FTX founder Sam Bankman-Fried charged with fraud

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.”

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.”

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." 

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.