Sam Bankman-Fried has been accused of engineering “one of many greatest monetary frauds in American historical past” as US prosecutors filed prison costs in opposition to the founding father of failed cryptocurrency change FTX.
In an indictment unsealed on Tuesday, the US Division of Justice charged Bankman-Fried with eight counts together with conspiracy to commit wire fraud on clients and lenders, cash laundering and violations of marketing campaign finance legal guidelines. Bankman-Fried, who was arrested within the Bahamas on Monday, faces years in jail if convicted.
The fees pointed to a long-running scheme to misappropriate the deposits of change clients to pay money owed and bills of Bankman-Fried’s non-public buying and selling agency Alameda Analysis and to make investments. The conspiracy ran from 2019 — the yr he based FTX — till its collapse final month, in line with the indictment.
The failure of Bahamas-based FTX, as soon as valued at $32bn, has resulted in billions of {dollars} of potential losses for hundreds of thousands of collectors, together with retail traders, and despatched shockwaves by the crypto business.
Damian Williams, US legal professional for the Southern District of New York, described the alleged crimes as “one of many greatest monetary frauds in American historical past” at a information convention. Williams stated he had permitted the fees in opposition to Bankman-Fried final week.
The prison case was unsealed as lawmakers in Washington carried out a listening to into the FTX chapter. Bankman-Fried had been scheduled to testify to the US Home monetary providers committee earlier than he was arrested at his luxurious penthouse by Bahamian police.
John Ray, FTX’s court-appointed new chief govt, informed the listening to: “This isn’t refined in anyway, that is simply plain previous embezzlement.”
Bankman-Fried’s lawyer stated he was “reviewing the fees together with his authorized workforce and contemplating all of his authorized choices”. FTX declined to remark.
In civil costs additionally filed in opposition to Bankman-Fried, the US Securities and Trade Fee stated he orchestrated a fraud that started the day FTX was launched and continued at his private course till November. Buyer funds have been diverted to make “undisclosed enterprise investments, lavish actual property purchases and enormous political donations”, the SEC stated.
“We allege that Sam Bankman-Fried constructed a home of playing cards on a basis of deception whereas telling traders that it was one of many most secure buildings in crypto,” stated Gary Gensler, SEC chair.
The regulator accused him of defrauding enterprise capitalists and different fairness traders who pumped $1.8bn into Bahamas-based FTX since Might 2019. Earlier than its failure FTX had received the backing of a number of of the world’s best-known traders together with BlackRock, Sequoia Capital and the Ontario Lecturers’ Pension Plan.
The Commodity Futures Buying and selling Fee charged Bankman-Fried, FTX and Alameda with fraud and materials misrepresentations. Pc code written by FTX supplied an “successfully limitless line of credit score that allowed Alameda to withdraw billions of {dollars} in buyer belongings from FTX”, the regulator stated.
Bankman-Fried in current weeks insisted he was unaware of the small print of what Alameda was doing. He has additionally denied intentional wrongdoing and apologised for what he characterised as oversights and errors.
Ray stated FTX was run by unsophisticated managers who used Slack messages to document bills and QuickBooks software program for accounting, which he referred to as “a really good instrument, simply not for a multibillion-dollar firm”. He stated it might take months to trace down belongings and “on the finish of the day, we aren’t going to have the ability to recuperate all of the losses right here”.
The SEC alleged that Bankman-Fried had full management and entry to data at FTX and Alameda, and that he “directed funding and operational selections” on the buying and selling agency. The regulator claimed Bankman-Fried had taken steps this yr to cover billions of {dollars} of FTX buyer balances held at Alameda.
In draft testimony ready for the US Home committee listening to and obtained by The Wall Street Journal, Bankman-Fried stated he started FTX’s worldwide change in 2019 and “started transitioning away from an lively function in Alameda Analysis then”. He added, “Specifically, I used to be not working Alameda Analysis this previous yr.”
Bankman-Fried was a serious US political donor who gave primarily however not completely to Democrats. Williams alleged the donations have been funded with stolen buyer belongings.
“All of this soiled cash was utilized in service of Bankman-Fried’s want to purchase bipartisan affect and impression the course of public coverage in Washington,” Williams stated.
Extra reporting by Nikou Asgari in London
