US alleges Bankman-Fried defrauded FTX cryptocurrency customers, investors

NEW YORK - The US government on Tuesday charged Samuel Bankman-Fried, the founder and former CEO of cryptocurrency exchange FTX, with a series of financial crimes, alleging that he intentionally misled clients and investors to enrich himself. and to others, while playing a central role in the company's multi-billion dollar business. -Collapse of the dollar.

Federal prosecutors say that, beginning in 2019, Bankman-Fried devised "a scheme and artifice to defraud" FTX clients and investors. He illegally diverted his money to cover expenses, debts and risky transactions in 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 US government, which charged him with eight criminal offenses, ranging from wire fraud to money laundering and conspiracy to commit fraud. If he is found guilty on all counts, Bankman-Fried, referred to by cryptocurrency enthusiasts as "SBF," could face decades in prison.

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At a news conference Tuesday, US Attorney Damian Williams called it "one of the largest frauds in American history" and said the investigation is ongoing and moving quickly. He urged anyone who believes he fell victim to the alleged scheme to contact his office.

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

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

Bankman-Fried had been 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 her lectures at luxury resorts in the Bahamas.

Wearing track shorts and T-shirts to contrast with the buttoned-down world of Wall Street, he was the subject of fawning profiles in the media, was considered a leading advocate of a type of charitable giving known as "effective altruism" and commanded millions. of followers on Twitter.

But since the implosion of FTX, Bankman-Fried and his firm have been compared to other disgraced financiers and corporations such as Bernie Madoff and Enron.

The criminal indictment against Bankman-Fried and "others" at FTX builds on civil charges announced Tuesday by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The SEC alleges that Bankman-Fried defrauded investors and illegally used his money to purchase real estate on behalf of him and his family.

US authorities said they will try to recover any of Bankman-Fried's financial gains from the alleged scheme.

An attorney for Bankman-Fried, Mark S. Cohen, said Tuesday that he is "reviewing the charges with his legal team and considering all of his legal options."

At a congressional hearing on Tuesday that was scheduled before Bankman-Fried's arrest, the new CEO hired to guide FTX through its bankruptcy process launched harsh criticism. He said there was little oversight of clients' money and "very few rules" about how their funds could be used.

John Ray III told members of the House Financial Services Committee that the collapse of FTX, which resulted in the loss of more than $7 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 the context of a week,” he said.

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

Before his arrest, Bankman-Fried had been in hiding at his luxury resort in the Bahamas. US authorities are expected to request his extradition to the US, although the timing of that request is unclear.

At a court hearing in the Bahamas on Tuesday, prosecutors argued that Bankman-Fried was a flight risk and should be held without bail, according to Our News, a Bahamas-based news broadcasting company. His lawyers said he is likely to request a formal extradition hearing.

Bankman-Fried's 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 Tuesday that Bankman-Fried made "tens of millions of dollars" in illegal campaign donations.

His wealth was quickly unraveled last month.when disputed reports the strength of FTX's balance sheet. As clients sought to withdraw billions of dollars, FTX was unable to meet the requests: their money was gone.

“We allege that Sam Bankman-Fried built a house of cards on a basis of deception while telling investors it was one of the safest buildings in crypto,” SEC Chairman Gary Gensler said.

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

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

"Then he used the Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns and make private investments, among other uses," the complaint says.

In the weeks after FTX's collapse, but before his arrest, Bankman-Fried gave interviews to various news organizations seeking ways to explain what happened.

For example, Bankman-Fried said it did not "knowingly" misuse customer funds, and that it believes angry customers will eventually get their money back.

At Tuesday's congressional hearing, FTX's new chief executive disputed those claims bluntly: "We're never going to get all these assets back," Ray said.

Jack Sharman, an attorney for Lightfoot, Franklin & White, said Bankman-Fried's recent comments to the media could be damaging and admissible evidence in court. “Those statements on that speaking tour were in no way helpful to their cause,” Sharman said.

In its lawsuit, the SEC disputed recent statements by Bankman-Fried that FTX and its clients were the victims of a sudden market crash that exceeded the security measures that had been put in place.

"FTX was operating behind a veneer of legitimacy," said Gurbir Grewal, director of the SEC's enforcement division. "That veneer was not only thin, it was fraudulent."

The FTX collapse, which followed other cryptocurrency debacles earlier this year, adds urgency to efforts to regulate the industry.

Yesha Yadav, a law professor at Vanderbilt University who specializes in financial and securities regulation, said US lawmakers and regulators have been too slow to act, but that is likely to change.

"Lawmakers are clearly under pressure to do something as a lot of people have lost their money," he said.

Hussein contributed to this report from Washington.