FTX founder Sam Bankman-Fried charged with fraud

Sam Bankman-Fried is escorted out of the Magistrate Court building in Nassau, Bahamas December 13.

Sam Bankman-Fried, the founder and former CEO of FTX and Alameda Research, could face up to 115 years in prison if convicted on all eight counts against him in a federal indictment unsealed Tuesday morning, according to congressional statutory maximum sentencing guidelines. 

The charges against him including wire fraud, wire fraud conspiracy, and conspiracy to commit money laundering, each carry a maximum prison sentence of 20 years, according to a press release from the US Attorney’s Office for the Southern District of New York. 

The crypto-trading platform founder could also see up to five years in prison for each count of conspiracy to commit commodities fraud and securities fraud, and conspiracy to defraud the United States and commit campaign finance violations, if convicted. 

Even if convicted on all counts, Bankman-Fried would likely not be sentenced to the maximum, and his sentences for each crime may run concurrently instead of consecutively, as is common and up to a judge’s discretion. 

Chief Magistrate of the Commonwealth of The Bahamas Joyann Ferguson-Pratt has denied bail for Sam Bankman-Fried.

Ferguson-Pratt said Bankman-Fried posed a flight risk considering his access to “substantial finances”.

Bankman-Fried’s next court hearing is the morning of February 8th. 

Ferguson-Pratt said Bankman-Fried would get an opportunity to spend a few minutes with his family and attorneys before being taken into custody.

Sam Bankman-Fried, founder and former chief executive officer of FTX, during an interview in New York in August 2022.

Chief Magistrate of the Commonwealth of The Bahamas Joyann Ferguson-Pratt has ruled the court has jurisdiction to consider bail.  

Samuel Bankman-Fried’s attorney said he’s willing to pay $250,000 cash bail and will not object to conditions including wearing an ankle monitor or reporting to authorities daily. 

Bankman-Fried’s passport was turned over to police upon arrest last night, his attorney said.

The former FTX CEO has long suffered from depression, insomnia, and attention deficit disorder (ADD), he added.

Bankman-Fried told the court he is currently taking medication.

The chief magistrate asked if there was family in court. SBF’s parents and a woman stood up. The judge asked if one of them could get Bankman-Fried’s prescription drugs at home. 

U.S. Attorney Damian Williams speaking to reporters today.

US Attorney Damian Williams ended the Tuesday afternoon news conference assuring reporters that there would be more to come in the Southern District of New York’s prosecution of Sam Bankman-Fried.

“It’s so hard to compare these things but…this is one of the biggest financial frauds in American history,” he said.

In a moment of levity in an otherwise straight-laced, sober press conference, US Attorney Damian Williams was asked about Sam Bankman-Fried, the 30-year-old accused of orchestrating a massive fraud, not fitting the profile of a typical white-collar criminal. 

“You can commit fraud in shorts and T-shirts in the sun,” Williams quipped.

Williams declined to say whether future indictments are coming but noted the investigation is ongoing.

“We are not done,” he said. “Extradition is ongoing in the Bahamas.”

U.S. Attorney Damian Williams speaks during a news conference about the criminal charges filed against FTX founder Sam Bankman-Fried, today in New York. The U.S. Securities and Exchange Commission has charged the former CEO of failed cryptocurrency firm FTX with orchestrating a scheme to defraud investors.

Damian Williams, the US Attorney for the Southern District of New York, told reporters Tuesday that his team’s investigation into fraudulent schemes around FTX and Alameda Research is moving quickly, reiterating charges laid out in the indictment against the crypto exchange’s founder, Sam Bankman-Fried.

The charges include wire fraud, conspiracy and campaign finance violations.

“From 2019 until earlier this year, Bankman-Fried and his co-conspirators stole billions of dollars from FTX customers,” Williams said. “He used that money for his personal benefit, including to make personal investments and to cover expenses and debts of his hedge fund, Alameda Research.”

SBF is also charged with violating campaign finance laws “by causing tens of millions of dollars in illegal campaign contributions to be made to candidates and committees associated with both Democrats and Republicans,” Williams added.

“And all of this dirty money was used in service of Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington.”

Williams implored the public to come forward if they believe they were affected by the years-long schemes.

