Accused crypto crook Sam Bankman-Fried has been busted in the Bahamas — accused of “massive, years-long fraud” that defrauded investors out of $1.8 billion through “a house of cards” built “on a foundation of deception.”
The fallen 30-year-old FTX mogul was arrested Monday night after the Bahamian government received formal notification from the US of charges against him.
The US attorney for the Southern District of New York is expected to charge him Tuesday with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering.
As he awaited his first appearance before a magistrate in the Bahamas on Tuesday, he was separately charged by the US Securities and Exchange Commission (SEC).
“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,” SEC Chair Gary Gensler said while revealing the civil complaint.
“The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”
The SEC complaint says that “Bankman-Fried raised more than $1.8 billion from investors” who believed “that FTX had appropriate controls and risk management measures.”
“Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.”
Bankman-Fried “portrayed himself as a responsible leader of the crypto community” and “touted the importance of regulation and accountability,” the complaint says.
“Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure.”
Bankman-Fried also “placed billions of dollars of FTX customer funds into Alameda,” his privately held crypto fund, without telling them, the complaint alleges.
“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.”
Alameda did not segregate FTX investor funds and Alameda investments, the SEC said, using that money to “indiscriminately fund its trading operations,” as well as other ventures of Bankman-Fried.
“While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble,” the suit noted.
But “even as it was increasingly clear that Alameda and FTX could not make customers whole, Bankman-Fried continued to misappropriate FTX customer funds,” it reads.
FTX “operated behind a veneer of legitimacy” that “wasn’t just thin, it was fraudulent,” said Gurbir Grewal, director of the SEC’s Division of Enforcement.
“FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike.”
The SEC charges are separate from the criminal charges, which are expected to be unsealed later Tuesday.
The shaggy-haired former billionaire has been under investigation by the Justice Department ever since FTX — which had been among the world’s largest cryptocurrency exchanges — imploded and filed for bankruptcy protection on Nov. 11.
Federal prosecutors have reportedly been scrutinizing how FTX handled customer funds and the alleged transfer of hundreds of millions of dollars from the US to the Bahamas around the time of the bankruptcy filing.
They were also said to be probing whether Bankman-Fried manipulated crypto markets by orchestrating trades that led to the collapse of the TerraUSD cryptocurrency earlier this year.
Bankman-Fried, who resigned as FTX’s CEO on the day of the bankruptcy filing, has repeatedly denied personal responsibility for the platform’s collapse and distanced himself from fraud accusations, insisting he “didn’t ever try to commit fraud.”
He was arrested just after 6 p.m. Monday at his luxury gated community called the Albany in the capital, Nassau.
Bahamian police said he was arrested due to “various Financial Offences against laws of the United States, which are also offences” on the island.
He is expected to appear before a magistrate Tuesday, marking the first in-person public appearance by the fallen crypto king once estimated to be worth $32 billion.
Bankman-Fried had been scheduled to be grilled Tuesday by US lawmakers on Capitol Hill in Washington, DC.
Hours before he was nabbed, he said he would be testifying remotely before the House Financial Services Committee because he was “quite overbooked” and had security concerns about traveling to DC.
That congressional hearing will still be held Tuesday despite Bankman-Fried’s arrest.
The Bahamian government attorney general’s office said Monday it expected to aid in Bankman-Fried’s extradition to the US.
It wasn’t immediately clear how quickly that would occur.
“The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law,” Bahamian Prime Minister Philip Davis said in the wake of Bankman-Fried’s arrest.
“While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere.”
A spokesman for Bankman-Fried had no comment Monday evening. Bankman-Fried has a right to contest his extradition, which could delay but not likely stop his transfer to the US.
