🔍 Meet the parents

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The Bankman-Fried family comes under scrutiny. Plus: Elon isn't the wealthiest person in the world anymore. Let's get into it.

By Allison Morrow

🔍 MEET THE PARENTS

Sam Bankman-Fried's multibillion-dollar crypto empire was run primarily by "grossly inexperienced and unsophisticated individuals" who failed to institute basic corporate controls and even relied on QuickBooks to do their accounting, according to investigators.

But standing by Bankman-Fried as his companies FTX and Alameda grew (and subsequently collapsed) were two respected Ivy-League trained lawyers who, in theory, should have spotted the red flags.

Now, Joseph Bankman and Barbara Fried, the FTX founder's parents, may face legal troubles of their own.

Bankman-Fried, his parents and other employees "used FTX customer funds for a variety of personal expenditures, including luxury real estate purchases, private jets, documented and undocumented personal loans and personal political donations," according to a civil lawsuit filed this week by the Commodity Futures Trading Commission, the US derivatives market regulator.

A representative for Bankman and Fried didn't respond to requests for comment. Bankman-Fried's lawyer declined to comment when asked about scrutiny of his client's parents.

Bankman-Fried, who was arrested on Monday night at his luxury residence in the Bahamas on eight federal criminal counts, told the New York Times before his arrest that his parents "weren't involved in any of the relevant parts" of the business.

FAMILY TIES

Bankman and Fried, both Stanford University law professors, weren't identified by name in the CFTC suit, and haven't been charged in their son's case, which prosecutors are calling one of the biggest financial frauds in US history.

But their role in their son's crypto business is under investigation by FTX's new management, which is working closely with federal prosecutors and US markets regulators.

Bankman is a Yale-educated scholar in the field of tax law, as well as a clinical psychologist who writes on the intersection of law and psychology.

That expertise could become a liability if he is eventually charged with wrongdoing.

"He is a highly knowledgeable and deeply expert person in areas that concern the set-up and operation of complex companies," said Yesha Yadav, professor of law at Vanderbilt University. "Arguably, his qualifications and academic stature can work against him as part of any legal case, because the argument may be made that he really should have spotted problems."

Fried, whose "scholarly interests lie at the intersection of law, economics, and philosophy," according to her Stanford bio, earned her law degree from Harvard.

"I can't imagine a world where Bankman-Fried's parents were not his financial and legal advisers," said Matthew Barhoma, a criminal defense attorney in Los Angeles who is not involved in the case. (And honestly, neither can I, a fully grown adult who still calls her parents when there's a strange noise in the house.)

The new CEO of FTX, John Ray III, confirmed in his testimony before a House committee Tuesday that his team is investigating the parents.

"We indicated that Mr. Bankman had given legal advice," Ray told lawmakers, noting he wasn't sure whether the father had employee status but that "the family did receive payments." Bankman and Fried have been in the Bahamas with their 30-year-old son for more than a month as his troubles piled up, according to the Wall Street Journal.

They have told friends that their son's legal bills will likely wipe them out financially, according to the paper.

"This appears to be a really tragic part of this fallout," said Yadav.

"His parents, by all accounts, appear deeply devoted to their son and have long been viewed as stand-up members of the Stanford faculty and legal academy."

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#️⃣ NUMBER OF THE DAY

$171 billion

Bernard Arnault has just become the first European to top Bloomberg's list of the world's richest people, relegating Elon Musk to second place. Congrats, Bernie!

The chairman of French luxury goods giant LVMH has an estimated net worth of $171 billion. (Musk's is about $164 billion, dinged this year by the decline of Tesla's stock price, and certainly not helped by his $44 billion acquisition of Twitter.)

FED DAY

The Federal Reserve approved a half-point interest rate hike — a smaller increase than in recent months and an acknowledgment that inflation is finally easing.

It was the seventh-straight increase, capping a rather tumultuous year of trying to put the fire out on the worst inflation in decades. It's not done raising rates — it's just going to be a bit less aggressive about it. For now...

The half-point hike was smaller than the four previous three-quarter-point moves approved at the Fed's previous meetings, but it was still twice the size of the central bank's tradition of moving a quarter-point at a time.

Here's the deal: With the Fed's target range now at of 4.25% to 4.5% (with expectations it'll surpass 5% next year), the cost of borrowing is going up, deepening the economic pain for millions of American businesses and households, my colleague Nicole Goodkind writes.

But that pain, the Fed is wagering, is preferable to the pain of a longer stretch of inflation.

So far, at least, the labor market has remained remarkably strong even as the cost of doing business goes up.

But the mopes on Wall Street still found some gloom to cling to, and stocks whipsawed. The market was solidly higher before the Fed's policy announcement.

Stocks gave up all their gains, with investors focused on new forecasts that showed slower economic growth, higher unemployment, and high inflation in 2023. And of course, interest rates may need to go higher to try to bring inflation in line with the Fed's 2% goal. (ICYMI, consumer prices, as measured by the CPI, came in at 7.1% in November — better than expected, but, like, still far from 2%)

In fact, the Fed is projecting that PCE inflation, the Fed's favored price gauge, would remain above its 2% target until at least 2025.

WHAT ELSE IS GOING ON?

✈️ Twitter suspended @ElonJet, an account that tracked the location of Elon Musk's private jet. The account was run by a 20-year-old Florida college student, who used publicly available flight tracking information to build a Twitter bot that tweeted every time Musk's Gulfstream took off and landed at an airport. Musk was, shall we say, not a fan.

💊 An unprecedented wave of Covid cases in China has sparked panic-buying of fever medicines, pain killers, and even home remedies such as canned peaches, leading to shortages online and in stores.

💸 The US government charged eight social media influencers over an alleged $100 million stock manipulation scheme.

🎁 Attention, procrastinators: Drop-dead holiday shipping deadlines are coming soon.