Gurbir Grewal, Director of Enforcement at the Securities and Exchange Commission, said that Sam Bankman-Fried put up a veneer of respectability and safety, but “that veneer wasn’t only thin, it was fraudulent.” He said FTX’s assertions of reliability “were simply bogus.”

Grewal said SBF “frequently claimed Alameda was a customer with no special privileges,” but FTX used it for an “unlimited line of credit.” 

Bankman-Fried also “diverted billions more in customer assets to Alameda, even as it became increasingly clear FTX and Alameda could not make those customers whole,” and all the while made “misleading statements” about the company’s relationship with Alameda and its financial position.

Grewal sent a warning to investors looking to trade crypto on platforms that are not compliant with SEC regulatons. 

“One immediate takeaway: Noncompliant trading platforms pose dramatic risks to customers,” Grewal said. “It’s imperative that noncompliant platforms come into compliance. … For those who do not, the enforcement division stands ready to take action.”

An exterior view shows the Magistrate Court building where Sam Bankman-Fried appeared before the Chief Magistrate today, after being arrested and criminally charged by U.S. prosecutors, in Nassau, Bahamas.

Samuel Bankman-Fried, the founder of FTX, appeared before a judge in Nassau, Bahamas on Tuesday morning in which he did not waive his right to an extradition hearing, according to a US official. 

Video from outside the court showed heavily armed police officers and court security.

Bankman-Fried was arrested at his home in the Bahamas on Monday night. He has been indicted on eight criminal charges including wire fraud and conspiracy by misusing customer funds, according to an indictment from the US Attorney of the Southern District of New York.  

The SEC says former Founder and CEO of FTX Sam Bankman-Fried internally directed software code to be written in a way that allowed his crypto hedge fund, Alameda, to function with a negative balance in its the customer account at FTX. 

This allegedly happened in August of 2019, just about four months after operations at FTX began. 

This effectively gave the sister trading firm, Alameda, a limitless line of credit funded by customer assets, according to the Securities and Exchange Commission complaint filed in federal court Tuesday. 

That meant there was no meaningful distinction between FTX customer funds and Alameda’s funds that Bankman-Fried used as his “personal piggy bank,” the complaint says.  He hid from investors and customers that he used the funds to buy luxury condos, support political campaigns, and make private investments, according to the SEC.

Between March 2020 and September 2022, Bankman-Fried executed loans from Alameda totaling more than $1.338 billion, including two instances in which Bankman-Fried was both the borrower in his individual capacity and the lender in his capacity as CEO of Alameda, the SEC says in its civil complaint. 

Bankman-Fried used funds from Alameda to purchase tens of millions of dollars in Bahamian real estate for himself, his parents, and other FTX executives, according to the filing. 

Alameda co-founders Nishad Singh and Gary Wang also borrowed $554 million and $224.7 million, respectively, by similarly executing promissory notes with Alameda in 2021 and 2022, the filing says. 

Singh and Wang have not been charged with any crimes at this point. 

The loans to Bankman-Fried and others were “poorly documented, and at times not documented at all,” the lawsuit says. 

When prices of crypto assets plummeted in May 2022, Bankman-Fried paid back Alameda’s demanding third-party lenders from its FTX “line of credit,” further growing the multi-billion-dollar liability and then concealed it in the Alameda balance sheet to avoid alarming investors, the complaint alleges. 

The FTX chief executive continued to leverage the companies for his personal benefit, loaning himself $136 million in late July 2022 - one month after offering crypto financial services company BlockFi a $250 million revolving line of credit to ease its own liquidity issues, according to the filing.  Meanwhile, throughout the summer, he presented a “false and misleading positive account” of the company to investors, despite its “tenuous financial condition”, the SEC alleges.

The Bahamas Security Commission accused FTX CEO John J. Ray III of making “misstatements,” and called on him and his representatives to not obstruct the investigation into FTX’s collapse.

“Every action taken by the Securities Commission of The Bahamas was in strict accordance with our country’s legislation and with orders made by the Supreme Court of The Bahamas,” according to the statement published Tuesday. “These actions included securing the transfer of potentially commingled digital assets of FTX Digital Markets Ltd. and affiliates to a secure location under the authority of an Order issued by the Supreme Court of The Bahamas.” 

