube.
Mr. Garland said Tuesday that the Justice Department filed its own lawsuit because the federal government was harmed by Google’s allegedly monopolistic conduct. Federal agencies have since 2019 spent over $100 million on display ads, the complaint says. The government paid inflated fees and was harmed by manipulated advertising prices because of Google’s anticompetitive conduct, the lawsuit alleges.
Microsoft is deepening its partnership with OpenAI, the company behind ChatGPT and Dall-E. That has investors and analysts speculating whether Microsoft could challenge Google’s dominance in search. WSJ Heard on the Street columnist Dan Gallagher joins host Zoe Thomas to discuss how AI could affect search and at what cost.
Jonathan Kanter,
the assistant attorney general for antitrust, said while there are similarities with other lawsuits against Google, the Justice Department’s complaint is based on its own investigation that yielded “meticulous detail” about Google’s ad-tech business.
“We detail many facts, many episodes that in the individual and in the aggregate have maintained numerous monopolies,” Mr. Kanter said.
Google has attempted to settle the claims against its ad-tech business. In addition to offering to split off parts of its ad-tech business to avoid the Justice Department suit, the company last year discussed with the EU an offer to allow competitors to broker the sale of ads directly on the video service.
In 2021, the company agreed to give U.K. antitrust regulators effective veto power over elements of its plans to remove a technology called third-party cookies from its Chrome browser to settle an investigation there into the plan.
In France, Google agreed to pay a fine of 220 million euros, equivalent to about $239 million, and to improve data access to competing ad-tech companies, to not use its data in ways rivals couldn’t reproduce to settle a similar antitrust investigation in the country.
—Keach Hagey contributed to this article.
Write to Miles Kruppa at miles.kruppa@wsj.com and Sam Schechner at Sam.Schechner@wsj.com
Businesses and lawyers are beginning to assess what the Federal Trade Commission’s proposed ban of noncompete clauses in employment contracts could mean for worker mobility, wages and the way future compensation agreements are structured.
While a full or partial ban could expand the pool of potential hires, it also would weaken a tool that employers have come to rely on to retain talent and protect trade secrets and other proprietary information, lawyers say. More companies likely would turn to a patchwork of alternative mechanisms to keep people from leaving and taking valuable information with them, including nondisclosure agreements and employment contracts that reward longevity, they say.
“Employers have operated with an understanding that they can protect their interests through noncompetes,” said Matthew Durham, a Salt Lake City-based attorney with Dorsey & Whitney LLP who advises companies on employment matters. “What you’re seeing, reflected in the FTC proposal and elsewhere, is a growing hostility to the idea that there should be those kinds of restrictions, and it’s changing the environment that employers have been comfortable with in the last number of years.”
The FTC proposed a ban this month on nearly all noncompetes, saying that the clauses—which typically prohibit workers from moving to a new employer or starting new ventures of their own—hamper competition in the labor market, suppress wages and hold back innovation and entrepreneurship. The proposal came in response to an executive order from President Biden in 2021.
Businesses say they impose noncompete clauses on employees to protect trade secrets and other confidential information, including customer lists and financial data.
The FTC contends that noncompete clauses discourage innovation and entrepreneurship.
Photo:
Eric Lee for The Wall Street Journal
Mr. Durham and others say they believe the FTC may narrow its rule after hearing comments from the public, including employers and business organizations that have already signaled their opposition to the current proposal. The agency could, for example, allow noncompetes for highly compensated workers.
Noncompetes are common in employment contracts for senior employees like software engineers, sales representatives and top executives. Over time, they have been applied to many parts of the U.S. workforce, including some janitors, baristas, schoolteachers and entry-level workers. According to the FTC, one in five U.S. workers is currently subject to a noncompete clause.
Noncompetes are regulated at the state level, and many states have already taken action to limit use of the clauses by, in some cases, forbidding employers from imposing them on people earning under a particular wage threshold or for certain types of workers.
