Politico

Federal prosecutors charge Bankman-Fried with massive, yearslong fraud

Federal prosecutors on Tuesday charged FTX founder Sam Bankman-Fried with multiple counts of fraud, money laundering and campaign finance violations, setting the stage for an explosive court battle following the collapse of the former crypto kingpin’s company.

The 14-page criminal indictment — along with civil charges filed earlier by the Securities and Exchange Commission — allege that Bankman-Fried oversaw a massive corporate fraud at FTX and its affiliates that cost customers and investors billions of dollars in losses.

The Bahamas-based crypto exchange was one of the largest and most respected in the world at the time of its early November collapse, and Bankman-Fried — who was among the top political donors in the midterm elections — was a relentless promoter who had forged deep ties with major figures in Washington, Wall Street and Silicon Valley.

It was all a ruse, according to federal prosecutors and civil enforcement agencies. The 30-year-old former billionaire was arrested by Bahamian law enforcement authorities on Monday night at the request of the office of the U.S. Attorney for the Southern District of New York.

The size and scope of Bankman-Fried’s alleged crimes have sparked comparisons to seismic financial scandals like those involving Bernie Madoff and Enron Corp. FTX’s freezing of customer accounts and subsequent bankruptcy set off a contagion that roiled crypto markets and upended efforts to regulate digital assets in Washington.

Prior to his arrest, Bankman-Fried had been scheduled to testify Tuesday morning in front of a House panel that’s investigating FTX’s meltdown. A number of lawmakers said they had planned to grill him on allegations of accounting, risk management and corporate control failures — some of which Bankman-Fried has admitted in media appearances — that led to the diversion of FTX customer funds to prop up his flagging crypto investment firm Alameda Research.

“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” Bankman-Fried’s attorney Mark Cohen said in a statement.

Earlier Tuesday, the SEC unsealed a civil complaint claiming that the one-time crypto wunderkind orchestrated “a massive, years-long fraud” as he raised $1.8 billion from investors between 2019 and 2022. FTX’s roster of financial backers included blue-chip venture capital funds like Sequoia Capital and Thoma Bravo as well as BlackRock, a New York-based asset manager that is among the most influential investment firms in the world.

The SEC also accused Bankman-Fried of “diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.”

“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,” SEC Chair Gary Gensler said in a statement.

The SEC’s investigations into other securities law violations related to the FTX saga are continuing, the agency said.

The SEC said that from the beginning, Bankman-Fried was diverting FTX customer funds to its sister company, Alameda Research. The funds would then be used for “undisclosed venture investments, lavish real estate purchases, and large political donations,” according to the complaint.

Investors were kept in the dark as Bankman-Fried framed FTX to the public as a risk-averse venue that offered no one — including Alameda — special privileges.

“FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service,” SEC Enforcement Director Gurbir Grewal said in a statement. “But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”

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