Sam Bankman-Fried, the notorious former CEO of crypto exchange FTX, is facing a raft of federal fraud charges, accused of misleading investors and using billions of dollars from his customers for his own ends. He was arrested in the Bahamas, where he lives, the office of the attorney general of The Bahamassaid on Monday night.
Bankman-Fried's promise of using sophisticated risk measures to protect FTX customers was part of a long-running fraud, authorities say, repeatedly calling his crypto operation a house of cards.
A federal grand jury indicted Bankman-Fried on eight criminal counts, ranging from wire fraud to violating campaign finance laws, according to an indictment in the Southern District of New York that was unsealed Tuesday morning.
Bankman-Fried is also accused of funneling customers' money to his privately held crypto hedge fund, and using their capital "to make undisclosed venture investments, lavish real estate purchases, and large political donations," the Securities and Exchange Commission said.
The SEC announced a sweeping civil complaint against Bankman-Fried on Tuesday, with Gurbir Grewal, the agency's head of enforcement, saying FTX hid its actions behind a "veneer of legitimacy" that was fraudulent.
The SEC says Bankman-Fried purposely misled investors
Despite what he told investors, Bankman-Fried "had exempted Alameda," his privately held hedge fund, from risk mitigation measures, the SEC says in its complaint, "and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited 'line of credit' funded by the platform's customers."
When "Bankman-Fried's house of cards began to crumble" in May of 2022, the complaint states, he "directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships, and that money could continue to flow in from lenders and other investors."
Those actions allegedly continued through the summer, as Bankman-Fried "continued to make misleading statements to investors about FTX's financial condition and risk management," according to the SEC.
The agency says Bankman-Fried "used Alameda as his personal piggy bank" — an accusation that's very different from the public persona he sought to project.
Bankman-Fried "held himself out as a visionary leader in the crypto industry, and touted his efforts to create a regulated and thriving crypto asset market," burnishing an image built on responsibility and trust, the SEC says.
Summarizing the charges, SEC Chair Gary Gensler said, "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."
Bankman-Fried was taken into custody in the Bahamas
The crypto executive's arrest in the Bahamas was made at the request of the U.S. government.
The Bahamian attorney general said police made the arrest after officials received "formal notification from the United States that it... has filed criminal charges against" Bankman-Fried, and they learned that the U.S. is "likely to request his extradition."
The office "intends to process" an extradition request "promptly," when it is made.
In a statement, the prime minister of the Bahamas stressed the country is cooperating with law enforcement and regulators in the United States, but its own "regulatory and criminal investigations into the collapse of FTX continue."
FTX filed for bankruptcy last month
Just one month ago, FTX, a $32 billion behemoth in virtual currencies, filed for bankruptcy after suspicions rose that it was insolvent and also moving money around illegally.
Bankman-Fried resigned hours before the bankruptcy filing and has spent the last month on a charm campaign, painting himself as a guy who let things slide and didn't intentionally commit fraud in a variety of media interviews and even on Twitter Spaces.
He was slated to testify virtually from The Bahamas before a congressional committee on Tuesday.
As of late Monday night, the committee still had a notice of the hearing posted that listed Bankman-Fried as a witness and also included the written testimony of the hearing's other witness, FTX's CEO John Ray.
Bankman-Fried has denied that he has avoided coming to the United States over the last month for fear of being arrested.