“The vast majority of people in America can’t afford a lawyer to defend a noncompete case,” said Jonathan Pollard, an attorney in Florida who represents workers whose employers are trying to enforce noncompete clauses. “Just the threat of enforcement is often enough to restrain talent in the labor market.”
The Federal Trade Commission proposed a new ban on noncompete clauses, which the agency says hurts workers and competition. Companies argue they protect trade secrets. WSJ breaks down what a federal ban could mean for workers and businesses. Photo illustration: Jacob Reynolds
Some states, such as California and Oklahoma, hold that the clauses are unenforceable in all or nearly all employment contracts.
A number of studies suggest noncompetes suppress wages and innovation. A review of Oregon’s 2008 ban on noncompetes for hourly workers found that wages rose an average of 2% to 3%. Another study, examining Hawaii’s 2015 ban on noncompete agreements for high-tech workers, found an 11% increase in job moves and a 4% increase in new-hire salaries.
The clauses restrain not just pay and entrepreneurship, but also professional development, workers and some attorneys say.
Daniel Bachhuber had worked as a software consultant for years when he decided to take an in-house job in the fall of 2018. His new employer required that he sign a one-year noncompete agreement, which he said was so broad it would have prevented him from practicing his core skills if he were to leave the company or be fired.
Mr. Bachhuber balked. Earlier in his career, he had been laid off a few weeks into a new job, just after his first child was born. If that happened at the new job, he recalled thinking, he would be unable to earn a living for a year. “I’m always thinking, worst case scenario, what kind of downstream protection do I have?” the 35-year-old said. “Even if I was employed just one day, I couldn’t go back to the same clients I had.”
Daniel Bachhuber turned down a job after an employer wouldn’t change a noncompete clause.
Photo:
Mason Trinca for The Wall Street Journal
He consulted a lawyer and tried to renegotiate the contract, hoping to salvage a role that would have expanded his skills and given him a chance to work directly with the chief technology officer on special projects. The company declined to change the noncompete clause and, reluctantly, Mr. Bachhuber turned down the position.
Employers have other tools to protect information besides noncompete agreements, including nondisclosure agreements, trade secret laws and nonsolicitation agreements, which prohibit workers from poaching customers or employees of their prior firm.
But those tools generally can only be used after an employee violates the agreement, said Julie Levinson Werner, who represents employers as a partner with law firm Lowenstein Sandler LLP. “Once someone goes to another company, you’re really on the honor system. You have no way to monitor what information is being disclosed or not,” she said.
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Observers on both sides say that limitations on the clauses will compel employers to get more creative about how they retain talent, using everything from compensation to career advancement to keep workers engaged and loyal to the company. Some companies use deferred compensation—such as retention bonuses or rolling stock options that vest after, say, three years—to give people incentives to stay.
“Do you get better results with honey or vinegar?” said Ms. Werner. “If you want to motivate people and have them happy to stay, you have to look at compensation, the overall environment, how you treat them.”
The fate of the FTC’s final rule is up in the air. After a 60-day comment period, the commissioners will consider potential changes to the initial proposal and then issue a final rule. That rule will likely be challenged by business groups or individual companies, and courts will determine its trajectory, attorneys say.
is headed to court in a securities-fraud trial over tweets from 2018 in which he floated the possibility of taking
Tesla Inc.
private, with in-person jury selection poised to begin Tuesday.
The class-action case originates with an Aug. 7, 2018 tweet in which the Tesla chief executive said, “Am considering taking Tesla private at $420. Funding secured.”
An investor,
Glen Littleton,
sued Tesla, Mr. Musk and members of Tesla’s board at the time, alleging that Mr. Musk’s tweets were false and cost investors billions by spurring swings in the prices for Tesla stock, options and bonds. In court filings, Mr. Musk has said he was indeed considering taking Tesla private and believed he had the support of Saudi Arabia’s sovereign-wealth fund to do so. The deal, which would have been valued around $72 billion, never materialized.
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U.S. District Judge
Edward Chen,
who is overseeing the San Francisco jury trial that is scheduled to run through Feb. 1, has ruled that Mr. Musk’s tweets about taking the company private weren’t true and that he acted recklessly in making them.
