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SBF behind bars

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One scoop to start: Elliott Management backed a multibillion-dollar debt package to fund its takeover of television ratings provider Nielsen, helping steer the $16bn acquisition through markets that have grown more wary of riskier deals.

And another scoop: US buyout group Carlyle is struggling to raise the $22bn it had targeted for what it hopes will be its largest fund, as it grapples with a succession crisis and a market downturn. 

Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Sign up here to get the newsletter sent to your inbox every Tuesday to Friday. Get in touch with us anytime: Due.Diligence@ft.com

In today’s newsletter:

SBF gets his one phone call

In a Twitter Spaces event with options trading platform Unusual Whales on Monday, FTX founder Sam Bankman-Fried said he planned to attend a congressional hearing remotely seeing as he was “quite overbooked”. Paparazzi were also a concern, he noted.

“I don’t think I will be arrested,” SBF told the more than 19,000 online attendees . . . just hours before he was arrested.

Dodging photographers will no longer be an issue for the fallen crypto wunderkind. He was denied bail by a judge in the Bahamas on Tuesday, who said he should be remanded to custody until February 2023 on the grounds that he was too much of a flight risk.

Sam Bankman-Fried is escorted out of the Magistrate Court building in Nassau, Bahamas

The former billionaire has been charged with eight separate criminal counts of fraud including wire fraud, securities fraud, money laundering, defrauding the US and even violating campaign finance laws.

Damian Williams, US attorney for the Southern District of New York, described the alleged crimes as “one of the biggest financial frauds in American history”.

Each agency charging SBF had their own zingers.

SBF’s fraud began the day it was launched, the US Securities and Exchange Commission said in separate civil charges against the former FTX boss. The regulator has accused him of defrauding an investor group that included Sequoia Capital, Thoma Bravo, Ontario Teachers Pension Fund and hedge fund billionaires Alan Howard and Izzy Englander out of $1.8bn.

“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” said Gary Gensler, SEC chair. The watchdog’s full list of charges can be read here.

The Commodity Futures Trading Commission, meanwhile, charged SBF, FTX and SBF’s private trading firm Alameda Research with fraud and material misrepresentations. Computer code written by FTX provided an “effectively limitless line of credit that allowed Alameda to withdraw billions of dollars in customer assets from FTX”, it said.

The most colourful lines came from John Ray III, FTX’s court-appointed chief executive, who trashed SBF’s management in a lengthy testimony before Congress.

“This isn’t sophisticated whatsoever, this is just plain old embezzlement,” he said about FTX’s loss of customer funds.

He told a US congressional panel that he does not “trust a single piece of paper in this organisation”. The company, formerly valued at $32bn, was using QuickBooks, he added — accounting software for small businesses such as gourmet cupcake stores.

Ray did not admire SBF’s venture capital investments, either. He spent more than $5bn on a hodgepodge of companies, including a fertility clinic, speculative digital tokens, and Anthony Scaramucci’s fund manager, SkyBridge Capital. “Oftentimes when he made those sorts of investments, he would do that without . . . any valuation,” Ray said.

The US will probably attempt to extradite him. So long as fractures between US and Bahamian authorities don’t get in the way. Bahamian regulators said US FTX debtors “do not appear to be concerned with facts but rather, appear intended only to make headlines and advance questionable agendas”.

SBF’s lawyer said he was “reviewing the charges with his legal team and considering all of his legal options”.

Credit Saudi’s biggest shareholder is unbothered

To most people, $1.5bn is a big number. Ammar Alkhudairy doesn’t see it that way.

“We write cheques of that size frequently, I can assure you. This is just another cheque of that size,” the chair of the Saudi National Bank told the FT’s Samer Al-Atrush, referring to the sum that Michael Klein returned home with after the lender purchased a near-10 per cent stake in Credit Suisse.

Klein was a polarising choice to run CS First Boston (soon to be just “First Boston”), the new standalone advisory and corporate finance firm of which the Swiss lender hopes will solve many of its problems.

The ex-Citigroup dealmaker joined Credit Suisse’s board in 2018, meaning that, as Lex’s Jonathan Guthrie put it, he helped identify “the best candidate to split off and run CSFB in his own shaving mirror”. He’s also merging it with his own small boutique, enabling him to keep a decent chunk of equity.

You can’t say that he didn’t deliver, though. Tasked with finding capital needed to resurrect the bank’s once-celebrated First Boston brand, he utilised his ties in the Middle East to do just that.

Credit Suisse share price

The deal with SNB was advantageous for both sides. The Saudi bank’s biggest shareholder, the sovereign Public Investment Fund, is controlled by Crown Prince Mohammed bin Salman — who has been eager to boost the kingdom’s profile both domestically and abroad.

For the SNB’s part, though, Alkhudairy emphasised that the investment was minuscule compared to the bank’s strategy to grow across the Middle East.

“Guys, you’re missing the point. More than 95 per cent of what we are focused on is how to continue to grow our dominant position in Saudi Arabia,” said the SNB chair.

The 9.9 per cent purchase of Credit Suisse amounted to just 2.2 per cent of SNB’s $68.7bn investment portfolio of $68.7bn. It was barely worth a press release, Alkhudairy said.

