Disgraced FTX CEO Sam Bankman-Fried ‘Orchestrated Years of Fraud’ on Investors and Clients, SEC and Criminal Charges Say

Disgraced FTX CEO Sam Bankman-Fried 'Orchestrated Years of Fraud' on Investors and Clients, SEC and Criminal Charges Say
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Fried Sam BankmanThe former CEO of cryptocurrency giant FTX defrauded investors by funneling money into his private hedge fund and conspired to commit wire fraud against customers and lenders, federal authorities said Tuesday.

Bankman-Fried, 30, the celebrated founder of FTX, was arrested in the Bahamas on Monday, following his indictment by a federal grand jury in the Southern District of New York on Friday, US Attorney Damian Williams told reporters.

Bahamas Chief Magistrate Joyann Ferguson-Pratt denied Bankman-Fried’s request for bail and said she was not satisfied with her legal team’s arguments. A hearing on her extradition to the United States is scheduled for February 2. eight.

The Manhattan panel indicted Bankman-Fried on eight counts: conspiracy to commit wire fraud on customers, wire fraud on customers, conspiracy to commit wire fraud on lenders, wire fraud on lenders, conspiracy to commit commodity fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering, and conspiracy to defraud the United States and violate campaign finance laws.

“This investigation is ongoing and it is moving very quickly,” Williams said. “While this is our first public announcement, it won’t be our last.”

The federal prosecutor urged Bankman-Fried’s business partners to contact investigators as soon as possible.

“I strongly encourage you to come see us before we go to see you,” Williams said.

The indictment alleges that Bankman-Fried knowingly devised the scheme to defraud FTX clients by “misappropriating the deposits of those clients and using those deposits to pay the expenses and debts of Alameda Research,” its own fund Private cryptographic coverage, to make investments.

$8 billion loss to customers

The wire fraud against lenders and customers began around 2019 and lasted through November, according to the filing.

Gretchen Lowe, acting director of the Commodity Futures Trading Commission’s Division of Enforcement, pegged clients’ losses at more than $8 billion.

But that number could pale in comparison to the potential damage to public trust in the system, according to Lowe.

“The consequences of the defendant’s fraud are enormous and have caused significant damage to the integrity of the evolving digital asset market,” he said.

The indictment also alleges that Bankman-Fried misled Alameda lenders out of money and property by providing “false and misleading information to those lenders regarding the financial condition of Alameda Research.”

The indictment also charges Bankman-Fried with campaign finance violations for conspiring with others and making campaign contributions to candidates and political committees in excess of the federal donation limit.

His contributions to candidates for federal office, joint fundraising committees and independent spending committees totaled $25,000 and more in a calendar year, according to the filing. He allegedly also made corporate contributions to candidates and committees in the Southern District of New York “that were reported on someone else’s behalf.”

Seeking influence on both sides of the aisle, the feds say

The “tens of millions of dollars in illegal campaign contributions” were made to “candidates and committees associated with Democrats and Republicans,” according to Williams.

“These contributions were disguised to appear to come from wealthy co-conspirators when, in fact, the contributions were funded by Alameda Research with money stolen from clients,” the federal prosecutor said.

“All of this dirty money was used in the service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington.”

Separately, the SEC charged him in a filing Tuesday, also in the Southern District of New York, with defrauding investors and enriching his Alameda Research LLC hedge fund.

The SEC said in a press release that Bankman-Fried has raised more than $1.8 billion from equity investors since founding Bahamas-based FTX in May 2019 and allegedly “orchestrated a year-long fraud to hide” the diversion. undisclosed from FTX clients. funds to Alameda.

It also allowed undisclosed special treatment for Alameda on the platform, including a “virtually unlimited line of credit” funded by platform clients and exempted Alameda from certain key FTC risk mitigation measures, the SEC said.

He then allegedly used funds from FTX clients in Alameda “to make undisclosed venture investments, lavish real estate purchases, and large political donations.”

The SEC further alleged that Bankman-Fried concealed from investors the “undisclosed risk” of FTX’s exposure to Alameda’s “significant holdings of overvalued illiquid assets, such as FTX-affiliated tokens.”

“We allege that Sam Bankman-Fried built a house of cards on a basis of deception while telling investors it was one of the safest buildings in crypto,” SEC Chairman Gary Gensler said.

Officials said investigations into other securities law violations in connection with the alleged misconduct are ongoing.

The SEC’s complaint accuses Bankman-Fried of violating the anti-fraud provisions of the securities law and seeks injunctive relief against future securities law violations, which means that, if convicted, he could be barred from trading in securities. values ​​in the future beyond as an individual.

The SEC said the Commodity Futures Trading Commission is also charging Bankman-Fried.

FTX CEO promises continued research cooperation

Also on Tuesday, a congressional hearing was held on the FTX collapse and missteps during which the company’s new CEO, John J. Ray III, conducted a test run. Bankman Fried was scheduled to appear at the hearing prior to his arrest.

During the House Financial Services Committee hearing, lawmakers shared harsh criticism of Bankman-Fried with ranking member Patrick McHenry, RN.C., calling her arrest “good news.”

Ray about the issues that led to the downfall of FTX and said his team is cooperating with Southern District of New York and SEC officials.

“The collapse of FTX Group appears to be due to the absolute concentration of control in the hands of a small group of extremely inexperienced and unsophisticated individuals who have implemented virtually none of the systems or controls that are necessary for a company entrusted with the other people’s money or assets. ”Ray told lawmakers.

Bankman-Fried was arrested after US authorities filed criminal charges against him and was taken into custody in the capital city, Nassau, shortly before 6:00 pm Monday.

In a statement Tuesday, an attorney for Bankman-Fried said his client is “reviewing the charges with his legal team considering all his legal options.”

Bahamas Prime Minister Philip Davis said in a statement that the island nation is continuing a regulatory and criminal investigation into the company’s collapse.

FTX was once seen as the face of the industry, a company reportedly worth $32 billion that drew celebrity endorsements and major sports endorsements. Bankman-Fried was seen as a crypto whiz kid who graced the cover of Forbes Y Fortune and had emerged as a major Democratic donor.

but last month after a cryptocurrency-focused news site was published On the balance sheet of an investment firm also owned by Bankman-Fried, FTX experienced the equivalent of a run on the bank: customers and observers questioned whether its loans and investments were worth more than its debts. They also asked if the company could pay people who try to withdraw funds.

Within days, Bankman-Fried resigned and the company declared bankruptcy. Speech at the New York Times DealBook Summit on November 10. thirtyBankman-Fried said he did not “try to commit fraud against anyone.”

CORRECTION (Dec 13, 2022 7:55 am): An earlier version of this article erroneously stated how much Bankman-Fried raised from equity investors. It was $1.8 billion, not $1.8 million.

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