Former CEO of bankrupt crypto exchange FTX, Sam Bankman-Fried, faces a very very long time in prison if he¡¯s convicted on all eight charges filed by the US Department of Justice.
The maximum potential prison exposure for Sam Bankman-Fried from the long list of charges turns out to be 115 years, according to U.S. prosecutors' spokesperson Nicholas Biase.
The Federal Bureau of Investigation, the Securities Exchange Commission and the Commodity Futures Trading Commission have been working ¡°around the clock¡± to unravel what happened in ¡°one of the biggest financial frauds in American history,¡± Manhattan US Attorney Damian Williams said during a press conference, as per Bloomberg.
The SEC and the CFTC (Commodity Futures Trading Commission) sued Bankman-Fried separately on Tuesday for his alleged role in the collapse of FTX. However, white-collar defendants, if convicted, rarely serve statutory long-term prison sentences.
U.S. prosecutors charged Sam Bankman-Fried alleging he played a central role in the rapid collapse of FTX and hid its problems from the public and investors.
Beginning in 2019, Bankman-Fried intentionally devised a scheme and artifice to defraud FTX's customers and investors, diverting their money to pay expenses and debts at his crypto hedge fund, Alameda Research, and to make lavish real estate purchases and large political donations, the indictment says.
Bankman-Fried was arrested this week on Monday in the Bahamas at the request of the U.S. government, which charged him with eight criminal violations, ranging from wire fraud to money laundering to conspiracy to commit fraud. He was also charged with making illegal campaign contributions, a notable charge as Bankman-Fried was one of the largest political donors this year.
The indictment is on top of civil charges announced earlier Tuesday by the Securities and Exchange Commission.
It also alleged that Bankman-Fried defrauded investors and illegally used their money to buy real estate on behalf of himself and his family.
U.S. authorities will also seek to have Bankman-Fried forfeit all financial gains he might have received as part of the scheme. They are expected to request his extradition to the U.S., although the timing of that request is unclear.
A lawyer for Bankman-Fried, Mark S. Cohen, said on Tuesday he is reviewing the charges with his legal team and considering all of his legal options, as per AP and PTI reports.
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FTX had filed for bankruptcy in November when it ran out of money after the cryptocurrency equivalent of a bank run.?Since FTX collapsed, Bankman-Fried has been holed up in his Bahamian luxury compound in Nassau.
He has a right to contest his extradition, which could delay but probably not stop his transfer to the U.S.
Bankman-Fried was one of the world's wealthiest people on paper; at one point his net worth reached $26.5 billion, according to Forbes.
He was a prominent personality in Washington, donating millions of dollars toward mostly left-leaning political causes and Democratic political campaigns, though he also gave money to Republicans. FTX grew to become the second-largest cryptocurrency exchange in the world.
That all unravelled quickly last month when reports called into question the strength of FTX's balance sheet.
Customers moved to withdraw billions of dollars, but FTX could not meet all the requests because it apparently had used its customers' deposits to fund investments at Bankman-Fried's trading arm, Alameda Research.
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"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 SEC Chair Gary Gensler.
The SEC complaint alleges that Bankman-Fried had raised more than $1.8 billion from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.
Instead, the complaint says, Bankman-Fried diverted customers' funds to Alameda Research without telling them.
"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.
Bankman-Fried's arrest came just a day before he was due to testify in front of the House Financial Services Committee. Rep. Maxine Waters, D-Calif., chairwoman of the committee, said she was disappointed that the American public, and FTX's customers, would not get to see Bankman-Fried testify under oath.
That hearing, however, will be held Tuesday, with the new CEO of FTX, John Ray III, giving testimony.
Bankman-Fried said recently that he did not knowingly misuse customers' funds, and said he believes his millions of angry customers will eventually be made whole.
The SEC challenged that assertion on Tuesday in its complaint.
FTX operated behind a veneer of legitimacy Mr Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary risk engine,' and FTX's adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer 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," Grewal said.
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