Questions for the jury include whether Mr. Musk’s tweets were material to investors and whether he knew they were untrue.
The case is unusual in that securities-fraud cases usually resolve before going to trial, such as through a settlement, said
Jill Fisch,
a securities-law professor at the University of Pennsylvania. The defendants in this case face “an uphill battle” in light of the judge’s pretrial decision about the veracity of Mr. Musk’s statements, she said.
Attorneys for the lead plaintiff didn’t respond to a request for comment, nor did an attorney for Tesla, Mr. Musk and the other board members.
Twitter has been in turmoil since Elon Musk took over. To get a sense of what’s going on behind the scenes, The Wall Street Journal spoke with former Tesla and SpaceX employees to better understand how Musk leads companies. Illustration: Ryan Trefes
Mr. Musk is expected to take the stand as early as Wednesday, some two months after he did so in Delaware in a trial over his pay package at Tesla. In 2021, he also appeared before Delaware’s business-law court to defend Tesla’s roughly $2.1 billion 2016 takeover of home-solar company SolarCity Corp.
Also on the list of possible witnesses are Tesla board chair
Robyn Denholm,
board members
Ira Ehrenpreis,
James Murdoch
and
Kimbal Musk
—the CEO’s brother. The head of investor relations,
Martin Viecha,
also may be called.
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This week’s trial comes at a busy time for Mr. Musk, who has been scrambling to turn around Twitter Inc. after buying the social-media company last fall in a deal valued at $44 billion. His rocket company SpaceX is pushing for the first orbital launch of a new rocket Mr. Musk wants to use for deep-space missions.
Tesla, meanwhile, has slashed prices across its vehicle lineup, with some of last week’s cuts in the U.S. nearing 20%, in a bid to juice demand. The company’s stock has fallen roughly 70% since its peak in November 2021, erasing around $850 billion in market value. Mr. Musk’s personal wealth has fallen more than $200 billion in that time, according to the Bloomberg Billionaires Index.
Court proceedings involving Mr. Musk can be feisty. In the SolarCity case, for example, Mr. Musk called opposing counsel a “bad human being.”
Tesla has reduced prices across its vehicle lineup in an effort to boost demand.
Photo:
Jay Janner/USA TODAY NETWORK/Reuters
In advance of this week’s trial, Mr. Musk asked the court to move the trial to Texas on the basis that potential jurors in San Francisco could be biased against him. Judge Chen rejected the request.
“It isn’t that hard it seems to me to find 15 people,” he said.
The court requires nine jurors and six alternates to proceed with the case. Roughly 190 potential jurors were asked to fill out questionnaires about their views of Mr. Musk and other issues. The court plans to bring in about 50 of them for further questioning Tuesday.
Opening arguments could start as early as Tuesday after the jury is selected.
The lead plaintiff is seeking damages for investor losses he alleges stemmed from Mr. Musk’s and Tesla’s statements. Tesla stock closed up 11% the day Mr. Musk initially tweeted about potentially taking Tesla private, later giving back all those gains and falling further as questions emerged about the deal.
The defendants have said the plaintiff won’t be able to prove to a jury that the statements were materially false. Mr. Musk was considering taking Tesla private, the defendants have said, even if some of his assertions about the deal may not have been literally accurate.
Defendants, in a trial brief, said Mr. Musk believed he had secured backing to take the car maker private from Saudi Arabia’s sovereign-wealth fund, the Public Investment Fund. A lawyer for the defendants said Friday that his team had chosen not to enforce subpoenas calling on fund representatives to testify. The sovereign-wealth fund didn’t respond to a request for comment.
Mr. Musk and Tesla each agreed in 2018 to pay $20 million to settle civil charges brought by the Securities and Exchange Commission over the same tweets. Mr. Musk also agreed to step down as chairman of the company, while remaining CEO. He later said in legal filings that he felt pressured to settle with the SEC. Last year, a federal judge denied Mr. Musk’s request to scrap his settlement.