He was not the only one to find the $1.5bn figure unremarkable.

“It’s very painful to give 10 per cent of the bank away for just SFr1.5bn,” one top-10 shareholder in the group told the FT last month. The nickname “Credit Saudi” is making its rounds in Zurich.

But deep-pocketed Middle Eastern investors might be its best shot at forging a turnround.

Apollo’s Aligned Alternatives: like the S&P, but for the rich

Say you had a one million dollars to invest and wanted broad exposure to the equity markets.

The right move would probably be to go to Vanguard.com and buy a million bucks worth of the S&P 500 at an expense ratio of just four basis points. If you ever needed the cash back, you could sell as much as you wanted immediately.

Apollo Global Management boss Marc Rowan believes he has a better way for wealthy investors. The private equity group has created a new retail fund called Apollo Aligned Alternatives, which it touts as a replacement for the S&P 500, DD’s Sujeet Indap reports.

Marc Rowan, chief executive of Apollo, speaks during an interview

So far in 2022, Apollo says its AAA portfolio is up 11 per cent, while the S&P 500 is down 16.20 per cent during the same period.

There are a few catches, of course. In addition to significant management and incentives fees owed to Apollo — multiples of Vanguard’s four basis points — AAA investors will give up most liquidity rights much in the way that investors in Blackstone‘s Breit (property) and BCRED (corporate debt) funds have.

Rowan told a Goldman Sachs investor conference last week that Blackstone’s difficulties with recent redemption requests will ultimately be a positive thing.

“I actually think it’s good for the industry right now,” he said, as questions emerged about the suitability of so-called alternative investments for retail investors after Blackstone restricted withdrawals from a $69bn property fund.

“We are going to train clients and advisers to think about how much liquidity they need and how much they’re prepared to stock away,” Rowan added.

As for those superior equity returns, the AAA portfolio takes advantage of Apollo’s canniest move in its history. Retail investors will get the chance to invest in the alternative assets portfolio of Athene Holding, Apollo’s highly envied retirement annuities business.

Apollo says the basket of assets will return between 10 and 12 per cent annually on average, with less volatility than public stocks. But as one wealth manager told the FT, the rich could simply buy the public shares of Apollo or Blackstone themselves.

Job moves

FTX has hired a new chief financial officer, head of human resources and administration, and head of information technology, according to court testimony by CEO John Ray on Tuesday. Their names were not specified.

Jeff Zucker, the former president of CNN, has joined US private equity group RedBird to launch a $1bn sports, media and entertainment fund with International Media Investments.

Gold Fields head Chris Griffith has resigned a month after the South African miner failed in a takeover bid that would have created the world’s fourth-largest gold mining group. More from Lex.

InterContinental Hotels Group chief financial officer and strategy head Paul Edgecliffe-Johnson is stepping down to take on the same role at betting group Flutter Entertainment. He’ll be succeeded by Michael Glover, finance chief of the group’s Americas division and group head of commercial finance.

Private equity firm Clayton, Dubilier & Rice has promoted three new partners: Harsh Agarwal, Romain Dutartre, and Rob Volpe.

Kirkland & Ellis London M&A partner Tom McCarthy is joining the legal team of private equity firm Triton Partners.

Cadwalader, Wickersham & Taft has hired ESG finance and investment partner Sukhvir Basran in the firm’s London office. She joins from Hogan Lovells.

Piers Davison, Citigroup’s co-head of financial institutions in Europe, has departed, according to Financial News.

Smart reads

Family matters Until recently, Joseph Bankman and Barbara Fried were well-respected Stanford law professors, philanthropists, and supportive parents of their son’s fast-growing crypto empire. Now, they’re in the eye of the storm, the New York Times reports.

Sign of the times Big changes are afoot in markets. Conditions are “mostly less favourable” than those following the financial crisis, meaning investors should adjust their strategies accordingly, Oaktree Capital Management co-founder Howard Marks writes for FT Opinion.

The global glass ceiling From Singapore to Silicon Valley, women-led start-ups are raising staggeringly less funding at lower valuations, despite pulling in big returns. Nikkei Asia digs into the gender gap.

News round-up

Binance suffers $1bn outflow in one day as crypto jitters spread (FT)

Citadel founder Ken Griffin sues US tax agency over leak of records (FT)

Lars Windhorst offered La Perla role to H2O chief’s wife (FT)

Goldman Sachs considers hundreds of job cuts at consumer business (FT)

Brokers braced for big overhaul of US stock trading rules (FT)

Michael B. Jordan teams up with billionaire Bill Foley to buy stake in AFC Bournemouth (Bloomberg)

WWE’s Vince McMahon faces fresh demands from women alleging sexual abuse (Wall Street Journal)

Coupa/Thoma Bravo: Rule of 40 pushes companies into buyouts (Lex)

Cryptofinance — Scott Chipolina filters out the noise of the global cryptocurrency industry. Sign up here

The Lex Newsletter — Catch up with a letter from Lex’s centres around the world each Wednesday, and a review of the week’s best commentary every Friday. Sign up here

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