U.S. charges FTX founder Sam Bankman-Fried with criminal fraud



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A trio of U.S. agencies filed a flurry of charges ranging from fraud to campaign finance violations against disgraced cryptocurrency exchange founder Sam Bankman-Fried on Tuesday, one day after he was arrested in the Bahamas at the request of the U.S. government.

The Justice Department accused Bankman-Fried, 30, of multiple crimes, including conspiracy, fraud, money laundering and violating campaign finance laws. The Securities and Exchange Commission alleged that he defrauded his investors, and the Commodity Futures Trading Commission filed fraud accusations as well. The accusations show the reach and influence the young crypto baron amassed in just a few years.

Up until recently one of the world’s largest cryptocurrency exchanges, valued at $32 billion by its investors, FTX collapsed into bankruptcy in November, enraging the scores of clients who had thought their cryptocurrency holdings were safely stored on the company’s exchanges. FTX had established a veneer of legitimacy, winning investments from respected venture capital firms, paying to have its logo on shirts of Major League Baseball umpires, spending lavishly on Super Bowl advertising and pouring money into political donations.

But U.S. officials allege Bankman-Fried was actually perpetrating a massive, global fraud, using customer money to pay off debts incurred by his hedge fund Alameda Research, invest in other companies and make donations. And now, it seems, much of the money is missing.

Representatives from the Southern District of New York, Securities and Exchange Commission, Commodity Futures Trading Commission and the FBI spoke on Dec. 13. (Video: Reuters, Photo: Stephanie Keith/Getty Images/Reuters)

“This is one of the biggest financial frauds in American history,” U.S. Attorney Damian Williams said Tuesday during a news conference in New York. The alleged fraud destroyed “billions of dollars in customer value overnight,” he said.

For the past several weeks, Bankman-Fried had been hunkered down in his luxury apartment in Nassau, Bahamas, posting on social media and giving repeated media interviews in which he said he made grave mistakes but didn’t knowingly commit any crimes. His arrest and the charges, coming within hours of each other, are a rapid acceleration in the ongoing story of FTX, which has gripped the cryptocurrency world since the once well-respected company crumbled over a period of several days in November when it could not meet customer withdrawal demands.

On Tuesday, a judge in the Bahamas denied bail to Bankman-Fried, meaning he will stay in jail as he fights extradition to the United States.

Cryptocurrencies, which use complex math equations running on a decentralized network of computers to establish value without a central owner such as a bank or nation, soared in value and popularity during the pandemic as speculative assets. As prices for crypto tokens and coins marched upward, many people scored newfound fortunes. The total value of cryptocurrencies around the world hit $3 trillion in November 2021.

But over the past year, amid rising interest rates, concerns about a potential recession and several high-profile crypto company collapses, prices for crypto assets have plummeted. Bitcoin and ethereum, the two most popular cryptocurrencies, are down about 65 percent since the beginning of the year.

FTX’s demise is by far the biggest for the crypto industry this year, and Bankman-Fried’s downfall as one of its chief protagonists has deepened scrutiny of the industry as a whole.

“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,” SEC Chair Gary Gensler said in a statement when charges were announced. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”

Bankman-Fried appeared Tuesday in court in the Bahamas, where his lawyer argued in a contentious hearing that took up much of the day that he should be granted bail as a nonviolent offender. But prosecutors in the country said he was a flight risk and could have money hidden in other countries. The judge did not grant him bail.

It’s unclear how long Bankman-Fried’s extradition process will take, or what his chances are of fighting a return to the United States.

Mark Botnick, a spokesman for Bankman-Fried, said his client “is reviewing the charges with his legal team and considering all of his legal options.”

While Bankman-Fried was in court in Nassau, the House Financial Services Committee held a hearing focusing on FTX, which the former CEO was slated to attend via video call before his arrest.

The hearing did however feature FTX’s new CEO, John J. Ray III, a veteran bankruptcy lawyer who took over the company to try to recover as many assets for customers and creditors as possible when FTX declared bankruptcy.

The alleged crimes at the heart of the crypto company’s collapse are simple, despite the seemingly complex nature of the circumstances, Ray said during the hearing.

“This isn’t sophisticated whatsoever. This is just plain old embezzlement,” he said.

The recovery process will take “months, not weeks,” he added, and FTX customers will not get all their money back. “At the end of the day, we’re not going to be able to recover all the losses here,” he said.

The hearing exhibited a sense of anticlimax, as politicians who had prepared to grill Bankman-Fried himself were stuck instead asking questions of the agreeable Ray. “Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried,” Rep. Maxine Waters (D-Calif.), who heads the committee, said in a statement Monday night.

Before his fall, Bankman-Fried had donated tens of millions of dollars to politicians, becoming the second-largest Democratic donor in the 2022 midterm elections and building a prominent position for himself in Washington.

A number of crypto champions on the financial services panel used their time during the hearing to argue that FTX was a singularly bad actor that should not taint the rest of the sector. “We have to separate out the bad actions of an individual from the good created by an industry and an innovation,” Rep. Patrick T. McHenry (R-N.C.), who is set to chair the committee next year, said in his opening statement.

But there were signs that the company’s implosion is weighing on lawmakers’ views of the broader industry. “My patience with the crypto bulls is wearing thin,” Rep. Jake Auchincloss (D-Mass.) said toward the end of the four-hour session. “It’s been 14 years, and the American public has heard lots of promises but seen lots of Ponzi schemes. For crypto, it’s time to put up or shut up.”

At the white-and-pink Magistrate’s Court in Nassau, Bahamas, Bankman-Fried appeared wearing a suit coat without a tie, according to the Nassau Guardian, a local newspaper. Members of Bankman-Fried’s family and representatives from the U.S. Embassy were present in the courtroom, according to the newspaper.

Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, are both professors at Stanford University’s law school. The SEC alleges Bankman-Fried used funds that had been commingled with customer money to buy them real estate. A spokesperson for Bankman and Fried did not return a request for comment.

The saga is far from over.

The government’s indictment suggests that prosecutors will indict more people or may already be working with one or several of Bankman-Fried’s associates to build their case against him, said Mark Kasten, a lawyer with Buchanan Ingersoll & Rooney who has worked on cryptocurrency litigation.

“Conspiracy is not something you do alone,” Kasten said.

correction

An earlier version of this article misstated the amount Bankman-Fried gave to Democratic political candidates in the 2022 midterm elections. It was tens of millions of dollars, not hundreds of millions. This version has been corrected.

Tory Newmyer in Washington; Tim Craig in Fort Lauderdale, Fla.; Steven Zeitchik and Shayna Jacobs in New York; and Tony Williams in Nassau, Bahamas, contributed to this report.



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