Write to Rebecca Elliott at rebecca.elliott@wsj.com and Meghan Bobrowsky at meghan.bobrowsky@wsj.com
Bahamas securities regulators said they seized digital assets valued at $3.5 billion from FTX’s local operation in mid-November as the cryptocurrency exchange spiraled toward collapse, a figure that FTX’s U.S. managers cast doubt on Friday.
Christina Rolle, executive director of the Securities Commission of the Bahamas, said in an affidavit made public Thursday that the commission sought control of the crypto assets held by FTX Digital Markets Ltd. last month after FTX co-founder Sam Bankman-Fried told local authorities under oath about a hacking attempt. Her affidavit, filed with the Supreme Court of the Bahamas, also confirmed that the Securities Commission relied on Mr. Bankman-Fried and another FTX co-founder, Gary Wang, to make the transfers happen.
is likely to plead not guilty to fraud and other charges at his arraignment next week, according to people familiar with the matter.
The U.S. attorney’s office for the Southern District of New York earlier this month charged Mr. Bankman-Fried with engaging in criminal conduct that contributed to the cryptocurrency exchange’s collapse, alleging that he oversaw one of the biggest financial frauds in American history. Mr. Bankman-Fried is likely to appear in person in New York to enter his plea on Jan. 3, one of the people said.
Before his arrest, Mr. Bankman-Fried blamed the loss of customer funds on sloppy record-keeping and a bank-account issue that allowed Alameda Research, an affiliated trading firm, to cover large losses with money destined for FTX. His not guilty plea was widely expected.
The collapse of FTX has set off the largest crypto-related bankruptcy ever, and court filings are already shedding light on what went wrong and how complicated things could get. Here are three things to know about the company’s bankruptcy process. Photo: Lam Yik/Bloomberg News
Mr. Bankman-Fried stands at odds with his associates—
Caroline Ellison,
the former chief executive of Alameda Research, and
Gary Wang,
FTX’s former chief technology officer—who both pleaded guilty to criminal offenses similar to those Mr. Bankman-Fried was charged with. Both are cooperating with federal investigators.
The collapse of FTX and its sister trading firm Alameda have rattled the nascent world of crypto. Prosecutors allege that Mr. Bankman-Fried took billions of dollars of FTX.com customer money to pay the expenses and debts of his trading firm Alameda Research. Both companies filed for bankruptcy last month. Individual traders who entrusted FTX with their crypto are likely facing lengthy bankruptcy proceedings before they have a chance at seeing any of their funds back.
Mr. Bankman-Fried was released on a $250 million bond last week and has been ordered to stay in his parent’s Palo Alto, Calif., home after his appearance in a New York federal court following his extradition from the Bahamas.
Prosecutors say that from 2019 through November, Mr. Bankman-Fried conspired with unnamed individuals to defraud customers and lenders. He provided false and misleading information to lenders on the financial condition of Alameda, according to the indictment by the U.S. attorney’s office.
Mr. Bankman-Fried is also accused of defrauding the Federal Election Commission starting in 2020 by conspiring with others to make illegal contributions to candidates and political committees in the names of other people.
He and his associates contributed more than $70 million to election campaigns in recent years, The Wall Street Journal previously reported. He personally made $40 million in donations ahead of the 2022 midterm elections.
Mr. Bankman-Fried also faces allegations from the Securities and Exchange Commission and the Commodity Futures Trading Commission.
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 lawsuit linking his allegedly fraudulent conduct at Alameda and FTX to markets that the CFTC regulates.
On Friday afternoon, Mr. Bankman-Fried returned to Twitter for the first time since Dec. 12 to defend himself against rumors that he has been moving funds out of several crypto wallet addresses associated with Alameda.
Cryptocurrency prices have cratered this year amid rising central bank rates and the collapses of a once-prominent hedge fund and crypto lenders, with bitcoin and ether plunging 64% and 67%, respectively, according to CoinDesk data. The total market cap of all digital tokens fell to $795 billion, compared with $2.2 trillion at the start of year, per CoinMarketCap data.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com
apologized in court this week as she pleaded guilty to fraud and other offenses, telling a judge that she and others conspired to steal billions of dollars from customers of the doomed crypto exchange while misleading investors and lenders.
