FTX’s Bankman-Fried charged by US for ‘scheme’ to defraud

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NEW YORK The U.S. government has charged Samuel Bankman-Fried (the founder and former CEO) of cryptocurrency exchange FTX with a variety of financial crimes. He was accused of deceiving customers and investors while playing a central part in the company’s multibillion dollar collapse.

Federal prosecutors claim that Bankman-Fried, the founder and former CEO of FTX, devised a scheme and artifice in order to defraud FTX’s investors and customers beginning in 2019. He illegally diverted their money to cover expenses, debts and risky trades at his crypto hedge fund, Alameda Research, and to make lavish real estate purchases and large political donations, prosecutors said in a 13-page indictment.

Bankman-Fried, 30, was arrested Monday in the Bahamas at the request of the U.S. government, which charged him with eight criminal violations, ranging from wire fraud to money laundering to conspiracy to commit fraud. Bankman-Fried, also known as “SBF” by crypto enthusiasts, could spend decades in prison if he is convicted of all the charges.

The U.S. attorney Damian Williams described it as “one of America’s biggest frauds” and stated that the investigation is ongoing. He encouraged anyone who believed they were victims to contact his office.

Bankman-Fried has fallen hard and fast from the top of the cryptocurrency industry he helped to evangelize. FTX filed for bankruptcy in November 11, after it ran out of cash following a cryptocurrency equivalent to a bank run.

Before his bankruptcy, many Wall Street and Washington officials considered him a wunderkind in digital currencies. He was able to help make them mainstream by working with policymakers to increase oversight and trust in the industry.

Bankman-Fried had been worth tens of billions of dollars — at least on paper — and was able to attract celebrities like Tom Brady or former politicians like Tony Blair and Bill Clinton to his conferences at luxury resorts in the Bahamas.

Wearing shorts and tshirts to stand out from the drab world of Wall Street, Bankman-Fried was a well-known advocate for “effective altruism” and had millions of followers on Twitter.

Bankman-Fried and his company were compared to other disgraced financiers, such as Bernie Madoff or Enron, since the implosion of FTX. The criminal indictment of Bankman-Fried and other employees at FTX comes on top civil charges that were announced Tuesday by the Securities and Exchange Commission and Commodity Futures Trading Commission. The SEC alleges Bankman-Fried defrauded investors and illegally used their money to buy real estate on behalf of himself and his family.

U.S. Authorities said they would pursue any Bankman-Fried financial gains from the alleged scheme.

A lawyer for Bankman-Fried, Mark S. Cohen, said Tuesday he is “reviewing the charges with his legal team and considering all of his legal options.”

At a congressional hearing Tuesday that was scheduled before Bankman-Fried’s arrest, the new CEO brought in to steer FTX through its bankruptcy proceedings leveled harsh criticism. He claimed that there was little oversight of customers’ funds and “very few rules” regarding how their money could be used.

John Ray III explained to members of the House Financial Services Committee how the collapse of FTX, which resulted in a loss of more than $7Billion, was the result of months or even years of poor financial decisions and poor financial control.

“This was not something that happened overnight.

He added: “This is just plain, old-fashioned embezzlement, taking money from others and using it for your own purposes.”

Before his arrest, Bankman-Fried had been holed up in his luxury compound in the Bahamas. Although the exact timing of the request is not known, U.S. authorities expect to request Bankman-Fried’s extradition to the U.S.

At Tuesday’s court hearing in the Bahamas, prosecutors claimed that Bankman-Fried was an armed flight risk and should not be released on bail. This is according to Our News, a local broadcast news company. His lawyers stated that he is likely request an extradition hearing.

Bankman-Fried’s was previously one of the world’s wealthiest people on paper; at one point his net worth reached $26.5 billion, according to Forbes. He was a well-known Washington figure who donated millions to both Democrats and Republicans. U.S. Attorney Williams stated Tuesday that Bankman Fried made illegal campaign donations in excess of tens of million dollars.

His wealth was quickly eroded after reports called into question FTX’s strength. FTX couldn’t satisfy customers’ requests to withdraw billions of dollar.

“We allege Sam Bankman-Fried constructed a house of cards on the foundation of deception while telling crypto investors that it was one among the most secure buildings in crypto,” stated Gary Gensler, SEC Chair.

The SEC complaint alleges Bankman-Fried raised more than $1.8 million from investors since May 2019. He promoted FTX as a safe and responsible platform for trading crypto assets.

Instead, the complaint claims that Bankman-Fried diverted customers funds to Alameda Research, without their knowledge.

“He used Alameda to buy luxury condos, support political campaigns and make private investments among other uses,” the complaint states.

Bankman-Fried gave interviews in the weeks following FTX’s collapse but before his arrest. He tried to explain what had happened to various news organizations.

Bankman-Fried stated that he didn’t “knowingly” misuse customers funds and that he believes angry customers can get their money back.

At Tuesday’s congressional hearing, Ray, the new CEO of FTX, reaffirmed those assertions. Ray stated that “we will never get all these assets back.”

Jack Sharman, an attorney from Lightfoot, Franklin & White, stated that Bankman-Fried’s comments to the media could have been damaging and could be admissible evidence in court. Sharman stated that Sharman was not impressed by the statements made during his speaking tour.

The SEC challenged Bankman-Fried’s recent statements that FTX’s customers and FTX were victims of a sudden collapse in the market that overrode all safeguards. “HTMOTO_ FTX operated under a veneer of legitimacy,” stated Gurbir Grewal (director of the SEC’s enforcement division). “That veneer wasn’t just thin, it was fraudulent.”

The collapse of FTX — which followed other cryptocurrency debacles earlier this year — is adding urgency to efforts to regulate the industry.

Yesha Yanav, a Vanderbilt University law professor who specializes in financial regulation and securities regulation, stated that U.S. regulators and lawmakers have been too slow to take action, but this is likely to change.

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


Hussein contributed to this report from Washington.

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