This comes after Ray, who testified in front of the US House of Representatives in Washington, DC, referred to redacted email correspondence between former FTX CEO Sam Bankman-Fried and Bahamian officials.

Ray is “aware that the full email reveals Mr. Bankman-Fried’s acknowledgement that he had not briefed the Securities Commission,” the Bahamian Securities commission said.

“The Securities Commission continues to conduct a comprehensive and diligent investigation into the causes of FTX’s failure, working in cooperation with law enforcement and regulatory authorities both in The Bahamas and other jurisdictions,” the commission said, adding that it continues to conduct an investigation into the causes of FTX’s failure.

“Unfortunately, it has been necessary for the Securities Commission to make a request to Mr. Ray’s representatives to not obstruct that investigation,” the statement added, “Mr. Ray has not once reached out to the Securities Commission to discuss any of his concerns before airing them publicly.” 

Samuel Bankman-Fried, founder and former CEO of FTX, during a Senate Committee on Agriculture, Nutrition and Forestry hearing about "Examining Digital Assets: Risks, Regulation, and Innovation," on Capitol Hill in February.

Federal prosecutors allege FTX founder Samuel Bankman-Fried conspired with others to violate federal election laws by making political donations to federal candidates and other political committees between 2020 and November 2022, in excess of federal legal limits and in the names of other people. 

The indictment also alleges that Bankman-Fried used corporate funds to make candidate contributions.

The allegations that he violated federal campaign finance laws are notable because Bankman-Fried emerged as one of the biggest political donors of the just-completed midterms.

The crypto-currency exchange executive donated more than $900,000 to candidates and nearly $39 million to outside groups in this election cycle – making him the sixth largest individual donor of the 2022 election cycle, according to a tally by OpenSecrets, a nonpartisan group that tracks money in politics. Most of the spending supported Democrats. 

Federal filings show that the lion’s share of Bankman-Fried’s publicly disclosed federal contributions — $27 million – went to Protect Our Future PAC, a super PAC he established with the stated goal of boosting candidates who were prepared to confront future pandemics.

Bankman-Fried also donated $6 million to the House Majority PAC, making him among the top 10 donors to the House-focused Democratic super PAC, Federal Election Commission records show. Federal records show he also contributed to dozens of individual candidates.

Super PACs, which are supposed to operate independently of the candidates they back, can accept unlimited sums from individuals, corporations and unions. But federal law imposes strict limits on the amount of money that an individual can donate directly to a federal candidate’s campaign. It also is illegal for corporations to donate money directly to presidential and congressional candidates.

The 14-page indictment unsealed Tuesday does not disclose the recipients of contributions that federal prosecutors allege were made illegally.

FTX’s new CEO undermined an oft-repeated claim by his predecessor Sam Bankman-Fried, who has said that FTX’s US business is solvent and could make its US customers whole “tomorrow.”

John J. Ray III, who is overseeing FTX’s bankruptcy, threw cold water on that claim.

Ray continued that his team is “hopeful” that because the number of US customers and volume of trading was much smaller than international trading, so there is a “pathway” to eventually restoring value to customers who are locked out of their funds.

John J. Ray III, CEO of FTX Group, testifies during the House Financial Services Committee hearing titled Investigating the Collapse of FTX Part I, on December 13 at the U.S. Capitol in Washington, DC. Ray took over the FTX after the resignation of Sam Bankman-Fried. 

FTX CEO John J. Ray III, who made his name overseeing the liquidation of Enron in the early 2000s, was asked to compare that experience to the collapse of FTX.

“The crimes that were committed [at Enron] were highly orchestrated financial machinations by highly sophisticated people to keep transactions off balance sheets.” Ray told lawmakers. FTX, on the other hand, was “not sophisticated at all.”

“This is really old-fashioned embezzlement,” Ray said. “This is just taking money from customers, and using it for your own purpose.”

FTX’s chief executive told a House committee that the company’s new management is investigating Sam Bankman-Fried’s parents’ role in the business.

