(CNN) — FTX founder Samuel Bankman-Fried has been charged with eight felonies, including wire fraud and conspiracy to misappropriate client funds, according to an indictment from the US Attorney for the Southern District of New York.
Bankman-Fried, 30, was arrested at his home in the Bahamas on Monday and was due to appear in court in Nassau for an extradition hearing on Tuesday morning.
Separately on Tuesday, US market regulators accused Sam Bankman-Fried of defrauding investors and clients in his failed crypto exchange FTX.
The Securities and Exchange Commission said Bankman-Fried “managed a years-long scam” to hide from FTX investors the diversion of client funds to Alameda Research, its crypto-trading hedge fund.
“We contend that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors it was one of the most secure buildings in crypto,” SEC Chairman Gary Gensler said in a statement.
The Commodity Futures Trading Commission has also indicted Bankman-Fried in a parallel filing with the SEC.
Regulators signaled that this could be just the first of several indictments. The SEC said there were ongoing investigations into “other securities violations” and other companies and individuals.
Bankman-Fried’s attorney did not respond to requests for comment.
Known as “SBF” Bankmann-Fried is a crypto celebrity who became an overnight pariah last month when his company suffered a liquidity crisis and filed for bankruptcyleaving at least one million depositors without access to their funds.
Charges of conspiracy and fraud
Prosecutors in the Southern District of New York on Tuesday unsealed an indictment charging Bankman-Fried with wire fraud and multiple counts of conspiracy, including counts of conspiracy to defraud investors, lenders and the United States, committing commodity and securities fraud, and money laundering and laws for campaign finance.
Prosecutors allege that Bankman-Fried conspired with others in numerous schemes, including misusing customer deposits held in FTX, which were used to cover Alameda’s expenses. Bankman-Fried also allegedly defrauded Alameda lenders by giving them misleading information about the hedge fund’s financial condition.
The 14-page indictment also alleges that Bankman-Fried conspired with others to violate federal election laws by making political donations to federal candidates and joint donation committees between 2020 and November 2022, beyond federal legal limits and on behalf of the state other people.
Risky bets, wasteful spending
FTX achieved a $32 billion valuation by raising more than $1.8 billion since its launch in May 2019, including from seasoned investors such as BlackRock, Sequoia Capital and the Ontario Teachers’ Pension Plan. Top athletes and celebrities who endorsed FTX were also reportedly given stakes in the company, including Tom Brady and Gisele.
The SEC alleges that Bankman-Fried duped investors who backed FTX by promoting it as a “safe, responsible” crypto trading firm that employed “sophisticated, automated” risk measures to protect client funds.
In reality, the complaint alleges that Bankman-Fried secretly siphoned off FTX client funds to effectively provide Alameda with an “unlimited ‘line of credit'”. The SEC says Bankman-Fried has continued to hide from investors the risk posed by FTX’s exposure to significant holdings of overvalued, illiquid assets such as FTX-related tokens.
Bankman-Fried didn’t just use FTX client funds to make risky bets at his hedge fund. The SEC alleges he used that money to make undisclosed venture investments, “lavish” real estate purchases, and large political donations.
“FTX operated behind a cloak of legitimacy created by Mr. Bankman-Fried, among other things, by touting its world-class controls, including a proprietary ‘risk engine’, and FTX’s adherence to specific investor protection principles and detailed terms of service,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, in a statement. “But as we allege in our complaint, not only was that veneer thin, it was fraudulent.”
“I messed it up”
In the four weeks since FTX filed for bankruptcy, Bankman-Fried has attempted to brand itself as a bank somewhat unfortunate CEO who stepped over his skis and denied allegations that he had defrauded FTX’s customers.
“I did not knowingly commit fraud,” he told the BBC over the weekend. “I didn’t want something like that to happen. I certainly wasn’t nearly as competent as I thought it would be.”
But Bankman-Fried has previously admitted to making mistakes running FTX, which he resigned from last month after it filed for bankruptcy.
“Look, I screwed up,” Bankman-Fried told The New York Times during a virtual appearance at the DealBook Summit. “There are things I would do anything for.”
— CNN’s Kara Scannell contributed to this report
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