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U.S. charges Sam Bankman-Fried with 8 counts of wire fraud, securities fraud, and conspiracy

The Justice Department is charging former FTX CEO and founder Sam Bankman-Fried with 8 different counts of wire fraud, securities fraud, and conspiracy, according to an indictment unsealed Tuesday morning.

The indictment alleges the 30-year old and others “known and unknown” devised a scheme to defraud FTX.com customers by misappropriating their deposits to pay expenses and debts owed by trading firm Alameda Research.

According to the unsealed indictment, the DOJ alleges that between June 2022 and November 2022, Bankman-Fried and others “willingly and knowingly did combine, conspire, confederate and agree together with eachother to commit wire fraud.”

The fraudlent charges also include using customer deposits to purchase commodities, securities and property with customer deposits as well as using them for political contributions in a Federal election and through other donations “in the names of other persons” that exceed corporate contributions.

The indictment calls for the forfeiture of any and all property derived from the proceeds from the stated offenses. The DOJ is set to hold a press conference on the matter at 2 p.m. ET.

Earlier Tuesday morning, the Securities and Exchange Commission filed charges against Sam Bankman-Fried, alleging the 30-year-old disgraced founder of FTX orchestrated a scheme to defraud the company’s equity investors.

“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in a release.

“The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.” In an interview with Yahoo Finance last week, Gensler suggested FTX had violated securities laws by using customer assets to trade at its affiliated hedge fund, Alameda Research.

According to the SEC’s complaint, Bankman-Fried defrauded equity investors out of more than $1.8 billion, including $1.1 billion from 90 U.S.-based investors.

The CFTC also charged FTX and Bankman-Fried with fraud and making “material misrepresentations in connection with the sale of digital commodities in interstate commerce.”

FTX collapsed early last month, tumbling into Chapter 11 bankruptcy in a matter of days after details of its balance sheet were leaked in the media.

Bankman-Fried was arrested Monday evening at the Albany Resort southwest of Nassau, and is being held under custody by Bahamian police. Bankman-Fried is also subject of a criminal investigation opened by the Department of Justice.

“Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC’s indictment states.

The SEC alleges that since FTX’s founding, Bankman-Fried improperly moved customer assets to his private crypto hedge fund, Alameda, only to use those funds to make undisclosed venture investments, real estate purchases, and major political donations.

“FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement.

Bankman-Fried’s arrest and the SEC’s charges come just hours before he was scheduled to appear before the House Financial Services Committee.

In written testimony ahead of this hearing, John J. Ray III, FTX’s new CEO, 11 corroborated five things FTX did with its funds, including commingling customer assets with Alameda and allowing Alameda to engage in margin trading exposing customers to significant losses.

“At the end of the day, we’re not going to be able to recover all the losses here,” John Ray III told the House in Tuesday’s hearing on FTX. “Money was spent that we’ll never get back. There will be losses on the international side. We’re hopeful on the US side,” he added.

Ray said on multiple occasions during the hearing that his team estimates FTX’s losses on balance are in excess of $7 billion dollars.

“The problem at the heart of this,” Ray said, “[is Alameda] had almost a complete ability to lose money beyond their collateral.

Source : Yahoo