“I am truly sorry for what I did,” Ms. Ellison, the former chief executive of Mr. Bankman-Fried’s crypto-trading firm, Alameda Research, said in a New York federal court, according to a transcript of the hearing made available Friday. “I knew that it was wrong.”
Ms. Ellison, 28 years old, and former FTX chief technology officer
Gary Wang,
29, pleaded guilty Monday during separate hearings in sealed courtrooms. Both agreed to cooperate with the government’s investigation in exchange for the prospect of lighter sentences.
Ms. Ellison, a former romantic partner of Mr. Bankman-Fried, pleaded guilty to seven criminal counts, including fraud, conspiracy and money laundering. During her hearing, she admitted to conspiring to use billions of dollars from FTX customer accounts to repay loans Alameda had taken out to make risky investments.
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FTX executives had enacted special settings that granted Alameda access to an unlimited line of credit without having to post collateral, pay interest on negative balances or be subject to margin calls, she said.
“I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion,” she said.
Ms. Ellison also said she and Mr. Bankman-Fried worked with others to conceal the arrangement from lenders, including by hiding on quarterly balance sheets the extent of Alameda’s borrowing and the billions of dollars in loans that the firm had made to FTX executives and associates. Mr. Bankman-Fried was among the executives who received loans from Alameda, she said.
Under questioning from the judge, Ms. Ellison said she knew what she was doing was illegal.
She said that since FTX’s implosion, she has worked hard to assist in the recovery of customers’ assets and aid the government’s investigation.
At the hearing, U.S. District Judge
Ronnie Abrams
granted the request of federal prosecutors to temporarily seal all documents connected to Ms. Ellison’s plea agreement. At the time, Mr. Bankman-Fried was in a jail in the Bahamas after the Justice Department requested local police arrest him, and he had not yet formally consented to his transfer to U.S. custody.
“We’re still expecting extradition soon, but given that he has not yet entered his consent, we think it could potentially thwart our law enforcement objectives to extradite him if Ms. Ellison’s cooperation were disclosed at this time,” Assistant U.S. Attorney
Danielle Sassoon
told Judge Abrams.
A lawyer for Ms. Ellison declined to comment. Ms. Ellison was ordered released on $250,000 bond at her plea hearing. A spokesman for the U.S. attorney’s office in Manhattan declined to comment.
John J. Ray III, the new chief executive of FTX, testified in front of a House committee Tuesday on the collapse of the crypto exchange. His testimony came less than a day after the company founder, Sam Bankman-Fried, was arrested in the Bahamas. Photo: Al Drago/Bloomberg News
Mr. Wang pleaded guilty in front of the same judge. He told Judge Abrams he knew what he was doing was illegal and wrong. “As part of my employment at FTX, I was directed to and agreed to make certain changes to the platform’s code,” he said, adding that he executed the changes knowing they would give Alameda Research special privileges on the FTX platform.
A lawyer for Mr. Wang declined to comment. He has previously said that Mr. Wang takes his responsibilities as a cooperating witness seriously.
The Justice Department charged Mr. Bankman-Fried earlier this month with eight counts of fraud and conspiracy connected to the implosion of his company. He was released from custody on a $250 million bond on Thursday after making his first court appearance in New York following his extradition from the Bahamas. A federal magistrate judge set strict restrictions on Mr. Bankman-Fried, including ordering him to stay in his parents’ Palo Alto, Calif., home and be under electronic monitoring.
Mr. Bankman-Fried has said he made mistakes that contributed to FTX’s demise, but he has denied engaging in fraud.
Write to Corinne Ramey at corinne.ramey@wsj.com and James Fanelli at james.fanelli@wsj.com
WASHINGTON—The Senate Finance Committee has opened an inquiry into whether auto makers including
Tesla Inc.
and
General Motors Co.
are using parts and materials made with forced labor in China’s Xinjiang region.
