February 6, 2023

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FTX CEO Sam Bankman-Fred 'orchestrated years of defrauding' investors and clients, says SEC and criminal charges

FTX CEO Sam Bankman-Fred ‘orchestrated years of defrauding’ investors and clients, says SEC and criminal charges

Sam Bankman FriedThe former CEO of cryptocurrency giant FTX defrauded investors by funneling money into his hedge fund and conspiring to commit cyber fraud against clients and lenders, federal authorities said on Tuesday.

Bankman-Fried, 30, founder of the famous FTX, in the Bahamas US Attorney General Damian Williams told reporters Monday, following his conviction by a federal grand jury in the Southern District of New York on Friday.

Bahamas Chief Justice Joyanne Ferguson-Pratt denied Bankman-Fried’s request for bail, saying she was not satisfied with the arguments of his legal team. An extradition hearing to the United States is scheduled for February 8.

The Manhattan Commission indicted Bankman-Fried on eight counts: conspiracy to commit wire fraud against customers, wire fraud against customers, conspiracy to commit wire fraud against lenders, wire fraud against lenders, conspiracy to commit commodity fraud, and conspiracy to commit wire fraud. securities, conspiracy to commit money laundering, conspiracy to defraud the United States, and violation of campaign finance laws.

“This investigation is very ongoing and moving very quickly,” Williams said. “While this is our first public announcement, it won’t be the last.”

The federal prosecutor urged any business associates of Bankman-Fried to reach out to investigators sooner rather than later.

“I would very much encourage you to come and see us before we come to see you,” said Williams.

The indictment alleges that Bankman-Fried knowingly devised a scheme to defraud FTX clients by “misappropriating the deposits of those clients and using those deposits to pay the expenses and debts of Alameda Research,” its cryptocurrency hedge fund, to make investments.

$8 billion loss to customers

The online defrauding of lenders and customers began in or around 2019 and continued through November, according to the filing.

Gretchen Lowe, acting director of the CFTC’s enforcement division, estimated customer losses at more than $8 billion.

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But that number may pale in comparison to the potential damage to public confidence in the system, according to Lowe.

“The consequences of the defendant’s fraud are wide-ranging and have greatly damaged the integrity of the evolving digital asset market,” it said.

The indictment also alleges that Bankman-Fried deceived lenders to Alameda by obtaining funds and property by providing these lenders “false and misleading information regarding the financial condition of Alameda Research.”

The indictment also charges Bankman Fried with campaign finance violations for conspiring with others and making campaign contributions to candidates and political committees above the federal limit for donations.

His contributions to federal office candidates, joint fundraising committees and independent spending committees amounted to $25,000 and more in a calendar year, according to the filing. He also allegedly made corporate contributions to candidates and committees in the Southern District of New York that were “reported in someone else’s name.”

Seeking influence on both sides of the aisle, say the feds

According to Williams, “tens of millions of dollars in illegal campaign contributions” were made to “candidates and committees associated with both Democrats and Republicans.”

“These contributions were disguised to appear as if they came from wealthy conspirators when in reality the contributions were funded by Alameda Research with stolen customer funds,” the federal prosecutor said.

“All this dirty money has been used to serve Bankman-Fried’s desire to buy bipartisan influence and influence the direction of public policy in Washington.”

Separately, the Securities and Exchange Commission (SEC) accused him in a filing Tuesday, also in the Southern District of New York, of defrauding investors and enriching his Alameda Research LLC hedge fund.

The Securities and Exchange Commission said in a press release that Bankman-Fried has raised more than $1.8 billion from equity investors since it founded FTX in May 2019, headquartered in the Bahamas, and allegedly “orchestrated a year-long fraud to conceal” the undisclosed transfer of FTX clients. Money for Alameda.

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It also allowed Alameda’s undisclosed private dealings on the platform, including a “nearly unlimited line of credit” funded by the platform’s clients and exempting Alameda from some key FTC risk mitigation measures, the SEC said.

He then allegedly used FTX clients’ money in Alameda to “make undisclosed investments, purchases of luxury real estate, and large political donations.”

The SEC further alleged that Bankman-Fried concealed from investors “undeclared risks” of FTX’s exposure to Alameda’s “large holdings of illiquid and overvalued assets such as FTX tokens.”

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

Officials said investigations are ongoing into other securities law violations in connection with the alleged misconduct.

The SEC complaint accuses Bankman Fried of violating anti-fraud provisions of the securities law and seeks injunctions against future securities law violations, meaning that if convicted, he could be barred from trading future securities as an individual.

The Commodity Futures Trading Commission also charges Bankman-Fried a fee, the SEC said.

FTX CEO vows to continue to cooperate in investigation

Also Tuesday, a congressional hearing on FTX’s collapse and missteps was under way during which the company’s new CEO, John J. Ray III, testified. Bankman Fried was scheduled to appear at the hearing prior to his arrest.

During the House Financial Services Committee hearing, lawmakers shared stinging criticism of Pinkman-Fried with Representative Patrick McHenry, calling his arrest “welcome news.”

Ray spoke about the issues that led to the downfall of FTX and said his team is cooperating with the Southern District of New York and SEC officials.

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“The collapse of the FTX Group appears to stem from the absolute concentration of control in the hands of a small group of inexperienced and notably inexperienced individuals who failed to implement any of the systems or controls necessary for a company entrusted with other people’s money or assets,” Wray told lawmakers.

Bankman-Fried was arrested after US authorities filed criminal charges against him and he was taken into custody in the capital, Nassau, shortly before 6 p.m. on Monday.

In a statement released Tuesday, Bankman-Fred’s attorney said his client is “reviewing the charges with his legal team considering all of his legal options.”

Bahamas Prime Minister Philip Davis said in a statement that the island nation is pursuing a regulatory and criminal investigation into the company’s collapse.

FTX was once seen as the face of the industry, reporting a $32 billion company that attracted celebrity endorsements and major sports sponsorships. Bankman-Fried was seen as a cryptographic genius who made a cover Forbes And the luck It has emerged as a major Democratic donor.

But last month, After publishing a crypto-focused news site The balance sheet of an investment firm also owned by Bankman Fried, FTX has seen the equivalent of running a bank: customers and observers wondered if its loans and investments were worth its debts. They also wondered if the company could pay people trying to withdraw money.

Within days, Bankman-Fried and the company had resigned Filed for bankruptcy protection. speak At The New York Times Deal Book Summit on November 30Bankman-Fried said he had not “attempted to defraud anyone”.

revision (Dec 13, 2022, 7:55 a.m.): An earlier version of this article miscalculated the amount Bankman-Fried raised from equity investors. It was $1.8 billion, not $1.8 million.