Sam Bankman-Fried, the founder of FTX, was recently indicted on multiple criminal charges, including wire fraud and conspiracy, by the US Attorney of the Southern District of New York.
He could face up to 115 years in prison if convicted on all eight counts. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have also charged him with defrauding investors and customers in his failed crypto exchange FTX.
Bankman-Fried allegedly built a “house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”
FTX was founded in May 2019 and achieved a $32 billion valuation by raising more than $1.8 billion. It received investments from BlackRock, Sequoia Capital, and the Ontario Teachers’ Pension Plan, as well as from star athletes and celebrities such as Tom Brady and Gisele. The SEC alleges that Bankman-Fried duped these investors by promoting FTX as a “safe, responsible” crypto trading firm that used “sophisticated, automated” risk measures to protect customer funds.
The reality could not have been more different.
According to the SEC, Bankman-Fried allegedly directed software code to be written in a way that allowed Alameda Research, his crypto-trading hedge fund, to function with a negative balance in its FTX customer account. This effectively gave Alameda a limitless line of credit funded by customer assets, and Bankman-Fried allegedly used the funds as his “personal piggy bank.” He hid from investors and customers that he used the funds to buy luxury condos, support political campaigns, and make private investments.
The SEC alleges that Bankman-Fried executed loans from Alameda totaling more than $1.338 billion between March 2020 and September 2022, using the funds to purchase tens of millions of dollars in Bahamian real estate for himself, his parents, and other FTX executives. Alameda co-founders Nishad Singh and Gary Wang also borrowed hundreds of millions of dollars from Alameda, but they have not been charged with any crimes.
The SEC and the CFTC have signaled that this may be just the first of multiple charges to come, and there are ongoing investigations into “other securities law violations” and into other entities and individuals.