Federal prosecutors in the US have accused Sam Bankman-Fried of criminal conspiracy and fraud that began at his cryptocurrency exchange FTX, part of a wave of charges after his arrest in the Bahamas on Monday.
In an indictment unsealed in a Manhattan court on Tuesday, the US Department of Justice charged him with eight counts including conspiracy to commit wire fraud on customers and lenders, money laundering and violations of campaign finance laws. Bankman-Fried faces years in prison if he is convicted.
The charges pointed to a long-running scheme, alleging that Bankman-Fried and others crafted a plan to misappropriate the deposits of exchange customers to pay the debts and expenses of his private trading firm Alameda Research and to make investments. The conspiracy ran from 2019 — the year FTX was founded — until its collapse last month, according to the indictment.
The criminal indictment was unsealed as US financial regulators brought civil charges against Bankman-Fried. The Securities and Exchange Commission also accused Bankman-Fried of orchestrating a fraud that began the day he launched FTX and continued at his personal direction until November.
The regulator charged him with defrauding venture capitalists and other equity investors who pumped $1.8bn into Bahamas-based FTX since May 2019.
“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 Gary Gensler, the SEC chair.
The Commodity Futures Trading Commission, the US derivatives regulator, also charged Bankman-Fried, FTX and Alameda Research with fraud on Tuesday.
Bankman-Fried’s lawyer said he was “reviewing the charges with his legal team and considering all of his legal options”. Alameda and FTX did not immediately respond to requests for comment.
Bahamian police arrested Bankman-Fried at his luxury penthouse in Albany on Monday after US prosecutors filed criminal charges.
The failure of his Bahamas-based exchange, once valued at $32bn, has resulted in potential losses for millions of creditors, including retail investors, and sent shockwaves through the crypto industry.
In its lawsuit, the SEC alleged that Bankman-Fried promoted his company to potential equity investors as a safe and reliable participant in the wild west of digital assets, focusing on touting the company’s sophisticated risk management. The agency alleged Bankman-Fried hid the fact that Alameda was exempt from risk controls and benefited from in effect limitless loans from FTX backed by customer assets.
“From the start, Bankman-Fried improperly diverted customer assets to his privately held crypto hedge fund, Alameda Research, and then used those customer funds to make undisclosed venture investments, lavish real estate purchases and large political donations,” the SEC alleged.
Bankman-Fried in recent weeks insisted he was unaware of the details of what Alameda was doing. He has also denied intentional wrongdoing and apologised for what he characterised as oversights and errors.
However, the SEC alleged that he had full control and access to information at both FTX and Alameda, and that he “directed investment and operational decisions” at the trading firm. The regulator claimed Bankman-Fried had taken active steps this year to hide the billions of dollars of FTX customer balances that were held at Alameda.
“Bankman-Fried placed billions of dollars of FTX customer funds into Alameda. He then used Alameda as his personal piggy bank,” the lawsuit alleges.
Before its collapse into bankruptcy last month, FTX had won the backing of several of the world’s best-known investors including BlackRock, Sequoia Capital and the Ontario Teachers’ Pension Plan.
“The alleged fraud committed by Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws,” Gensler said. The SEC said its investigation into FTX was ongoing.