Sam Bankman-Fried recently told the New York Times' DealBook summit that he'd "had a bad month" in November.
Well, things just got a whole lot worse.
Bankman-Fried, 30, was arrested in the Bahamas last night under a sealed indicted brought by federal prosecutors in the Southern District of New York, linked to the collapse of the FTX crypto trading platform he founded just three years ago.
A few hours later, the Securities and Exchange Commission charged him with building a 'house of cards on a foundation of deception' from the world's second-largest crypto exchange while defrauding investors of more than $1.8 billion in order to expand his business empire and fund a lavish lifestyle that included luxury real estate purchases.
Shortly after that, U.S. attorneys opened their eight-count indictment before a Federal judge in Manhattan, revealing charges including wire fraud, conspiracy to commit commodities fraud, and conspiracy to commit money laundering.
A further count accusing Bankman-Fried -- one of the biggest overall political donors in the U.S. this election year -- of making more than $25,000 in illegal campaign donations was added to the mix as an ironic kicker, given the fact that Bankman-Fried was detained by Bahamian police on the eve of his scheduled testimony before lawmakers on the House Financial Services Committee in Washington.
“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” his attorney, Mark Cohen, said in a statement Tuesday.
The collective prison time he faces from conviction on all charges is 115 years, but the collective message from the twin charges -- as well as separate action from the Commodities and Futures Trading Commission -- seems clear: FTX was a fraud from the start.
Bankman-Fried allegedly used his gentle public persona, buttressed by millions of dollars in donations to key U.S. lawmakers and frequent media appearances, to create an image of financial probity and unchallenged brilliance while keeping regulators at bay and American authorities at arm's length from his offshore base in the Caribbean.
At the same time, the SEC says, he was taking cash from clients who assumed they were making deposits onto the crypto trading exchange and using it to make risky bets and loans -- including one to himself from himself -- via his Alameda Research hedge fund.
Bankman-Fried said any comingling of client funds with corporate bets was nothing more than an accident - the inadvertent result of his 'lack of concentration' and broader management naivete.
John Ray, the corporate restructuring expert who oversaw the Enron bankruptcy and is now tasked with the challenge of picking through the FTX debris, dismissed that defense during House testimony on Tuesday.
Enron's crimes, he said, were "highly orchestrated financial machinations by highly sophisticated people to keep transactions off balance sheets."
FTX, by comparison, "wasn't sophisticated whatsoever. It's just plain old embezzlement."
Prosecutors aren't buying what Bankman-Fried's selling, either - and they could be looking further afield.
Reuters reported earlier this week that prosecutors are preparing anti-money laundering charges against Binance, by some distance the world's biggest crypto exchange, and its Chinese-Canadian founder Changpeng Zhao.
Binance has denied the story, but its clients are taking it seriously: some $3.7 billion in assets have been pulled from its platform over the past week, according to data research group Nansen, with near $2 billion exodus over the past 24 hours.
Zhao, better-known by his online moniker CZ, is urging clients not to fear the FUD, a slang term in crypto makers that generally refers to 'fake news'.
He should be more focused on the Feds.
"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," said SEC Chairman Gary Gensler. "To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action."
