NEW YORK/NASSAU, Bahamas: US federal prosecutors on Tuesday (Dec 13) alleged Sam Bankman-Fried committed fraud and violated campaign finance laws, and the founder and former CEO of FTX also faced additional charges by US regulators.
The 30-year-old Bankman-Fried arrived at a heavily guarded Bahamas court on Tuesday for his first in-person public appearance since the crypto currency exchange's collapse. He could be extradited to the United States.
“Mr Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” his lawyer, Mark S Cohen, said in a statement.
In the indictment, prosecutors said Bankman-Fried had engaged in a scheme to defraud FTX's customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.
He also defrauded lenders to Alameda by providing them with false and misleading information about the hedge fund's condition, and sought to disguise the money he had earned from committing wire fraud, prosecutors said.
Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) alleged Bankman-Fried committed fraud in lawsuits filed on Tuesday.
"While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried's house of cards began to crumble," the SEC filing said.
The CFTC sued Bankman-Fried, Alameda, and FTX on Tuesday, alleging fraud involving digital commodity assets.
Since at least May 2019, FTX raised more than US$1.8 billion from equity investors in a years-long "brazen, multi-year scheme" in which Bankman-Fried concealed that FTX was diverting customer funds to its affiliated crypto hedge fund, Alameda Research LLC, the SEC alleged.
While the public believed Bankman-Fried's "lies" and sent billions of dollars to FTX, he improperly diverted customer funds to his hedge fund, the SEC said in a court filing. He continued to divert FTX customer funds even as it was increasingly clear that Alameda and FTX could not make customers whole, the SEC said.
Bankman-Fried has apologized to customers and acknowledged oversight failings at FTX, but said he doesn't personally think he has any criminal liability.
Bankman-Fried founded FTX in 2019 and rode a cryptocurrency boom to build it into one of the world's largest exchanges of the digital tokens. Forbes pegged his net worth a year ago at US$26.5 billion, and he became a substantial donor to US political campaigns, media outlets and other causes.
A crypto exchange is a platform on which investors can trade digital tokens such as bitcoin.
Brad Simon, a criminal defence lawyer in New York, said he doubted Bankman-Fried would fight extradition, given his interviews about the case. Simon said he could be in the United States in a few weeks.
Simon also said US authorities likely moved to prevent Bankman-Fried from testifying in Congress, which could be used by his defence attorneys to claim certain immunities and it often "throws a monkey wrench in prosecutions".
CRYPTO INVESTORS LOST BILLIONS
FTX filed for bankruptcy on Nov 11, leaving an estimated 1 million customers and other investors facing losses in the billions of dollars. The collapse reverberated across the crypto world and sent bitcoin and other digital assets plummeting.
A spokesperson for FTX Debtors declined to comment.
Known in financial circles by his initials, SBF, Bankman-Fried was a prominent and unconventional figure. He sported wild hair, t-shirts and shorts on panel appearances with statesmen like former US President Bill Clinton and former British Prime Minister Tony Blair.
Bankman-Fried became one of the largest Democratic donors in the United States, contributing US$5.2 million to President Joe Biden's 2020 campaign.
Police in the Bahamas, where FTX was based, said he was arrested on Monday evening at his luxury gated community called the Albany in the capital, Nassau. Damian Williams, the US Attorney for the Southern District of New York, said in a statement on Monday evening the arrest came at the request of the US government.
The Bahamas' attorney general's office said it expected him to be extradited to the United States. Bahamas Police said he was arrested due to "various Financial Offences against laws of the United States, which are also offences" in the Bahamas.
It was not immediately clear what would take place at the hearing or whether Bankman-Fried would decide to fight extradition, potentially setting up a high-stakes battle.
FTX's liquidity crunch came after Bankman-Fried secretly used US$10 billion in customer funds to support his proprietary trading firm, Alameda Research, Reuters has reported. At least US$1 billion in customer funds had vanished, the people said.
Bankman-Fried resigned as FTX's chief executive officer the same day as the bankruptcy filing.
Unlike other customers, Alameda was allowed to hold a negative account on FTX's platform, the SEC said. Bankman-Fried directed code to be written that allowed this, the agency said.