In a letter sent Thursday, the committee asked the chief executives of eight car manufacturers to provide detailed information on their supply chains to help determine any links to Xinjiang, where the U.S. government has alleged the use of forced labor involving the Uyghur ethnic minority and others.
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The U.S. bans most imports from the region under the Uyghur Forced Labor Prevention Act. The letter to car companies cited a recent report from the U.K.’s Sheffield Hallam University that found evidence that global auto makers were using metals, batteries, wiring and wheels made in Xinjiang, or sourcing from companies that used Uyghur workers elsewhere in China.
According to that report, some car manufacturers “are unwittingly sourcing metals from the Uyghur region.” It said some of the greatest exposure comes from steel and aluminum parts as metals producers shift work to Xinjiang to take advantage of Chinese government subsidies and other incentives.
The U.S. ban on products linked to Xinjiang has already caused disruptions in the import of solar panels made there.
China has called Washington’s claim baseless. It disputes claims by human-rights groups that it mistreats Uyghurs by confining them in internment camps, with Beijing saying its efforts are aimed at fighting terrorism and providing vocational education.
Besides
Tesla
and GM, the letter signed by Finance Committee Chairman
Ron Wyden
(D., Ore.), was sent to
Ford Motor Co.
,
Mercedes-Benz Group AG
,
Honda Motor Co.
,
Toyota Motor Corp.
,
Volkswagen AG
and
Stellantis
NV, whose brands include Chrysler and Jeep.
GM said its policy prohibits any form of forced or involuntary labor, abusive treatment of employees or corrupt business practices in its supply chain.
“We actively monitor our global supply chain and conduct extensive due diligence, particularly where we identify or are made aware of potential violations of the law, our agreements, or our policies,“ the company said.
A Volkswagen spokesman said the company investigates any alleged violation of its policy, saying “serious violations such as forced labor could result in termination of the contract with the supplier.” A Stellantis spokesperson said the company is reviewing the letter and the claims made in the Sheffield Hallam study.
Other companies didn’t immediately provide comments.
“I recognize automobiles contain numerous parts sourced across the world and are subject to complex supply chains. However, this recognition cannot cause the United States to compromise its fundamental commitment to upholding human rights and U.S. law,” Mr. Wyden wrote.
The information requested includes supply-chain mapping and analysis of raw materials, mining, processing and parts manufacturing to determine links to Xinjiang, including manufacturing conducted in third countries such as Mexico and Canada.
General Motors says its policy prohibits forced or involuntary labor, abusive treatment of employees or corrupt business practices in its supply chain.
Photo:
mandel ngan/Agence France-Presse/Getty Images
The lawmakers are also asking the auto makers if they had ever terminated, or threatened to terminate, relations with suppliers over possible links to Xinjiang, and if so, provide details of the cases.
The committee’s action comes as the Biden administration and bipartisan lawmakers increase their focus on alleged forced-labor practices in China as a key component of their confrontation with Beijing over its economic policy. The United Auto Workers has called on the auto industry to “shift its entire supply chain out of the region.”
The State Department has said more than one million Uyghurs and other minorities are held in as many as 1,200 state-run internment camps in Xinjiang. Chinese authorities “use threats of physical violence” and other methods to force detainees to work in adjacent or off-site factories, according to the department.
The U.S. Customs and Border Protection investigated 2,398 entries with a total value of $466 million during the fiscal year ended September, up from 1,469 entries in the previous year and 314 cases in fiscal 2000.
Analysts expect the CBP’s enforcement activity to further increase this year, with a strong bipartisan push for a tougher stance on the forced-labor issue.
The researchers at Sheffield Hallam University found that more than 96 mining, processing, or manufacturing companies relevant to the auto sector are operating in Xinjiang. The researchers used publicly available sources, including corporate annual reports, websites, government directives, state media and customs records.
& Co. reached a $3.7 billion deal with regulators to resolve allegations that it harmed more than 16 million people with deposit accounts, auto loans and mortgages.
