The Justice Department on Tuesday unveiled eight counts of conspiracy and fraud against former FTX CEO Sam Bankman-Fried, including one charge related to campaign finance law, stemming from his management of the collapsed cryptocurrency trading platform.
The unsealed criminal indictment came the morning after Bankman-Fried’s arrest Monday in the Bahamas at the request of the U.S. and on the same day he was scheduled to testify before the House Financial Services Committee about the collapse of FTX in early November.
The indictment alleges that Bankman-Fried committed fraud on customers and lenders beginning about 2019 by misappropriating money to pay expenses and debts of Alameda Research, an affiliated company. The charges also include conspiracy to commit fraud on customers and lenders, commodities and securities fraud, money laundering and to violate campaign finance laws. The U.S. attorney for the Southern District of New York brought the charges.
The Securities and Exchange Commission said earlier Tuesday that it charged Bankman-Fried with defrauding investors of $1.8 billion by allegedly misrepresenting his company as a “safe, responsible” cryptocurrency exchange.
The Commodity Futures Trading Commission also unveiled charges Tuesday that Bankman-Fried and at least one Alameda executive misappropriated customer funds for their own use and benefit, that he and other executives took hundreds of millions in loans from Alameda to buy luxury real estate, make political donations and other unauthorized uses. The agency said more than $8 billion in customer deposits are now missing.
The campaign finance allegation says Bankman-Fried sought to impede the Federal Election Commission’s administration of election laws beginning in 2020 by contributing $25,000 or more to candidates in a calendar year and that some corporate contributions were reported in the name of another person.
The documents released by the U.S. attorney, the SEC and the CFTC suggest the possibility that others could be charged. The CFTC complaint says Bankman-Fried’s “parents, and other FTX and Alameda employees used FTX customer funds for a variety of personal expenditures, including luxury real estate purchases, private jets, documented and undocumented personal loans, and personal political donations.”
“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 Tuesday. “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.”
FTX collapsed and filed for bankruptcy in early November after a run on customer accounts prompted by reports that Alameda Research, its affiliated trading arm, stood on shaky financial ground. FTX reportedly lent Alameda billions of dollars. Bankman-Fried resigned as CEO at the time of the bankruptcy filing.
Bankman-Fried allegedly misled investors by failing to disclose the diversion of FTX customer funds to Alameda Research, the trading platform’s special treatment of the hedge fund and the risk posed to FTX by Alameda’s extensive holdings of overvalued, illiquid assets, the SEC said. The company raised $1.1 billion from U.S. investors, the agency said.
“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. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the statement.
The company also allegedly commingled FTX customer funds with Alameda’s assets and used them to make undisclosed investments, purchase real estate and donate to political causes, the agency said.
Bankman-Fried has repeatedly and publicly acknowledged mistakes in his management, both on Twitter and in several interviews with media. He is in custody in the Bahamas under that nation’s extradition law. The CFTC complaint cited two of his tweets, saying they were meant to dissuade customers from requesting to withdraw their funds.
The former CEO’s arrest came on the eve of his scheduled testimony before the House Financial Services Committee. Committee Chairwoman Maxine Waters, D-Calif., said the timing of Bankman-Fried’s arrest came as a surprise, as he and his lawyers had confirmed his appearance earlier Monday.
“Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people, and wiped out the hard-earned life savings of so many,” Waters said in a statement Monday. “The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity.”
The hearing is now underway with testimony from John Ray III, who took over as FTX CEO after its collapse.