Sam Bankman-Fried Case Provides Lessons on Fraud and D&O Insurance

Sam Bankman-Fried’s criminal trial started this week; and on the same day, he sued one of his director & officer insurers. And a lot of people are asking, why? Is the timing a coincidence or on purpose? Shouldn’t he be focused on the criminal trial? The answer is: he is.

Imagine you’re an executive of a high flying, rapidly growing company. It could be a public company, or a private one. In the process of raising capital and breaking paradigms, you’re accused of also breaking the law and committing financial fraud. To the surprise of many, you can often turn to the directors & officers insurance (that the company’s investors paid for) to defend the criminal case against yourself. It could be the story of Enron (Kenneth Lay and Jeff Skilling), WorldCom (Bernie Ebbers), Tyco (Dennis Kozlowski), Stanford Financial Group (Allen Stanford), Theranos (Elizabeth Holmes and Sunny Balwani). Today, it’s the story of SBF and FTX.