The settlement with the Consumer Financial Protection Bureau includes a $1.7 billion penalty, the agency’s largest-ever fine, and more than $2 billion in consumer restitution, the regulatory agency said Tuesday.
The consumer watchdog agency said the bank illegally assessed fees and interest charges on loans for cars and homes. Some consumers had their vehicles illegally repossessed while others had overdraft fees unlawfully applied, the agency said.
Wells Fargo’s regulatory troubles continue to ripple through the bank more than six years after its fake account scandal burst into public view. Other problems later surfaced across the San Francisco-based bank, including in its lending and deposit-taking businesses.
The CFPB settlement resolves a major penalty hanging over Wells Fargo but leaves it handcuffed by other regulators. The Federal Reserve has had a cap on the bank’s asset growth in place for nearly five years. Politicians continue to target the bank, and investors have filed a series of class-action lawsuits.
“Wells Fargo is a corporate recidivist,” said CFPB Director
Rohit Chopra,
on a call with reporters Tuesday. He said the settlement “should not be read as a sign that Wells Fargo has moved past its longstanding problems.”
The bank had been negotiating with the CFPB for months in an effort to lump as many outstanding issues into the settlement as possible, according to people familiar with the matter.
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Much of the $2 billion remediation included in the settlement has already been doled out to customers. The bank, for example, has paid $1.3 billion to 11 million customers who had auto-loan servicing issues, the CFPB said.
Wells Fargo has been working for years to resolve a series of regulatory matters stemming from a fake-accounts scandal in 2016. Afterward, other problems surfaced across the bank, including in its mortgage and auto-lending businesses.
The CFPB said the bank’s actions span over a decade. Wells Fargo incorrectly applied auto-loan payments because of technology and compliance failures from 2011 through 2022, the agency said. Errors in its home loan modification process went on from 2011 to 2018, the agency said.
The bank sometimes charged overdraft fees even when a customer had enough funds available to make a debit-card transaction or ATM withdrawal, CFPB said. Wells Fargo is required to refund customers about $205 million in fees since the beginning of last year that weren’t yet reversed. CFPB will oversee that process.
Mr. Chopra, an appointee of President Biden, has said he plans to target repeat offenders. “Corporate recidivism has become normalized and calculated as the cost of doing business,” he said in a speech earlier this year. He has also sought to make his agency more adversarial toward financial firms.
The CFPB said Wells Fargo has accelerated efforts to clean up its act since 2020. Tied to the settlement, the agency will terminate one of the consent orders it had placed on the bank in 2016 and clarify that a 2018 consent order will terminate in no more than three years.
Wells Fargo, led by CEO Charlie Scharf, had signaled for months that it expected another large regulatory penalty.
Photo:
Drew Angerer/Getty Images
“This far-reaching agreement is an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us,” Chief Executive
Charlie Scharf
said in a statement.
Mr. Scharf was brought in to clean up the bank in 2019. He has overhauled the top executive ranks, cut its workforce and gave priority to remaking the bank’s back-end systems for managing internal controls and risk.
The bank had signaled for months that it expected another big regulatory penalty, and it took a $2 billion charge in the third quarter tied to resolving long-running legal and regulatory issues. The bank said Tuesday that it expects an operating losses expense of $3.5 billion in the current quarter.
has signaled it plans to challenge the Federal Trade Commission’s lawsuit to block its $75 billion deal for
Activision
ATVI -0.38%
Blizzard Inc., and is expected to argue that it is an underdog in videogame developing.
The personal-computing company has been publicizing its position for months, saying the acquisition wouldn’t threaten competition in the industry because Microsoft trails rivals in videogame consoles and has a limited presence in mobile-game development. The company has also said it expects the industry to get more competitive in the future with the rise of cloud gaming.
Legal experts say Microsoft will likely build its case around those talking points as well as the fact that it is pursuing what is called a vertical merger, meaning it is buying a company in its supply chain as opposed to a direct competitor.
