Bankman-Fried Accused of Fraud by US After Bahamas Arrest (1)

Sam Bankman-Fried, the disgraced co-founder of digital-asset exchange FTX, was accused by US authorities on Tuesday of perpetrating a massive fraud that funded his lavish lifestyle.

US prosecutors in Manhattan revealed eight criminal counts against him and federal regulators said he committed a range of securities and derivatives law violations. Bankman-Fried, who had been living in an expansive penthousein the Bahamas, was arrested there on Monday evening.

The US indictment detailing the charges follows weeks of speculation over the the 30-year-old’s fate after his company — once one of the biggest cryptocurrency exchanges in the world — plunged into bankruptcy last month.

He’ll be arraigned in the Bahamas on Tuesday and faces extradition to the US. “Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” Mark Cohen, his attorney said in a statement.

The US Securities and Exchange Commission on Tuesday alleged that FTX raised more than $1.8 billion, including $1.1 billion from about 90 US-based investors, in an “orchestrated scheme to defraud equity investors,” who bought in based on the belief that FTX had appropriate controls.

Separately, the Commodity Futures Trading Commission alleged that Bankman-Fried took hundreds of millions of dollars in loans from Alameda Research, which he also founded, which were then used to buy real estate and make donations to politicians.

• Read more: The Charges Against Bankman-Fried Filed by SEC, DOJ, CFTC

Sam Bankman-Fried

Photographer: Ting Shen/Bloomberg

According to the SEC, Bankman-Fried misled investors, telling them that FTX had sophisticated risk controls and that their assets were secure. Instead, the regulator alleged in its complaint, he was using their money as a “virtually unlimited line of credit” for trading firm Alameda while concealed risks and obscuring FTX’s relationship with the trading firm.

More than 100 FTX-related entities, including Alameda, filed for US bankruptcy protections on Nov. 11.

• Follow Live: FTX CEO John J Ray III Says Securing Assets to Take Weeks or Months: TOPLive

Media Interviews

In media interviews since FTX’s collapse, Bankman-Fried has admitted major managerial missteps, but has also claimed that he never tried to commit fraud or break the law.

In draft remarks prepared for the US House hearing and obtained by Bloomberg News prior to his arrest, he offered a blunt assessment of his plight.

“I would like to start by formally stating under oath: I f—-ked up,” Bankman-Fried wrote in the draft.

He added that the company’s new managers, led by restructuring expert John J. Ray III, have repeatedly rebuffed his offers to help sift through the wreckage of the collapsed crypto empire. Ray hasn’t responded to five of his emails, he said. Ray is still scheduled to testify at the hearing on Tuesday.

In remarks prepared for the House hearing, Ray blamed FTX’s collapse on the failures of its previous leaders.

“The FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals,” Ray said in the written testimony released Monday in advance of the hearing. The prior management “failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets.”

Crypto Exchanges

Prior to the arrest and long before his empire collapsed into bankruptcy, federal prosecutors in Manhattan had already been looking into FTX as part of broader sweep of exchanges and potential anti-money laundering violations under the Bank Secrecy Act.

The investigation, led by the Complex Frauds and Cybercrime Unit, took a different trajectory after FTX’s catastrophic implosion.

Prosecutors were closely examining whether hundreds of millions of dollars were improperly transferred to the Bahamas around the time of FTX’s Nov. 11 bankruptcy filing in Delaware, according to a person familiar with the matter.

They were also digging into whether FTX broke the law by transferring funds to Alameda Research, the bankrupt investment firm also founded by Bankman-Fried, Bloomberg reported previously.

Last week, prosecutors, the FBI, Department of Justice officials and FTX’s new CEO and restructuring expert Ray met at SDNY’s headquarters in downtown Manhattan. Potential charges were not discussed at that meeting, according to a person familiar with the conversation.

(Updates with criminal charges throughout.)

--With assistance from Joanna Ossinger, Beth Williams and Gillian Tan.

To contact the reporters on this story:
Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net;
Ava Benny-Morrison in New York at abennymorris@bloomberg.net;
Katanga Johnson in Washington at kjohnson655@bloomberg.net;
Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editors responsible for this story:
Ben Bain at bbain2@bloomberg.net

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