FTX founder Sam Bankman-Fried is facing charges from multiple U.S. agencies after getting arrested Monday night in the Bahamas. Once considered crypto’s white knight, Bankman-Fried’s arrest and charges come one month after his cryptocurrency exchange filed for bankruptcy following a spectacular collapse.
The Securities and Exchange Commission on Tuesday charged the fallen CEO in “orchestrating a scheme to defraud equity investors.”
“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.
The charges
The SEC claims this was a years-long fraud that roped in more than $1.8 billion from investors and then illegally funneled those funds into Bankman-Fried’s privately-held hedge fund, Alameda Research.
Bankman-Fried “used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses. None of this was disclosed to FTX equity investors or to the platform’s trading customers,” the complaint reads.
He is also facing parallel actions from the Justice Department’s Southern District of New York and the Commodity Futures Trading Commission.
The Justice Department has filed eight counts of criminal charges on fraud, conspiracy to commit fraud and money laundering, and conspiracy to defraud the U.S. and violate campaign finance laws. The Southern District of New York filed the charges Friday and unsealed the document Tuesday, the morning following Bankman-Fried’s arrest.
Sam Bankman-Fried faces arraignment in the Bahamas and is expected to be extradited to the U.S. He has previously claimed in the media that he didn’t knowingly commit fraud.
The testimony
The founder was set to testify in front of the House Committee on Financial Services Tuesday prior to his arrest. A leaked draft of that testimony by Forbes opens with Bankman-Fried admitting he messed up – using profanity instead – but proceeds to blame outside parties for the fall of FTX Group.
He planned to testify that he was being ghosted by the new CEO John J. Ray III, that Ray and others are looking to profit with enormous fees from the bankruptcy filing, that FTX could still be solvent and that competitor Binance is behind a negative public relations campaign to bring down FTX.
With Bankman-Fred behind bars, Ray took the stand in front of the House committee’s investigation into the collapse of FTX, blasting the entire organization.
“The FTX group’s collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company entrusted with other people’s money or assets,” Ray testified.
The corporate restructuring expert has overseen many large bankruptcy cases, including the liquidation of Enron, but said sorting through FTX is worse.
“Literally, there’s no record keeping whatsoever,” Ray said. “Employees would communicate invoicing and expenses on Slack, which is essentially a way of communicating for chat rooms. They use QuickBooks, multibillion dollar company using QuickBooks…Nothing against QuickBooks, very nice tool, just not for a multibillion dollar company.”
As Congress and U.S. agencies investigate, Ray said it’ll take weeks or even months to secure assets lost in FTX.
International customers lawyer up
A group of non-U.S. customers affected by FTX has lawyered up with Eversheds Sutherland, which said it has established an ad hoc committee to protect users outside the U.S.
Attorneys are looking to create an official committee that would give international customers a say in the Chapter 11 bankruptcy proceedings of FTX, laying claim to customer funds to prevent money from non-U.S. customer accounts being used to pay off creditors.
