Earlier this year, Sam Bankman-Fried was a crypto industry titan with a $32 billion empire.
His cryptocurrency exchange, FTX, was one of the largest and most reputable in the world. He achieved great success as its CEO and founder, amassing an estimated $26.5 billion in personal wealth at one point.
That’s all gone now, as the 30-year-old was arrested and charged with a slew of federal offences this week. This is what happened:
SBF has been arrested and charged: Bankman-Fried, also known as SBF, was arrested Monday night, about a month after his cryptocurrency exchange went bankrupt. He is facing a slew of federal charges, including wire fraud conspiracy and campaign finance violations. Meanwhile, it is claimed that over $8 billion in FTX customer deposits have gone missing.
According to officials, he used investor funds for other purposes: According to filings with the Securities and Exchange Commission, the Department of Justice, and the Commodity Futures Trading Commission, Bankman-Fried engaged in a three-year scheme in which he stole billions from customers for personal use, including luxury real estate and political donations. Officials said it fell apart when the cryptocurrency market crashed earlier this year.
“We allege that Sam Bankman-Fried built a house of cards on deception while telling investors it was one of the safest buildings in crypto.” “SEC Chair Gary Gensler said in a statement on Tuesday. “Mr. Bankman-alleged Fried’s fraud is a wake-up call to cryptocurrency platforms that they must comply with our laws.”
How did the alleged scheme function?
Bankman-Fried founded FTX in 2019 as a platform for customers to trade crypto assets. The company was founded two years after Bankman-Fried co-founded Alameda Research, a cryptocurrency trading firm.
Officials claim that investor funds have been directed to Alameda: Bankman-Fried was accused by the SEC of funnelling FTX customer funds to Alameda, which were then used to fund speculative venture investments and loans to Bankman-Fried and other FTX executives.
Money used for political contributions: According to the SEC, Bankman-Fried allegedly used commingled funds from Alameda to fund real estate purchases in The Bahamas, including office space and luxury condominiums. According to the SEC, the former CEO also allegedly spent the money on political contributions. In this year’s election cycle, he was one of the top political donors, with the majority of his contributions going to Democratic political causes.
SBF as borrower and lender: Bankman-Fried executed over $1 billion in promissory notes for Alameda loans. According to the SEC, he was both the borrower and the lender in two instances.
SBF is accused of deceiving investors: The SEC also claims that Bankman-Fried misled investors into believing that FTX was a secure cryptocurrency trading platform, allowing the company to raise over $1.8 billion from investors since at least May 2019.
Supposedly lost $8 billion: The Commodity Futures Trading Commission claims that the alleged scam cost FTX customers more than $8 billion in deposits.
Bankman-alleged Fried’s scheme began to unravel in May 2022, when the crypto market crashed and lenders demanded that Alameda repay billions of dollars in loans that the crypto hedge fund lacked.
Bankman-Fried reacted by diverting billions of dollars in FTX funds from customer assets to Alameda in order to maintain its lending relationships. According to the SEC, funds transferred at this time were also used for additional venture investments and executive loans.
nVendors extracted: After a CoinDesk article revealed Alameda had a balance sheet full of FTX’s exchange token, FTT, the walls began to crumble in November. In light of the findings, Binance, a competing cryptocurrency exchange, announced plans to sell its FTT. This resulted in massive withdrawals from FTX. FTT’s market price plummeted, and FTX entered a liquidity crisis.
FTX declares bankruptcy: On November 11, FTX declared bankruptcy. The same day, Bankman-Fried resigned as CEO.
SBF launches a media campaign: Bankman-Fried began a media tour in the weeks leading up to his arrest, during which he expressed regret for the company’s mismanagement but denied any intentional wrongdoing.
More than a million people are likely to be in debt: John J. Ray III, who took over as CEO of FTX in November, stated that the company had lost at least $7 billion and that his team was working to recover customer funds. The company has stated that it will most likely owe money to over a million people.
“This is really old-fashioned embezzlement,” Ray said during a hearing on Tuesday. “This is simply taking money from customers and spending it on yourself.”
Bankman-Fried is facing charges.
Federal prosecutors in New York’s Southern District unveiled an eight-count criminal indictment against Bankman-Fried on Tuesday.
The indictment accuses Bankman-Fried of conspiracy to commit wire fraud on customers and lenders, as well as conspiracy to commit commodities fraud and securities fraud. Other charges include a conspiracy to launder money and a conspiracy to defraud the United States government and violate campaign finance laws with contributions that exceeded contribution limits.
Alleged campaign finance violations: According to the indictment, Bankman-Fried and others used false names to make illegal campaign contributions to federal candidates, joint fundraising committees, and independent expenditure committees.
Officials want profits returned and repayment: The criminal indictment requests that all profits from the alleged conspiracy be forfeited. According to the SEC’s court complaint, Bankman-Fried must repay all ill-gotten gains from the alleged scheme, as well as civil monetary penalties.
Potential SBF legal actions: The SEC’s court complaint also seeks an order prohibiting Bankman-Fried from acting as a company officer or director, as well as an order prohibiting him from issuing, offering, or selling securities that are not in his personal accounts.
The attorney for Bankman-Fried is’reviewing the charges’: Bankman-attorney, Fried’s Mark Cohen, said in a statement that he is “reviewing the charges with his legal team and considering all of his legal options.”