John J. Ray III, under questioning from US lawmakers, declined to give specifics about any potential role played by Bankman-Fried’s parents, who are both lawyers who teach at Stanford. Ray said it’s clear that Bankman-Fried’s father had given legal advice and that the family “did receive payments” though it isn’t clear whether they were employed by any of the companies.

Joseph Bankman and Barbara Fried did not immediately respond to requests for comment.

John J. Ray III speaking at the U.S. House Financial Services Committee hearing investigating the collapse of the now-bankrupt crypto exchange FTX on Capitol Hill today.

John J. Ray III said that he and his team overseeing FTX’s bankruptcy have been sharing their findings with the Securities and Exchange Commission and federal prosecutors from the Southern District of New York.

The SDNY indicted FTX’s former CEO Sam Bankman-Fried on eight criminal charges including wire fraud. The SEC, separately, accused Bankman-Fried of defrauding investors and customers of the crypto exchange, which unraveled in the midst of a liquidity crisis last month.

FTX Group CEO John J. Ray III speaks today at a U.S. House Financial Services Committee hearing investigating the collapse of the now-bankrupt crypto exchange FTX after the arrest of FTX founder Sam Bankman-Fried, on Capitol Hill in Washington.

John J. Ray III, the new chief executive of FTX, revealed in testimony before the House of Representatives that the now-defunct crypto exchanged used basic accounting software meant for individuals and small businesses.

Ray, in illustrating the utter lack of record-keeping at FTX, which at its peak was worth $32 billion, said employees would handle invoices and expenses over slack, and used QuickBooks to run its business.

Congresswoman Ann Wagner replied: “QuickBooks?!”

Ray continued: “Nothing against QuickBooks. It’s a very nice tool. Just not for a multibillion dollar company.”

John J. Ray III, newly appointed CEO of FTX, appears as a witness at the House Financial Services Committee hearing today.

John J. Ray III, the chief executive of FTX who is overseeing its bankruptcy, is testifying before the House Financial Services Committee.

Sticking closely to prepared remarks, Ray said that FTX’s collapse “appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets.”

Some of the “unacceptable management practices” identified so far at FTX Group include the use of computer infrastructure that gave individuals in senior management access to systems that stored customer assets, without security controls to prevent them from redirecting those assets.

“The scope of our investigation is truly enormous,” Ray told lawmakers.

Although the investigation is in its early stages, he said, there are certain key elements that are known to be true:

Prosecutors in the Southern District of New York unsealed an indictment Tuesday, charging Bankman-Fried with wire fraud and multiple counts of conspiracy, including conspiracy counts to defraud investors, lenders, and the United States, commit commodities and securities fraud and money laundering, and violate campaign finance laws.

Prosecutors allege Bankman-Fried conspired with others on numerous schemes, including misusing customer deposits held in FTX that were used to cover the expenses of his hedge fund Alameda Research. Bankman-Fried also allegedly defrauded lenders to Alameda by providing 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 fundraising committees between 2020 and November 2022, in excess of federal legal limits and in the names of other people. 

Sam Bankman-Fried during a Senate Committee on Agriculture, Nutrition and Forestry hearing about "Examining Digital Assets: Risks, Regulation, and Innovation," on Capitol Hill in Washington, DC, on February 9, 2022.

FTX founder Samuel Bankman-Fried was indicted on eight criminal charges including wire fraud and conspiracy by misusing customer funds, according to an indictment from the US Attorney of the Southern District of New York.

Bankman-Fried was charged with multiple counts of conspiracy, wire fraud and conspiracy to defraud the US and violated campaign finance laws.

The arrest of Sam Bankman-Fried has caught observers, including US lawmakers, by surprise. Even SBF himself, hours before being taken into custody by police in the Bahamas, told interviewers from the crypto platform “Unusual Whales” that he didn’t expect to be detained.

The speed of his arrest suggests a couple of things, according to Howard A. Fischer, a former Securities and Exchange Commission lawyer and now a partner with Moses Singer:

Andrew Jennings, an assistant professor at the Brooklyn Law School adds:

“This case has come together remarkably quickly for such a complex matter. The SEC’s civil suit…includes detailed behind-the-scenes allegations about what Bankman-Fried did and knew, suggesting that the government has gotten high-value assistance from informants, including potential co-conspirators.”