U.S. authorities charged disgraced former FTX CEO Sam Bankman-Fried with fraud a month after the crypto exchange he founded filed for bankruptcy protection.
An eight-count indictment from the U.S. Attorney's Office for the Southern District of New York court accused Bankman-Fried with committing or conspiring to commit fraud on FTX's customers and lenders, money laundering and conspiracy to defraud the U.S. and violate campaign finance disclosure laws. The indictment followed civil charges from the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.
The indictment document claims the detained former CEO “agreed with others to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research, Bankman-Fried's proprietary crypto hedge fund." Damian Williams, the U.S. Attorney for the Southern District of New York, said billions of dollars were stolen from FTX customers, with Bankman-Fried and unnamed co-conspirators using funds for personal benefit.
"One month ago, FTX, one of the world's largest cryptocurrency exchanges, collapsed, destroying billions of dollars in customer value overnight," Williams said at a press conference. "And for every day of the past month, the dedicated prosecutors of this office and our partners at the FBI, SEC and CFTC, have been working around the clock to figure out what happened and to begin the process of seeking justice."
'We are not done'
The charges punctuate a rapid collapse for FTX that shook the crypto industry and destroyed Bankman-Fried's reputation — while leaving hundreds of thousands of the exchange's customers out of pocket. Bankman-Fried was arrested yesterday in the Bahamas, a day before he was scheduled to testify virtually before a House Financial Services Committee hearing into his company's collapse.
Williams said he authorized the charges on Wednesday of last week, and an arrest warrant was obtained for Bankman-Fried after he was indicted by a grand jury on Friday. Extradition is ongoing, he added.
"The timing was dictated by law enforcement as opposed to any other considerations, including the timing of his testimony in Congress." Williams said. "He was wanted for arrest, and we acted on that."
“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” Mark S. Cohen, counsel to Bankman-Fried, said in a statement to The Block.
When asked if charges would be brought against anyone else, Williams responded by saying that "we are not done" without mentioning any additional individuals. He declined to name anyone who may be working with authorities.
"This investigation is very much ongoing, and it is moving very quickly," Williams added, saying the case "is one of the biggest financial frauds in American history." "While this is our first public announcement, it will not be our last."
The campaign finance allegations accused Bankman-Fried of making “corporate contributions to candidates and committees in the Southern District of New York that were reported in the name of another person,” straw contributions meant to evade campaign finance disclosure laws.
"These contributions were disguised to look like they were coming from wealthy co-conspirators, when in fact the contributions were funded by Alameda Research with stolen customer money," Williams said, adding that tens of millions of dollars had gone to candidates and committees associated with both Democrats and Republicans. "All of this dirty money was used in service of Bankman-Fried's desire to buy bipartisan influence and impact the direct of public policy."
The charges came after a U.S. campaign watchdog accused Bankman-Fried of violating federal election laws last Thursday after he claimed in an interview last month that he secretly donated additional millions to candidates and political action committees than he disclosed.
In the last two years, Bankman-Fried fraudulently undermined “the Federal Election Commission’s function to administer federal law concerning source and amount restrictions in federal elections,” according to the indictments.
The White House declined to comment on whether or not President Joe Biden would return donations that originated from Bankman-Fried.
“I would have to refer you to the DNC,” said White House Press Secretary Karine Jean-Pierre, citing a law against federal employees participating in campaign activities while on the job. A spokesperson for the DNC did not immediately respond to a request for comment from The Block.
(Updates with comments from press conference throughout. With reporting assistance from Stephanie Murray and Nathan Crooks.)
Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.