FTX founder Sam Bankman-Fried had been under criminal investigation by US and Bahamian authorities following the collapse of the cryptocurrency firm.
US prosecutors have charged Sam Bankman-Fried, the founder of cryptocurrency exchange FTX, with a host of financial crimes and campaign finance violations, alleging he played a central role in the rapid collapse of FTX and hid its problems from the public and investors.
The indictment says that, starting in 2019, Bankman-Fried intentionally devised “a scheme and artifice to defraud” FTX's customers and investors, diverting their money to pay expenses and debts at his crypto hedge fund, Alameda Research, and to make lavish real estate purchases and large political donations.
Bankman-Fried was arrested on Monday in the Bahamas, which said it would “promptly” extradite him to the US once a formal request is made.
The US government charged him with eight criminal violations, ranging from wire fraud to money laundering, conspiracy to commit fraud, and making illegal campaign contributions.
A lawyer for Bankman-Fried, Mark S. Cohen, said on Tuesday he is “reviewing the charges with his legal team and considering all of his legal options".
The indictment comes on top of civil charges announced earlier in the day by the Securities and Exchange Commission (SEC). It also alleged that Bankman-Fried defrauded investors and illegally used their money to buy real estate on behalf of himself and family.
Rise and fall of a crypto king
The charges mark a stunning fall from grace for the 30-year-old entrepreneur widely known by his initials SBF, who rode a boom in Bitcoin and other digital assets until FTX's collapse last month.
The exchange, launched in 2019 and based in the Bahamas, filed for bankruptcy on November 11 when it ran out of money after the cryptocurrency equivalent of a bank run.
Since FTX collapsed, Bankman-Fried has been holed up in his Bahamian luxury compound in Nassau. He has a right to contest his extradition, which could delay but probably not stop his transfer to the US.
Bankman-Fried was one of the world’s wealthiest people on paper and a prominent personality in Washington, donating millions toward mostly left-leaning political causes and Democratic political campaigns.
Meanwhile, FTX grew to become the second-largest cryptocurrency exchange in the world.
'House of cards built on deception'
That all unravelled quickly last month, when reports called into question the strength of FTX’s balance sheet.
Customers moved to withdraw billions of dollars, but FTX could not meet all the requests because it apparently had used its customers’ deposits to fund investments at Bankman-Fried’s trading arm, Alameda Research.
“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,” said SEC Chair Gary Gensler.
The SEC complaint alleges that Bankman-Fried raised more than $1.8 billion (€1.7 billion) from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.
Instead, the complaint says, Bankman-Fried diverted customers' funds to Alameda Research without telling them.
"He then used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses," the complaint reads. "None of this was disclosed to FTX equity investors or to the platform’s trading customers”.
Bankman-Fried said recently that he did not “knowingly” misuse customers’ funds, and said he believes his millions of angry customers will eventually be made whole.