FTX collapse: the latest in the downfall of the cryptocurrency exchange
It has been a busy day of developments in the fallout of FTX, the company that was once the world’s second-largest cryptocurrency exchange before it filed for bankruptcy last month.
Former chief executive officer Sam Bankman-Fried was arrested in the Bahamas last night, less than 24 hours before he was scheduled to testify in front of Congress and answer to the alleged corporate wrongdoing that led to his company’s demise.
He faces a number of charges from multiple US agencies:
Two counts of security fraud from the Security and Exchange Commission
Two counts of fraud from the Commodity Futures Trading Commission
Eight criminal charges from the justice department, including defrauding customers and lenders as well as violating US campaign finance laws
His arrest was in connection to the criminal charges filed by the justice department. In a press conference Tuesday afternoon, US attorney Damian Williams said that Sam Bankman-Fried made “tens of millions of dollars” of illegal campaign contributions to both Republicans and Democrats.
Williams said the investigation into the FTX founder is ongoing and “moving very quickly” and that other actors in the demise of the company could also be investigated. “To anyone at FTX who has not yet come forward, come see us before we come see you,” he said.
Bankman-Fried appeared in a Bahamas courtroom on Tuesday for an arraignment hearing. Local news outlets reported that the former executive planned to fight attempts to extradite him to the US. His attorney is reportedly asking Bankman-Fried be let out on bail.
The former FTX executive had been scheduled to speak in front of Congress on Tuesday morning as part of the first of what is promised to be several hearings regarding the collapse of the company. In his absence, members heard exclusively from newly appointed FTX chief executive officer John J Ray III.
Ray spoke for four hours in front of the House of Representatives committee on financial services, detailing the fallout of the company’s collapse. The industry veteran said he has worked with a dozen large-scale bankruptcies in his career and has “never seen such an utter lack of record keeping” at a company.
“There were no corporate controls, no corporate oversight, no independent board,” he said. “The owners, business and senior management had virtual control of all the accounts and could move money or assets as they desired, undetected by customers.”
“To the extent there were rules and there were very few, obviously they were made to be broken,” he said. He said the process of tracking down lost funds will take months.
“At the end of the day, we are not going to be able to recover all the losses here,” he said. “There was money spent that we will never get back.”
Congress members during the hearing took an adversarial tone towards the crypto industry as a whole, promising deeper investigation into what they characterized as a lack of regulation that allowed the FTX collapse to occur, and promised more hearings in the new year.
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Sam Bankman-Fried charged with fraud
Sam Bankman-Fried, the founder and former chief executive of the cryptocurrency exchange FTX, has been charged with fraud, conspiracy to commit money laundering and conspiracy to defraud the US and violate campaign finance laws.
The eight criminal charges filed by the US attorney’s office for the southern district of New York on Tuesday follow civil charges brought by the US Securities and Exchange Commission (SEC) accusing the 30-year-old former billionaire of defrauding investors by building a company that was a “house of cards”.
“This is one of the biggest financial frauds in American history,” said Damian Williams, United States attorney for the southern district of New York. He said that while only Bankman-Fried had been charged so far: “We are not done.”
On Monday, police in the Bahamas arrested Bankman-Fried after receiving formal notification from the US of criminal charges against him.
Among other charges, Bankman-Fried is accused of using FTX customers’ deposits to pay debts and expenses to Alameda Research, his hedge fund. The indictment also alleges that Bankman-Fried and others conspired to violate federal rules on political donations.
Bankman-Fried was one of the Democrats’ largest donors, but he has said he also gave to the Republicans, hiding the donations as “dark money”. Other FTX entities gave cash to both parties as they lobbied politicians for favourable cryptocurrency regulation.
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