US accuses disgraced crypto mogul Bankman-Fried of ‘massive multi-year fraud’

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The US government on Tuesday charged Samuel Bankman-Fried, the founder and former CEO of cryptocurrency exchange FTX, with a host of financial crimes, alleging he intentionally deceived clients and investors for years to enriching themselves and others, while playing a pivotal role in the company’s multi-billion dollar collapse.

Federal prosecutors said Bankman-Fried devised a scheme and artifice to defraud FTX customers and investors beginning in 2019, the year it was founded. He illegally embezzled their money to cover expenses, debts and risky trades within the crypto hedge fund he started in 2017, Alameda Research, and to make lavish real estate purchases and large political donations, said prosecutors in a 13-page indictment.

Bankman-Fried, 30, was arrested in the Bahamas on Monday at the request of the US government and remains in custody after being denied bail.

He was charged with eight criminal offences, ranging from wire fraud to money laundering to conspiracy to commit fraud. If found guilty on all charges, Bankman-Fried, who crypto enthusiasts call SBF, could face decades in prison.

Bankman-Fried “orchestrated a massive, years-long fraud, embezzling billions of dollars of client funds from trading platforms for his own benefit and to help grow his crypto empire,” prosecutors said.

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At a news conference on Tuesday, U.S. Attorney Damian Williams in New York called it one of the biggest frauds in American history and said the investigation was continuing and moving quickly.

U.S. Attorney Damian Williams speaks during a press conference on criminal charges against FTX founder Sam Bankman-Fried in New York City on Dec. 13, 2022. (AP Photo/Julia Nikhinson)

Bankman-Fried fell from the top of the cryptocurrency industry which he helped evangelize. FTX filed for bankruptcy on November 11, when it ran out of money after the cryptocurrency equivalent of a bank run.

Prior to the bankruptcy, he was seen by many in Washington and on Wall Street as a digital currency whiz, someone who could help bring them to the mainstream, in part by working with policymakers to bring more oversight and trust to the world. ‘industry.

Bankman-Fried was worth tens of billions of dollars – at least on paper – and was able to lure celebrities like Tom Brady or former politicians like Tony Blair and Bill Clinton to his lectures at luxury hotels in the Bahamas. A major Silicon Valley company, Sequoia Capital, has invested hundreds of millions of dollars in FTX.

Wearing athletic shorts and t-shirts to contrast with the buttoned-up world of Wall Street, he was the subject of flattering media profiles, a vocal advocate of a type of charitable giving known as effective altruism and garnered over a million followers on Twitter.

Samuel Bankman-Fried, founder of FTX, testifies during a Senate Committee on Agriculture, Nutrition and Forestry hearing on Capitol Hill in Washington, DC on February 9, 2022. (Saul Loeb/AFP)

But since the FTX implosion, Bankman-Fried and company have been compared to other disgraced financiers and corporations, such as Bernie Madoff and Enron. Authorities say Bankman-Fried has lied to customers, investors and lenders about what he has been doing with their money since 2019, undermining his claims that he only made “mistakes”.

The indictment against Bankman-Fried and others at FTX is in addition to civil charges announced Tuesday by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The SEC alleges that Bankman-Fried defrauded FTX clients by making loans to himself and other FTX executives, and illegally using investors’ money to buy real estate for himself and his company. family.

No other FTX executives were named in the indictment, nor was Alameda Research CEO Caroline Ellison. Also not named in the indictment: Bankman-Fried’s father, Stanford University law professor Joseph Bankman, considered an adviser to his son.

US authorities have said they will try to recoup all of Bankman-Frieds’ financial gains from the alleged scheme.

Gurbir Grewal, director of enforcement for the Securities and Exchange Commission, speaks during a press conference on the charges against FTX founder Sam Bankman-Fried in New York, December 13, 2022. ( AP Photo/Julia Nikhinson)

A Bankman-Fried attorney, Mark S. Cohen, said Tuesday he was reviewing the charges with his legal team and considering all of his legal options.

At a Tuesday congressional hearing that was scheduled before Bankman-Fried’s arrest, the new CEO set to lead FTX through its bankruptcy proceedings drew heavy criticism. He said there was little oversight of customers’ money and very few rules about how their funds might be used.

John Ray III told members of the House Financial Services Committee that the collapse of FTX, resulting in the loss of more than $7 billion, was the culmination of months, if not years, of bad decisions and poor financial controls.

