The U.S. attorney’s office for the Southern District of New York charged former FTX CEO Sam Bankman-Fried on Tuesday with eight criminal counts, including wire fraud and conspiracy to commit securities fraud.
Bankman-Fried was arrested Monday night in the Bahamas at the request of the U.S. government, according to U.S. Attorney Damian Williams.
The arrest was based on a sealed indictment that was unsealed Tuesday.
The Securities and Exchange Commission (SEC) also charged Bankman-Fried on Tuesday with orchestrating a scheme to defraud equity investors of more than $1.8 billion.
"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.
Bankman-Fried sought to conceal the undisclosed diversion of customers’ funds to FTX’s sister company, Alameda Research, the SEC said, adding that Alameda received special treatment, including exemption from key risk mitigation measures and a virtually unlimited “line of credit” funded by the platform’s customers.
Bankman-Fried also concealed FTX’s exposure to Alameda’s “significant holdings of overvalued, illiquid assets,” the SEC said, adding that the former CEO used commingled funds to make undisclosed venture investments, real estate purchases and large political donations.
"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,” Gurbir Grewal, director of the SEC’s Enforcement Division, said Tuesday in a statement. “That veneer wasn’t just thin, it was fraudulent.”
The SEC and the Commodity Futures Trading Commission (CFTC) each sued Bankman-Fried on Tuesday for his role in the downfall of FTX.
Gensler said Tuesday’s charges served as a “clarion call to crypto platforms that they need to come into compliance with our laws.”
The House hearing
Bankman-Fried had initially agreed to testify in person in front of the House Financial Services Committee on Tuesday at a hearing on the collapse of FTX and its sister companies. But he revised that Monday, saying in an interview with crypto critic and influencer Unusual Whales that he would be testifying remotely from the Bahamas, at least in part due to the “paparazzi effect.”
Instead, current FTX CEO John Ray will be testifying on Capitol Hill, said Rep. Maxine Waters, D-CA. Ray took the helm of the crypto exchange when it filed for bankruptcy Nov. 11.
Bankman-Fried, meanwhile, will now appear in court in the Bahamas on Tuesday, the Royal Bahamas Police Force announced.
Waters said late Monday she was surprised to hear of Bankman-Fried’s arrest.
“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,” she said. “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.”
FTX did not return a request for comment by press time.
Ray, for his part, has blasted FTX’s operations under Bankman-Fried.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” wrote Ray, who guided Enron through its bankruptcy proceedings in 2001, in FTX’s own bankruptcy filings. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
