U.S. charges FTX founder Sam Bankman-Fried with criminal fraud


A trio of U.S. agencies filed a flurry of charges against disgraced cryptocurrency exchange founder Sam Bankman-Fried on Tuesday, one day after he was arrested in the Bahamas at the request of the U.S. government.

Federal prosecutors charged Bankman-Fried, 30, with conspiracy and fraud, the Securities and Exchange Commission alleged that he defrauded his investors, and the Commodity Futures Trading Commission filed fraud accusations as well.

Up until recently one of the world’s largest cryptocurrency exchanges, valued at $32 billion by its investors, FTX collapsed into bankruptcy in November, enraging the scores of clients who had thought their cryptocurrency holdings were safely stored on the company’s exchanges. FTX had established a veneer of legitimacy, winning investments from respected venture capital firms, paying to have its logo on shirts of Major League Baseball umpires, spending lavishly on Super Bowl ads and pouring money into political donations.

But U.S. officials allege Bankman-Fried was actually perpetrating a massive, years-long fraud, using customer money to pay off debts incurred by his hedge fund Alameda Partners, invest in other companies and make donations. And now, it seems, much of the money is missing.

“This is one of the biggest financial frauds in American history,” U.S. Attorney Damian Williams said during a press conference in New York on Tuesday. The alleged fraud destroyed “billions of dollars in customer value overnight,” he said.

For the past several weeks, Bankman-Fried has been hunkered down in his luxury apartment in Nassau, Bahamas, posting on social media and giving repeated media interviews where he said he made grave mistakes but didn’t knowingly commit any crimes. His arrest and the charges, coming within hours of each other, are a rapid acceleration in the ongoing story of FTX, which has gripped the cryptocurrency world since the once-well-respected company crumbled over a period of several days in November when it could not meet customer withdrawal demands.

Cryptocurrencies, which use complex math equations running on a decentralized network of computers to establish value without a central owner like a bank or nation, soared in value and popularity during the pandemic as speculative assets. As prices for crypto tokens and coins marched up, many people scored newfound fortunes. The total value of cryptocurrencies around the world hit $3 trillion in November 2021.

But in the past year, as rising interest rates, concerns about a potential recession and several high-profile crypto company collapses, prices for crypto assets have plummeted. Bitcoin and ethereum, the two most popular cryptocurrencies, are down around 65 percent since the beginning of the year.

FTX’s demise is by far the biggest to hit the crypto industry this year, and Bankman-Fried’s downfall as one of its chief protagonists has deepened scrutiny of the industry as a whole.

“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 when charges were announced. “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.”

Bankman-Fried appeared Tuesday in Bahamas court, where he did not waive a right to an extradition hearing, according to local news reports. It’s unclear how long an extradition hearing will take, or what his chances are of fighting the deportation.

Mark Botnick, a spokesman for Bankman-Fried, said his client “is reviewing the charges with his legal team and considering all of his legal options.”

While Bankman-Fried was in court in Nassau, the House Financial Services Committee held a hearing focusing on FTX, which the former CEO was slated to attend via video call before his arrest.

The hearing did however feature FTX’s new CEO, John J. Ray III, a veteran bankruptcy lawyer who took over when the company declared bankruptcy to try to recover as many assets for customers and creditors as possible.

The alleged crimes at the heart of the crypto company’s collapse are simple, despite the seemingly complex nature of the circumstances, Ray told the hearing.

“This isn’t sophisticated whatsoever. This is just plain old embezzlement,” he said.

FTX customers will not get all their money back, and the process to recover what they can will take “months, not weeks,” he added. “At the end of the day, we’re not going to be able to recover all the losses here.”

The hearing exhibited a sense of anticlimax, as politicians who had prepared to grill Bankman-Fried himself were stuck instead asking questions to the agreeable and polite Ray. “Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried,” Rep. Maxine Waters (D-Calif.), who heads the committee, said in a statement Monday night.

Before his fall, Bankman-Fried had donated hundreds of millions of dollars to politicians, becoming the second-largest Democratic donor in the 2022 midterm elections and building a prominent position for himself in Washington.

A number of crypto champions on the financial services panel used their time during the hearing to argue that FTX was a singularly bad actor that should not taint the rest of the sector. “We have to separate out the bad actions of an individual from the good created by an industry and an innovation,” Rep. Patrick McHenry (R-N.C.), who is set to chair the committee next year, said in his opening statement.

But there were signs the company’s implosion is weighing on lawmakers’ views of the broader industry. “My patience with the crypto bulls is wearing thin,” Rep. Jake Auchincloss (D-Mass.) said toward the end of the four-hour session. “It’s been 14 years, and the American public has heard lots of promises but seen lots of Ponzi schemes. For crypto, it’s time to put up or shut up.”

In the white-and-pink Magistrate’s Court in Nassau, Bahamas, Bankman-Fried appeared wearing a suit coat without a tie, according to the Nassau Guardian, a local newspaper. Members of Bankman-Fried’s family and representatives from the U.S. Embassy were present in the courtroom, according to the newspaper.

Bankman-Fried’s parents, Joseph Bankman and Barbara Fried are both professors at Stanford University’s law school. The SEC alleges Bankman-Fried used funds that had been commingled with customer money to buy them real estate. A spokesperson for Bankman and Fried did not return a request for comment.

The saga is far from over.

The government’s indictment suggests that prosecutors will indict more people or may already be working one or several of Bankman-Fried’s associates to build their case against him, said Mark Kasten, a lawyer with Buchanan Ingersoll & Rooney who has worked on cryptocurrency litigation.

“Conspiracy is not something you do alone,” Kasten said.

Tory Newmyer and Steven Zeitchik contributed to this report.