It’s not something that happened overnight or in a week-long context, he said.

He added: This is just old-fashioned embezzlement, taking other people’s money and using it for your own purposes.

John Ray, CEO of cryptocurrency exchange FTX, testifies before the House Financial Services Committee on the collapse of the crypto exchange, Dec. 13, 2022, on Capitol Hill in Washington. (AP/Manuel Balce Ceneta)

Prior to his arrest, Bankman-Fried had been locked up in his luxury resort in the Bahamas. US authorities should seek his extradition to the United States. He will have to be extradited for a federal trial in the United States, and the two countries have an extradition treaty, but the process could take months.

Bankman-Fried spent a night in jail and was denied bail during a hearing in the Bahamas on Tuesday after prosecutors argued he was at risk of fleeing, according to Our News, a reporting firm. information based there.

Bankman-Fried was previously one of the richest people in the world on paper; at one point, his net worth reached $26.5 billion, according to Forbes. He was a prominent figure in Washington, donating millions of dollars to Democrats and Republicans. US Attorney Williams said on Tuesday that Bankman-Fried earned tens of millions of dollars in illegal campaign donations.

His wealth quickly plummeted last month when reports questioned the strength of FTX’s balance sheet. As customers sought to withdraw billions of dollars, FTX could not meet the demands: their money was gone.

We Allege Sam Bankman-Fried Built a House of Cards Based on Deception While Telling Investors It Was One of Crypto’s Most Secure Buildings, SEC Chairman Says , Gary Gensler.

The SEC complaint alleges that Bankman-Fried had raised more than $1.8 billion from investors since May 2019 by promoting FTX as a safe and responsible platform for trading crypto assets.

Instead, the complaint says, Bankman-Fried diverted client funds to Alameda Research without telling them.

This file photo illustration taken on November 13, 2022 shows the FTX cryptocurrency logo reflected in an image of former chief executive Samuel Bankman-Fried, in Washington, DC (Stefani Reynolds/AFP)

“He then used Alameda as his personal piggy bank to purchase luxury condominiums, support political campaigns, and make private investments, among other uses,” the complaint states.

In the weeks following FTX’s collapse, but before his arrest, Bankman-Fried gave interviews to several news agencies in which he sought ways to explain what had happened.

For example, Bankman-Fried said he did not knowingly misuse client funds and believed angry clients would eventually get their money back.

During Tuesday’s congressional hearing, FTX’s new CEO squarely disputed those claims: We’ll never get all those assets back, Ray said.

He said the problems arose because control was “in the hands of a very small group of grossly inexperienced and unsophisticated individuals”.

“Never in my career have I seen such a total failure of corporate controls at all levels of an organization, from no financial statements to a complete failure of any internal controls or governance” , said Ray, who also oversaw the collapse of Enron, the energy company that collapsed in a huge scandal in 2001.

Signage for the FTX Arena, where the Miami Heat basketball team plays, is illuminated in Miami, November 12, 2022. (Marta Lavandier/AP)

Jack Sharman, an attorney at Lightfoot, Franklin & White, said Bankman-Fried’s recent comments to the media could be damaging and admissible evidence in court. “These statements on this speaking tour were of no help to his cause,” Sharman said.

“If convicted, he faces the rest of his life in prison, given the amount of the fraud,” Jacob S. Frenkel, former federal prosecutor for Dickinson Wright, told AFP. “We wouldn’t see an indictment if prosecutors weren’t absolutely confident they would get a conviction.”

In its complaint, the SEC challenged Bankman-Fried’s recent statements that FTX and its clients were victims of a sudden market crash that exceeded safeguards in place.

FTX operated behind a veneer of legitimacy,” said Gurbir Grewal, director of the SEC’s Enforcement Division. “That veneer wasn’t just thin, it was fraudulent.

The fall of FTX raised major doubts about the cryptocurrency’s long-term viability and added stress on other platforms and entities that rode on the success of Bitcoin and other currencies. The societal collapse that followed other cryptocurrency debacles earlier this year also adds urgency to industry regulatory efforts.

Yesha Yadav, a Vanderbilt University law professor specializing in financial and securities regulation, said US lawmakers and regulators have been too slow to act, but that should change.

Lawmakers are clearly under pressure to do something, given that so many people have lost their money, she said.

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