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The deal “is fundamentally good for gamers, good for consumers, good for game developers and good for competition,” said
Brad Smith,
Microsoft’s president and vice chair, at the company’s annual shareholders meeting Tuesday. “We will have to present this case to a judge in a court because this is a case in which I have great confidence.”
Microsoft has until Thursday to respond to the FTC’s suit, which was filed Dec. 8 in the agency’s administrative court.
In its complaint, the FTC alleged the deal is illegal because it would give Microsoft the ability to control how consumers access Activision’s games beyond the Redmond, Wash., company’s own Xbox consoles and subscription services. The company could raise prices or degrade Activision’s content for people who don’t use its hardware to access the developer’s games, or even cut off access to the games entirely, the FTC said.
“If you can control an important source of content like Activision Blizzard, you have a variety of tools to leverage at your disposal,” which could stifle competition, an agency official said earlier this month.
At the shareholder meeting, Mr. Smith challenged the FTC’s concerns that Microsoft’s chief rival, PlayStation maker
Sony Group Corp.
, would be harmed by the deal, saying Sony has too big a lead in the high-performance console space to warrant protection.
Microsoft Gaming CEO Phil Spencer discusses growth in cloud gaming, gaming subscriptions and the planned acquisition of Activision Blizzard.
He further argued that the FTC’s case largely hinges on a worry that Microsoft could one day make games from Activision’s “Call of Duty”—which has been a hit among PlayStation users—exclusive to its Xbox system. Mr. Smith said Sony has about four times as many exclusive games on its consoles today as Microsoft has on its gaming machines.
Sony didn’t respond to a request for comment.
Microsoft said it made a last-minute offer to keep “Call of Duty” games accessible to others through a legally binding consent decree, augmenting an offer that the company had made months earlier to keep it accessible for at least 10 years.
A hearing would take place in the FTC’s administrative court in August, unless a resolution is reached before then. After the case is heard, legal experts say it could take months before a decision is handed down, and the losing side can then appeal it with the full commission. If an appeal is filed, the commission reviews the entire record anew and hears oral arguments, before deciding to uphold or overturn the administrative law judge’s order. At that point, if Microsoft loses, the company can appeal the commission’s decision to a federal appeals court.
“This is no way a slam-dunk case for the FTC,” said
Eric Talley,
a professor at Columbia Law School. “Even if the odds are a little bit long, they’re showing they’re willing to kick the tires to budge legal precedent a little bit more in their favor.”
Microsoft recently made a last-minute move to augment its offer to keep Activision’s ‘Call of Duty’ games accessible to others.
Photo:
Martin Meissner/Associated Press
Some analysts said Microsoft might want to drop the acquisition, which the company values at $68.7 billion after adjusting for Activision’s net cash, to avoid executive distraction and expensive regulatory concessions. Microsoft has said it is committed to addressing regulators’ concerns.
While the litigation is continuing, Microsoft could offer the FTC additional commitments or implement them itself, said
Benjamin Sirota,
an antitrust attorney with the law firm Kobre & Kim LLP in New York. But to be satisfied, the government would have to enforce those commitments, which “takes resources and circumstances often change,” he said. The agency might also consider how “commitments that solve a competition problem now might not work in the future,” he added.
The FTC faces hurdles in its case because of the deal’s vertical-merger status, according to
David Hoppe,
mergers and acquisitions, tech and media attorney with Gamma Law in San Francisco.
“With these cases, it’s hard to prove consumer harm,” he said. “It’s not two competitors combining, in which case the harm to consumers is typically self-evident.”
The FTC has been clear about its intention to expand the scope of harm beyond a merger’s likely impact on consumer prices, Mr. Hoppe said. The agency might be concerned about actions that could indirectly put consumers at risk, he said, such as the misuse of sensitive competitor information by the combined enterprise. That information could give Microsoft a way to keep newcomers in videogame distribution from succeeding, which could result in fewer options for consumers, he said.
“It’s all about the network effect,” Mr. Hoppe said.
Write to Sarah E. Needleman at Sarah.Needleman@wsj.com
