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Barbara Fried, the mother of convicted fraudster Sam Bankman-Fried and who allegedly helped direct FTX's political influence campaign, has started a full-court press to defend her imprisoned son as his appeal approaches next month.

In this document she makes some truly mind-boggling claims. For example, she claims that FTX's undocumented "loan" of billions of dollars of fiat to Bankman-Fried-owned and controlled Alameda Research didn't violate "FTX's contract with customers."

Indeed, she goes as far as describing the insolvency that her husband disclosed to Anthony Scaramucci before the collapse as merely a "liquidity crisis."

Joseph Bankman warned Scaramucci about FTX

This insolvency, which wasn't just a liquidity crisis, relates, as she acknowledges, in large part to the $9 billion in fiat that Alameda Research was holding for FTX and which it used for its own investments, rather than holding it for FTX.

For Fried, this is quite simply a mistake where management "lost track of the outstanding balance."

This mistake, in her mind, wasn't a mistake that Bankman-Fried made, because despite owning and controlling Alameda Research, she claims that this balance "was not actively tracked by Sam once he stepped down as CEO of Alameda."

However, the problem with this explanation is that those are meant to be FTX funds, and Bankman-Fried WAS still the CEO of FTX.

A failure to account for an amount of customer deposits that represents many years of FTX revenues is a failure of the CEO, as perhaps is continuing to custody funds with a firm that is not a custodian.

Court filings reveal the lack of internal controls at FTX

Fried goes even further to make truly stunning claims about the net asset value (NAV) of Alameda Research, claiming it still had a positive NAV of $10 billion in June 2022.

This is a… silly number.

The balance sheet circulated by Alameda Research and obtained by CoinDesk showed just $6.6 billion in NAV, a value that depended on a nonsensical valuation of the FTX Token (FTT).

Is Sam Bankman-Fried's crypto trading firm Alameda Research broke?

Specifically, that balance sheet required valuing the FTT held by Alameda Research at approximately 160% of its total market capitalization. It's truly offensive to think we're stupid enough to pretend that's value.

It's especially egregious when we know from Caroline Ellison's testimony that Bankman-Fried directed Ellison to make alternative balance sheets, and she made SEVEN different balance sheets for Alameda Research around that time and was sending them to lenders to try to keep the ship afloat.

The one they ended up choosing to send to lenders vastly overstated Alameda Research's NAV, and the version Ellison said Bankman-Fried chose was one that did not make clear the billions misappropriated from FTX customers.

Even the most accurate balance sheet only showed a NAV of $6.1 billion and was still deceptively generous with valuations of assets.

Frankly, the only place I can find that $10 billion number is Bankman-Fried's tweets and Substack.

I'd love to see Fried's forensic accounting that shows this $10 billion NAV in June of 2022, but I do not think it exists. I think this mother is purely taking her son at his word.

Anyways, there is some evidence that Fried has an inkling she shouldn't stick too long to this issue, noting, "The seventh alleged that Alameda had misrepresented its financial position in a balance sheet given to a lender. The latter charge, which was unrelated to the central fraud charges in the case and of minor importance compared to those charges, will not be discussed further here."

Fried also claims that FTX suffered from a "run on the bank," yet despite my best efforts, I've been unable to identify a bank charter for FTX in any of the countries in which it was operating.

I believe it's generally legally questionable to operate a bank without a bank charter, so I sure hope she's not claiming that's what FTX was doing, but I am not a law professor, so what do I know?

The curious case of FTX and Farmington State Bank, aka Moonstone

Fried repeatedly tries to claim that FTX's terms of service authorized it to make these "loans" (many of which weren't documented or tracked) under the terms of service, and she complains that Judge Kaplan blocked the defense from introducing an expert witness who would explain how it was all on the up-and-up.

Undercutting that defense is the witness's own proposed testimony, which also further noted that "FTX was obliged to honour customer withdrawals" – something that it obviously failed to do.

Fried is also very careful to not belabor her son's own representations about how FTX functioned, including shortly before the collapse when he falsely claimed that "we don't invest client assets (even in treasuries)."

When she does address it, it's to pretend that FTX wasn't investing them, Alameda was investing them, and that was somehow okay.

This post he made was deleted before he went to trial.

The many lies of Sam Bankman-Fried

She also fails to mention until much later in the document the 2021 post from Bankman-Fried where he claimed "our users' funds and safety come first."

Apparently, first comes somewhere after using all their fiat to invest in a bunch of other businesses.

