FTX CEO Sam Bankman-Fried charged with defrauding crypto investors of US$1.8 billion
- Sam Bankman-Fried has been under investigation by the Bahamas and the US following the collapse of his cryptocurrency firm FTX last month
- US Securities and Exchange Commission says the 30-year-old orchestrated scheme to ‘build house of cards on foundation of deception’
US prosecutors have charged Sam Bankman-Fried, the founder and former CEO of cryptocurrency exchange FTX, with a host of financial crimes and campaign finance violations on Tuesday, 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, 30, was one of the largest political donors this year.
The charges are on top of charges announced earlier on Tuesday by the Securities and Exchange Commission, which alleged Bankman-Fried defrauded investors and used proceeds from investors to buy real estate on behalf of himself and family.
Bankman-Fried orchestrated a years-long fraud by diverting investors’ funds to his private hedge fund and using them to make venture investments, lavish real estate purchases and large political donations, the US Securities and Exchange Commission alleged.
Bankman-Fried was arrested on Monday in the Bahamas, where he has been living. He has the right to contest extradition, which could delay but probably not stop his transfer to the US.
He was under criminal investigation by US and Bahamian authorities following the collapse last month of FTX, which filed for bankruptcy on November 11, when it ran out of money after the cryptocurrency equivalent of a bank run.
Bankman-Fried was one of the world’s wealthiest people on paper; at one point his net worth reached US$26.5 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, although 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.
Implosion of FTX shows the need for proper regulation
“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 Chair Gary Gensler.
The SEC complaint alleges that Bankman-Fried had raised more than US$1.8 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 a day before he was due to testify in front of the House Financial Services Committee. Rep. Maxine Waters, D-Calif., chairwoman of the committee, said she was “disappointed” that the American public, and FTX’s customers, would not get to see Bankman-Fried testify under oath.
Bankman-Fried said recently that he did not “knowingly” misuse customers’ funds.
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.”
