When he embarked on an apology tour on Twitter, on stage, and to the media, Sam Bankman-Fried, founder and CEO of the disgraced crypto firm FTX, admitted to all sorts of things. Now, prosecutors are hoping he’s just as open when they drag him into court.
SBF, as he’s often called, was arrested Monday in the Bahamas, and Tuesday morning saw the unveiling of a host of criminal and civil charges against him. The widespread accusations charge, among other things, that Bankman-Fried lied to FTX investors and customers and engaged in a scheme meant to defraud them: investing the money in undisclosed venture investments, real estate purchases, and substantial political donations.
It’s riveting stuff, especially since SBF was originally expected to testify Tuesday before the House Committee on Financial Services, which is looking into the FTX collapse. (He withdrew shortly before his arrest Monday.)
Here are some of the top-line accusations from prosecutors in the U.S. District Court in the Southern District of New York and the Securities and Exchange Commission (SEC).
A LONG HISTORY
Both the SEC and District Court filings are clear on one thing. Authorities believe SBF has been engaging in criminal acts since “at least 2019” through last month. And while Bankman-Fried allegedly touted regulation and accountability during that period, the SEC says, “from the start, contrary to what FTX investors and trading customers were told, Bankman-Fried continually diverted FTX customer funds to Alameda and then used those funds to continue to grow his empire.”
A PERSONAL PIGGY BANK
The SEC indictment, which offers more details than the criminal one, alleges that there was no “meaningful distinction” between FTX customer funds and those in Alameda Research, the crypto hedge fund he also founded.
“In essence, Bankman-Fried placed billions of dollars of FTX customer funds into Alameda,” the SEC alleges. “He then used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses. None of this was disclosed to FTX equity investors or to the platform’s trading customers.”
The SEC also alleges that SBF has used commingled funds to purchase “tens of millions of dollars” of real estate in the Bahamas for himself, his parents, and other FTX officials. The record-keeping of these purchases, along with hundreds of millions of dollars made in loans, was “poorly documented and at times not documented at all,” says the SEC.
A HIDDEN LINE OF CREDIT
Bankman-Fried directed FTX to give Alameda a virtually unlimited line of credit, alleges the SEC, letting the hedge fund maintain a negative balance in its account.
“Alameda was able to draw down on its FTX customer account and use those funds—which were actually the funds deposited by other FTX customers—for its own trading,” the complaint reads. “At Bankman-Fried’s direction, Alameda’s ‘line of credit’ was continually raised to the point where it grew to tens of billions of dollars and effectively became limitless. No other FTX customer had a similar ‘line of credit.”
Even with billions owed and no immediate prospects to pay anything off, earlier this summer, says the SEC, SBF allegedly continued to direct Alameda to draw on that “line of credit,” using those funds “to pay hundreds of millions of dollars in ‘loans’ to Bankman-Fried and other FTX executives, as well as hundreds of millions more to fund additional venture investments.”
THE FTX RISK ENGINE LOOPHOLE
SBF regularly talked about FTX’s “risk engine,” his term for the risk mitigation protocols, even discussing it with the Committee on Financial Services last December. A customer’s margin level was calculated every 30 seconds, he claimed—and if the collateral on deposit fell below a required margin level, assets would be sold.
However, the SEC alleges, the risk engine did not apply to Alameda. As a result, it says, “Bankman-Fried thus misled FTX’s investors by representing that its risk engine would protect FTX customer funds and would limit FTX’s exposure to any single customer, while failing to disclose that Bankman-Fried had personally directed that the engine not apply to one of its largest customers.”
It’s no secret that SBF was an active political contributor, donating roughly $40 million during the 2022 election cycle alone, largely to Democratic candidates. (He later said, however, that he quietly donated to Republicans as well via “dark money” contributions.)
But law enforcement officials say he also “knowingly and willfully” made contributions to candidates and independent expenditure committees “in the names of other persons, aggregating to $25,000 and more in a calendar year.”
If true, then that’s a violation of federal election laws.
ABOUT THE AUTHOR
Chris Morris is a veteran journalist with more than 30 years of experience. Learn more at chrismorrisjournalist.com.