The former CEO of the bankrupt cryptocurrency company FTX has been accused by the U.S. Securities and Exchange Commission of directing a scheme to defraud investors.
FTX CEO Defrauded Crypto Investors
The U.S. Securities and Exchange Commission claimed in a complaint on Tuesday that Sam Bankman-Fried, the former CEO of cryptocurrency exchange FTX, orchestrated a years-long fraud by diverting investor funds to his private hedge fund and using them for business venture investments, opulent real estate purchases, and sizable political donations.
According to U.S. Attorney Damian Williams, Bankman-Fried was detained on Monday in the Bahamas, where he had been residing, after the United States filed criminal charges that will be made public on Tuesday. There is a separate SEC complaint.
Bankman-representative Fried was unavailable for comment Monday night. He has the option to fight extradition, which could postpone but most likely won’t prevent his transfer to the United States.
Authorities in the United States and the Bahamas were looking into Bankman-criminal Fried’s activities after FTX, which collapsed last month and declared bankruptcy on November 11 after running out of money due to the digital equivalent of a bank run, failed.
According to Forbes, Bankman-Fried had a net worth of $26.5 billion at one point, making him one of the richest individuals in the world on paper. He was a well-known figure in Washington, contributing millions of dollars to Democratic political causes and campaigns as well as to some Republican candidates. The second-largest cryptocurrency exchange in the world is now FTX.
Last month, when reports questioned the stability of FTX’s balance sheet, everything came crashing down. Customers demanded billions of dollars in withdrawals, but FTX was unable to accommodate them all because it appeared to have utilised customer deposits to finance investments at Bankman-Fried trading affiliate Alameda Research.
Gary Gensler, the chair of the SEC, said, “We allege that Sam Bankman-Fried erected a house of cards on a foundation of lies while telling investors that it was one of the safest structures in crypto.”
According to the SEC complaint, Bankman-Fried promoted FTX as a secure, responsible platform for trading cryptocurrency assets, and as a result, attracted more than $1.8 billion from equity investors since May 2019.
Instead, according to the complaint, Bankman-Fried secretly funnelled consumers’ money to Alameda Research.
A day before he was scheduled to provide testimony before the House Financial Services Committee, Bankman-Fried was arrested. The committee’s chairwoman, Rep. Maxine Waters, D-Calif., expressed her “disappointment” that Bankman-Fried would not be able to testify while being sworn in front of the American people and FTX’s clients.
But that hearing is scheduled for Tuesday.
Bankman-Fried recently claimed that he did not “knowingly” misuse his customers’ money and that he is certain that his millions of irate clients would soon receive their money back.
In its case on Tuesday, the SEC contested that claim.
What did Fried say about defrauding crypto investors?
He has the option to fight extradition, which could postpone but most likely won’t prevent his transfer to the United States.