Federal prosecutors in the United States have accused Sam Bankman-Fried of criminal conspiracy and fraud that began at his cryptocurrency exchange FTX, part of a wave of charges after his arrest in the Bahamas on Monday.
In an indictment unsealed in a Manhattan court on Tuesday, the US department of justice charged him with eight counts including conspiracy to commit wire fraud on customers and lenders, money laundering and violations of campaign finance laws.
Mr Bankman-Fried (30) faces years in prison if he is convicted. The charges pointed to a long-running scheme, alleging that Mr Bankman-Fried and others crafted a plan to misappropriate the deposits of exchange customers to pay the debts and expenses of his private trading firm Alameda Research and to make investments. The conspiracy ran from 2019 – the year FTX was founded – until its collapse last month, according to the indictment.
The criminal indictment was unsealed as US financial regulators brought civil charges accusing Mr Bankman-Fried of defrauding investors in his recently bankrupt cryptocurrency exchange FTX, the first move in an expected onslaught of criminal and civil charges following his arrest in the Bahamas late on Monday.
The Securities and Exchange Commission (SEC) said on Tuesday it had charged Mr Bankman-Fried with defrauding venture capitalists and other equity investors who pumped $1.8 billion (€1.7 billion) into Nassau-based FTX, the majority of whom are based in the US, since May 2019.
The regulator accused Mr Bankman-Fried of orchestrating a multibillion-dollar fraud that began the day he launched his FTX crypto exchange and continued at his personal direction until its collapse last month.
“We allege that 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,” said SEC chairman Gary Gensler.
Mr Bankman-Fried was arrested at his luxury penthouse in the Bahamas after US prosecutors filed criminal charges.
While the SEC can only issue civil charges, the criminal charges against Mr Bankman-Fried could lead to years of prison time if he is convicted.
[ What happens next to arrested FTX founder Sam Bankman-Fried?Opens in new window ]
The failure of the Bahamas-based exchange, once valued at $32 billion, has resulted in potential losses for millions of creditors, including retail investors, and sent shock waves through the crypto industry.
In its lawsuit, the SEC alleged that Mr Bankman-Fried promoted his company to potential equity investors as a safe and reliable participant in the wild west of digital assets, focusing on touting the company’s sophisticated risk management.
The agency alleged Mr Bankman-Fried hid the fact that his private trading firm Alameda Research was exempt from risk controls and benefited from, in effect, limitless loans from FTX backed by customer assets.
“From the start, Bankman-Fried improperly diverted customer assets to his privately held crypto hedge fund, Alameda Research, and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations,” the SEC alleged.
Mr Bankman-Fried has in recent weeks insisted he was unaware of the details of what Alameda was doing. He has also denied intentional wrongdoing and apologised for what he has characterised as oversights and errors.
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However, the SEC alleged that he had full control and access to information at both FTX and Alameda, and that he “directed investment and operational decisions” at the trading firm. The regulator claimed Mr Bankman-Fried had taken active steps this year to hide the billions of dollars of FTX customer balances that were held at Alameda.
“Bankman-Fried placed billions of dollars of FTX customer funds into Alameda. He then used Alameda as his personal piggy bank,” the lawsuit alleges.
Before its collapse into bankruptcy last month, FTX had won the backing of several of the world’s best-known investors including BlackRock, Sequoia Capital and the Ontario Teachers’ Pension Plan.
“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,” Mr Gensler said. The SEC said its investigation into FTX was ongoing.
– Copyright The Financial Times Limited 2022
