Disgraced FTX CEO Sam Bankman-Fried ‘orchestrated yearslong fraud’ on investors and customers, SEC and criminal charges say

Sam Bankman-Fried, the former CEO of cryptocurrency giant FTX, defrauded investors by funneling money into his private hedge fund and conspired to commit wire fraud against his customers and lenders, according to criminal charges filed in New York and charges by the US Securities and Exchange Commission.

Bankman-Fried, 30, the once-celebrated founder of FTX, was hit with the slew of charges one day after he was arrested in the Bahamas.

A grand jury in the Southern District of New York indicted Bankman-Fried on eight counts: conspiracy to commit wire fraud on customers, wire fraud on customers, conspiracy to commit wire fraud on lenders, wire fraud on lenders, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and conspiracy to defraud the United States and violate the campaign finance laws.

The indictment alleges Bankman-Fried knowingly devised the scheme to defraud customers of FTX by “misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research,” his own privately-held crypto hedge fund, to make investments.

The wire fraud on lenders and customers started in or about 2019 and lasted through November 2022, according to the filing.

The indictment also alleges Bankman-Fried duped lenders to Alameda by obtaining money and property by providing “false and misleading information to those lenders regarding Alameda Research’s financial condition.”

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

His contributions to candidates for federal office, joint fundraising committees and independent expenditure committees aggregated 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 the name of another person.”

Separately, the SEC charged him in a filing Tuesday also in the Southern District of New York, with defrauding investors and enriching his hedge fund Alameda Research LLC.

The SEC said in a press release that Bankman-Fried raised more than $1.8 billion from equity investors since he founded FTX in May 2019, based in the Bahamas, and he allegedly “orchestrated a yearslong fraud to conceal” the undisclosed diversion of FTX customers’ funds to Alameda.

He also allowed the undisclosed special treatment to Alameda on the platform, including a “virtually unlimited line of credit” funded by the platform’s customers and exempted Alameda from certain key FTC risk mitigation measures, the SEC said.

He then allegedly used FTX customers’ funds at Alameda “to make undisclosed venture investments, lavish real estate purchases, and large political donations.”

The SEC further alleged that Bankman-Fried concealed from investors “undisclosed risk” from FTX’s exposure to Alameda’s “significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.”

“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.

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

The SEC’s complaint charges Bankman-Fried with violating anti-fraud provisions of securities law and seeks injunctions against future securities law violations, meaning if convicted, he could be banned from future securities trading beyond as an individual.

The SEC said the Commodity Futures Trading Commission is also charging Bankman-Fried.

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

He is expected to appear in court Tuesday, and US authorities are expected to request his extradition.

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

FTX was once seen as the face of the industry, a company reported to be worth $32 billion that attracted celebrity endorsements and major sports sponsorships. Bankman-Fried was seen as a crypto wunderkind who graced the cover of Forbes and Fortune and had emerged as a major Democratic donor.

But last month, after a crypto-focused news site published the balance sheet of an investment firm also owned by Bankman-Fried, FTX experienced the equivalent of a bank run: Customers and observers questioned whether its loans and investments were worth more than its debts . They also questioned whether the company could pay people trying to withdraw funds.

In a matter of days, Bankman-Fried resigned and the company filed for bankruptcy protection. Speaking at The New York Times DealBook Summit on Nov. 30, Bankman-Fried said he didn’t “try to commit fraud on anyone.”

CORRECTION (Dec. 13, 2022, 7:55 am): An earlier version of this article misstated how much Bankman-Fried raised from equity investors. It was $1.8 billion, not $1.8 million.

Tim Stellah and Rob Wile contributed.

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