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Feds Charge Former FTX CEO Sam Bankman-Fried With Money Laundering and All Kinds of Fraud
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Feds charge former FTX CEO Sam Bankman-Fried with money laundering and all kinds of fraud [theverge.com]:
Feds charge former FTX CEO Sam Bankman-Fried with money laundering and all kinds of fraud Feds charge former FTX CEO Sam Bankman-Fried with money laundering and all kinds of fraud / SBF was arrested Monday evening in the Bahamas. On Tuesday, prosecutors revealed charges of wire fraud, securities fraud, commodities fraud, and money laundering. Share this story
About 12 hours after we learned authorities in the Bahamas have arrested FTX co-founder and former CEO Sam Bankman-Fried [theverge.com] (SBF), the US Securities and Exchange Commission (SEC) revealed [sec.gov] the first of multiple sets of charges he’ll face. Those were quickly followed by another civil lawsuit filed by the Commodity Futures Trading Commission (CFTC) and, finally, criminal charges filed by the US attorney’s office for the Southern District of New York.
The criminal charges [documentcloud.org] were filed last Friday and unsealed today. They include eight counts that cover allegations of wire fraud against customers and those who lent money to his firms, securities fraud, and money laundering.
The SEC complaint accuses Bankman-Fried of executing a “years-long fraud” while diverting customers’ funds from FTX to his crypto trading firm, Alameda Research. These charges cite the more than $1.8 billion FTX received from equity investors since 2019, including $1.1 billion from investors in the US — key to establishing the SEC’s jurisdiction since the main FTX exchange wasn’t allowed to operate in the US.
The CFTC complaint [documentcloud.org] echoes the SEC remark that the fraud was there from the beginning, and details SBF’s communications within FTX and Alameda, accusing him of committing commodities fraud through his omissions and misrepresentations.
The SEC claims Bankman-Fried’s “years-long” fraud diverted billions in customer funds to grow his crypto empire
According to the SEC’s complaint (included in full below), FTX was a fraud from the very beginning: “From the inception of FTX, Bankman-Fried diverted FTX customer funds to Alameda, and he continued to do so until FTX’s collapse in November 2022.”
The SEC accused SBF of personally borrowing more than $1.338 billion from Alameda, using customers’ money for investments, real estate, and political donations. It also says that fellow FTX co-founders Nishad Singh and Gary Wang borrowed $554 million and $224.7 million, respectively. The CFTC filing adds on that SBF and others at FTX used those funds for private jets, too.
The allegations against SBF also focus on his statements to investors that FTX was a safe place to invest because of an automated “risk engine” that would sell off a customer’s assets to make sure their collateral stayed at the required levels.
What he didn’t tell investors or customers, according to the SEC, is that Alameda Research had special access to FTX funds bypassing any of the “auto-liquidation” backstops that applied to others and an ability to maintain an unlimited negative balance with FTX so that it could use customers’ deposited funds for trading.
That unlimited negative balance didn’t upset things until crypto prices fell earlier this year, leading to lenders demanding repayment from Alameda. The SEC alleges SBF directed the firm to pay them using funds from FTX while hiding the billions of dollars Alameda now owed to FTX for its “line of credit” and continuing to withdraw hundreds of millions of dollars for himself and other executives. As detailed in the CFTC accusation, the government claims that when Alameda hit a pre-set borrowing limit, SBF himself directed employees to raise the limit “to a level that would be unlikely to ever be exceeded.”
From there, we know what happened [theverge.com] — eventually, CoinDesk reported on how closely tied Alameda and FTX were, with FTX’s native FTT token making up the majority of Alameda’s balance sheet. Changpeng “CZ” Zhao, the owner of the rival Binance exchange, announced plans to dump his company’s FTT holdings, which sparked a run on withdrawals from FTX and, very quickly, its collapse once it couldn’t pay customers back.
SEC:
The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors (1) the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and (3) undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.
SEC Chair Gary Gensler is quoted in the statement saying, “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.”
SBF will appear in court on Tuesday in the Bahamas, which had served as a base of operations for him and FTX.
Before his arrest, SBF had continued an ongoing post-bankruptcy-filing media tour of Twitter Spaces chats and Zoom calls, with at least two live appearances on Monday. He was expected to appear remotely today to testify before the House Financial Services Committee. That hearing will go forward [theverge.com] and is scheduled to begin at 10AM ET, with testimony from FTX’s new CEO, John J. Ray III.
Correction December 13th, 10:21AM ET: An earlier version of this story said SBF is facing criminal charges filed by the SEC. In fact, the SEC has, so far, only filed civil charges. He faces criminal charges filed by the US attorney’s office for the Southern District of New York. We regret the error.
Update December 13th, 10:21AM ET: Added charges from CFTC and US attorney’s office for the Southern District of New York.
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