It also glosses over the fact that Can Sun's testimony also mentioned the FTX "Key Principles," in which Bankman-Fried assured Sun that customer funds were sacred.

Sam Bankman-Fried lied to FTX lawyers about using customer funds

Fried additionally claims that Alameda Research's "allow negative" feature was innocuous.

To support this, she points to Gary Wang's testimony that Bankman-Fried had requested it "to pay for various FTX-related expenses from Alameda's accounts and from a few other bookkeeping accounts on FTX."

Later in the transcript "FTX-related expenses" becomes FTT-related expenses, and at no point is it explained why FTX or FTT-related expenses would need to be paid out of Alameda Research, an entity that Bankman-Fried publicly claimed was operated independently of FTX.

However, slightly later in the testimony, we do learn that this "allow negative" feature also prevented Alameda's liquidation, something that was necessary because Alameda relied on on-exchange FTT as a substantial part of its margin, and a liquidation of Alameda would also crater the cost of FTT.

Fried also neglects Wang's testimony that there were times that Alameda Research's balance "was so negative that even counting FTT in FTX's revenue, it was still negative."

Alameda Research used customer funds as early as 2019, Gary Wang testifies

This also spiritually, if not legally, undercuts Fried's defense based on the ToS, which primarily related to clause 16.4.

This allowed for the exchange to perform clawbacks "due to losses suffered by other users," a risk that would obviously be increased if one privileged customer is allowed to continue trading long after they were supposed to be liquidated.

Additionally, Fried claims that the $5 billion that Alameda borrowed from FTX was "less than the assets Alameda held on-exchange," but again that depends on believing deeply in the value of FTT and ignoring the other open margin positions that Alameda Research had at the time.

Furthermore, Fried claims that "loans to Alameda through the info@ account should never have been a part of this (or any) prosecution."

To support this claim, she says that they were "relatively modest in amount compared to Alameda's NAV," which is a ridiculous claim to make.

Specifically, her defense of the fiat@ account is that FTX had a line on whatever amount of Alameda Research assets would be required to cover the liability owed to FTX.

If we add that liability in, then obviously Alameda's remaining NAV in October 2022 would not make a $5 billion line of credit seem modest; the June numbers had a mere $6 billion in NAV; the market capitalization of many assets Alameda owned fell after that; and that $6 billion did not accurately account for the true valuation of assets or make clear the lien that FTX had against the trading firm.

Ryan Salame is whitewashing his role at FTX and Alameda

Fried then turns to addressing the "fiat@" account and makes the claim that Alameda Research was simply serving as a payment processor for FTX. This, of course, raises fascinating questions about whether Alameda Research appropriately registered as a money transmitter or payment processor in every venue in which it was accepting deposits.

She later suggested that this wasn't necessary because it wasn't operating in the United States.

She continues to try to explain that Alameda simply opened the "North Dimension" account as a convenience to separate out these functions.

This raises fascinating questions about why, if North Dimension was all above board, it pretended to be an electronics store and not a payments processor.

Shockingly, even Fried acknowledges that months before FTX closed withdrawals, Alameda Research only had liquid assets to cover "35% percent" of the fiat@ account, which it had been using to make investments.

Fundamentally, would Fried and Bankman-Fried have been okay with any other payment processor they contracted with using customer deposits as working capital for a hedge fund?

We read the 230-page investigation into FTX so you don't have to

Fried also attempts to explain the months between June, when Sam definitively became fully aware of the fiat@ account debt, and November, when the exchange collapsed into bankruptcy.

She suggests that Bankman-Fried believed that Alameda's NAV was sufficient to cover that debt.

However, as already explained, this required nonsense valuation of many of the assets.

Fried also attempts to undercut Ellison's detailed testimony by claiming that what it actually showed is that her beautiful, innocent son was "a decisive, tenacious, risk-neutral, supremely self-confident actor who is willing to take big bets."

This presumably, according to Ellison, includes FTX loaning customer deposits to Alameda Research so that it could purchase back Binance's stake in FTX.

This purchase was made with FTT and BUSD and resulted in Alameda Research not only serving as the backstop liquidity provider for FTX, the largest single holder of FTT, the payment processor for FTX, the market maker on FTX, and a margin trader exempted from liquidation on FTX, but also an equity owner in FTX.

This demonstrates how deeply entangled these "independent" entities were.

It also suggests that the Alameda NAV that Fried and Bankman-Fried kept pointing to was deeply dependent on the continued valuation of FTX, both in terms of the FTT token and also in straightforward equity.