FTX Crypto Founder Hit With Eight Counts of Fraud and Conspiracy

Sam Bankman-Fried has been arrested in the Bahamas on charges filed by U.S. prosecutors.

He reportedly awaits extradition to the United States from the Bahamas, although the timeline of this extradition remains unclear.

The Department of Justice (DOJ), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have each brought charges against the disgraced FTX founder.

With his multibillion-dollar fortune evaporated, the enterprise group of companies he founded in near-total ruin, his charitable whiz-kid-savior public persona in irreparable tatters, and his extended family getting dragged into the disastrous mix of his own creation, it is safe to presume that Bankman-Fried is having a no-good, very bad end of the year.

Perhaps he can draw solace from the fact that he’s not alone. After all, misery loves company and SBF, as he is commonly known, hurt over 1 million individuals who all trusted him with their hard-earned money.

He was, at one point, expected to testify Tuesday (Dec. 13) before the U.S. House Financial Services Committee in its investigation into FTX’s downfall.

House of Cards

A federal indictment Monday revealed SBF is being charged by the DOJ with eight counts that range from wire fraud to various conspiracy counts. While SBF is the only individual named in the indictment, the charges signal that he conspired with others both “known and unknown.”

Separately, a civil complaint from the SEC charged SBF with two counts of civil securities fraud and alleged that SBF and FTX’s crypto empire was fraudulent “from the start” — going back to May 2019.

The federal indictment echoed this timeline.

“Customers around the world sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform,” the complaint stated. “But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations. Bankman-Fried hid all of this from FTX’s equity investors, including U.S. investors, from whom he sought to raise billions of dollars in additional funds.”

It goes on to call FTX’s businesses a “house of cards.” The complaint framed SBF’s behavior as a straightforward case of lying to investors, at least for six of the eight counts revealed in the federal indictment, which would make them easy to address under current U.S. securities laws and regulations, while sidestepping the thorny, ongoing questions surrounding whether digital assets are definable as securities.

When in operation, FTX was one of the biggest cryptocurrency exchanges in the world and widely viewed as both a trailblazer and one of the more responsible actors in the crypto industry. The company spent extensively on advertising, marketing and celebrity sponsorships in support of this reputation.

The indictment assigned primary responsibility to SBF, and did not name other senior executives at FTX like one-time CEO of Alameda Research Caroline Ellison, whom SBF had been slyly pointing the finger at while alleging he did not know what was going on at Alameda during his recent slate of ill-advised media appearances.

The potentially illegal commingling of customer funds between FTX and Alameda, which SBF continually and fraudulently dipped into, is at the center of both FTX’s collapse and SBF’s legal woes.

“The operations of the FTX group were not segregated, there were no distinctions around who controlled those operations,” the company’s newly installed CEO, John J. Ray III, said during an appearance before the House Financial Services Committee today (Dec. 13).

A representative for SBF has not replied to PYMNTS’ request for comment.

Charges Filed

The eight counts SBF is being charged with by federal prosecutors in the Southern District of New York include: conspiracy to commit wire fraud on customers, conspiracy to commit wire fraud on lenders, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering, conspiracy to defraud the United States and violate campaign finance laws. He is also being charged with wire fraud on customers and wire fraud on lenders.

It is quite the litany of charges, and SBF faces even more from additional government bodies, including the SEC suit.

The CFTC has charged SBF and FTX with two counts of violating antifraud provisions in the Commodity Exchange Act. It is requesting a juried trial.

If convicted, SBF faces substantial jail time. Wire fraud sentences alone can run up to 20 years.