New York –
Sam Bankman-Fried, the former CEO of cryptocurrency platform FTX, orchestrated a multi-year scheme by funneling investor money into his private hedge fund and spending it on venture capital investments, big-ticket real estate purchases, and big political donations. years of fraud, the Securities and Exchange Commission said in a complaint Tuesday.
U.S. Attorney Damian Williams said Bankman-Fried was arrested Monday in the Bahamas, where he has been living, after the U.S. filed criminal charges that will be released Tuesday. The SEC complaint is separate.
A spokesman for Bankman-Fried had no comment late Monday.He has the right to challenge his extradition, which may delay but probably not prevent his transfer to the US
Bankman-Fried is under criminal investigation by U.S. and Bahamian authorities after FTX collapsed last month, and FTX filed for bankruptcy on Nov. 11 when it ran out of funds after what amounted to a bank run on cryptocurrencies.
Bankman-Fried is one of the richest men in the world; at one point, his net worth hit $26.5 billion, according to Forbes. He is a well-known figure in Washington, donating millions of dollars to mostly left-leaning political causes and Democratic political campaigns, though he also donates to Republicans. FTX grew to become the second largest cryptocurrency exchange in the world.
That all unraveled quickly last month when reports emerged questioning the strength of FTX’s balance sheet. Customers began withdrawing billions of dollars, but FTX was unable to meet all demands as it had apparently used customer deposits to fund investments in Alameda Research, Bankman-Fried’s trading arm.
“We allege that Sam Bankman-Fried built a house of cards based on deceit while telling investors it was one of the safest structures in cryptocurrency,” said SEC Chairman Gary Gensler.
The SEC complaint alleges that since May 2019, Bankman-Fried raised more than $1.8 billion from equity investors by promoting FTX as a safe and responsible platform for trading crypto assets.
Instead, the complaint alleges, Bankman-Fried transferred clients’ funds to Alameda Research without informing them.
“He then used the Alameda as his personal piggy bank for the purchase of luxury condominiums, support of political campaigns, private investments, and other purposes,” the complaint reads. “None of this was disclosed to FTX equity investors or trading clients of the platform.”
The SEC said Alameda did not separate FTX investor funds from Alameda Investments, using the funds to “indiscriminately fund its trading operations,” as well as Bankman-Fried’s other ventures.
The day before Bankman-Fried’s arrest, he was due to testify before the House Financial Services Committee. The committee chair, Rep. Maxine Waters, D-Calif., said she was “disappointed” that Bankman-Fried’s sworn testimony was not available to the American public and FTX’s clients.
However, that hearing will be held on Tuesday.
Bankman-Fried recently said he did not “intentionally” misuse clients’ funds, and said he believed his millions of angry clients would eventually be whole.
The SEC disputed that claim in its complaint Tuesday.
“FTX operates under a facade of legitimacy created by Mr. Bankman-Fried to advertise, inter alia, its best-in-class controls, including a proprietary ‘risk engine’, and that FTX adheres to specific investor protection principles and detailed terms of service. But as This camouflage, as we allege in our complaint, is not only weak, but deceptive,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “The FTX debacle highlights the very real risks that unregistered crypto asset trading platforms can pose to investors and customers.”