US prosecutors have charged Sam Bankman-Fried, the former chief executive of cryptocurrency exchange FTX, with a host of financial crimes and campaign finance violations, alleging he played a central role in the collapse of FTX and hid its problems from the public and investors.
Bankman-Fried was charged with eight counts, ranging from wire fraud to money laundering to conspiracy to commit fraud on the United States.
He was also charged with violating campaign finance laws, a notable charge as Bankman-Fried was one of the largest political donors this year.
Earlier, the US Securities and Exchange Commission charged Bankman-Fried with orchestrating a scheme to defraud investors.
A civil complaint alleges that Bankman-Fried raised more than 1.8 billion dollars (£1.4 billion) from equity investors since May 2019 by falsely promoting FTX as a safe, responsible platform for trading crypto assets.
The complaint says Bankman-Fried diverted customer funds to Alameda Research LLC, his privately-held crypto fund, without telling them.
Today we charged FTX Trading Ltd CEO and co-founder Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors. Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
— U.S. Securities and Exchange Commission (@SECGov) December 13, 2022
Along with the charges, US authorities will seek to have Bankman-Fried forfeit all financial gains he might have received as part of the scheme.
They are expected to request his extradition to the US, although the timing of that request is unclear. FTX filed for bankruptcy on November 11, when it ran out of money after the cryptocurrency equivalent of a bank run.
The maximum potential prison exposure from these charges is 115 years, according to Nicholas Biase, a prosecutors’ spokesman.
Since FTX collapsed, Bankman-Fried has been holed up in his Bahamian luxury compound in Nassau.
A spokesman for Bankman-Fried had no immediate comment on the charges Tuesday. He has a right to contest his extradition, which could delay but probably not stop his transfer to the US.
Bankman-Fried was one of the world’s wealthiest people on paper; at one point his net worth reached 26.5 billion dollars (£21 billion), according to Forbes.
He was a prominent personality in Washington, donating millions of dollars toward mostly left-leaning political causes and Democratic political campaigns, though he also gave money to Republicans. FTX grew to become the second-largest cryptocurrency exchange in the world.
That all unravelled quickly last month, when reports called into question the strength of FTX’s balance sheet. Customers moved to withdraw billions of dollars, but FTX could not meet all the requests because it apparently had used its customers’ deposits to fund investments at Bankman-Fried’s trading arm, Alameda Research.
“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 SEC chairman Gary Gensler.
The SEC complaint alleges that Bankman-Fried had raised more than 1.8 billion dollars (£1.4 billion) from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.
Instead, the complaint says, Bankman-Fried diverted customers’ funds to Alameda Research without telling them.
“He then used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses,” the complaint reads. “None of this was disclosed to FTX equity investors or to the platform’s trading customers.”
Alameda did not segregate FTX investor funds and Alameda investments, the SEC said, using that money to “indiscriminately fund its trading operations”, as well as other ventures of Bankman-Fried.
Bankman-Fried’s arrest came just a day before he was due to testify in front of the House Financial Services Committee.
That hearing went ahead, however, with FTX’s new CEO, John Ray III, providing withering testimony about the company’s practices.
Mr Ray told Congress that the collapse of FTX, resulting in the loss of more than seven billion dollars (£5.65 billion), was the culmination of months, or even years, of bad decisions and poor financial controls.
“This is not something that happened overnight or in a context of a week,” he said.
He added: “This is just plain, old fashion embezzlement, taking money from others and using it for your own purposes. This is not sophisticated at all.”
Bankman-Fried said recently that he did not “knowingly” misuse customers’ funds, and said he believes his millions of angry customers will eventually be made whole.
The SEC challenged that assertion Tuesday in its complaint.
“FTX operated behind a veneer of legitimacy Mr Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service.
“But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” said Gurbir Grewal, director of the SEC’s division of enforcement.
“FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike,” Mr Grewal said.
A lawyer for Bankman-Fried, Mark S Cohen, said on Tuesday he is “reviewing the charges with his legal team and considering all of his legal options”.
