The SEC has filed charges against the founder of the bankrupt crypto exchange FTX.
Sam Bankman-Fried, the founder of bankrupt cryptocurrency exchange FTX, has fallen off his pedestal.
The former cryptocurrency king was arrested on Dec. 12 in the Bahamas at the request of U.S. authorities, who now accuse him of fraud.
“Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors,” a complaint from the U.S. Securities and Exchange Commission alleged on Dec. 13.
The federal regulator says the former crypto boss raised more than $1.8 billion from equity investors, including about $1.1 billion from some 90 U.S.-based investors.
In his representations to investors, Bankman-Fried had promoted FTX as a “safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets.”
‘Lavish Real Estate’
The complaint alleges that Bankman-Fried used funds from FTX clients to feed Alameda Research, his hedge fund, which also operates as a trading platform.
And the SEC added other ways in which, it argues, this money was used.
“The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.”
This accusation is in line with allegations from FTX’s new management that FTX was the personal piggy bank of the former trader, using it to buy entree into politics in Washington and lead a lavish lifestyle.
The complaint also comes on the day the House Financial Services Committee is holding a hearing into the fall of FTX. Bankman-Fried was set to testify there, until he was arrested.
John Ray, the new CEO in charge of the restructuring, will be questioned by the lawmakers beginning at 10 a.m. ET.
Ray, who had been in charge of the liquidation of bankrupt energy broker Enron, had already indicated in court documents in November that money from FTX clients had been used to buy lavish villas in the Bahamas.
“In the Bahamas, I understand that corporate funds of the FTX group were used to purchase homes and other personal items for employees and advisors,” Ray said. “I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.”
He reiterated these statements in his prepared remarks to be delivered to Congress: “Loans and other payments were made to insiders in excess of $1 billion,” Ray said in the prepared remarks that you can read here.
“Never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever,” the veteran in corporate restructuring added.
Donations to Dems and GOP
Before his arrest, Bankman-Fried had embarked on a media tour to try to sway public opinion and control the narrative. In the interviews, he explained how the overnight implosion of his empire was due to bad luck.
“I made a lot of mistakes,” he said during his first interview on Nov. 30 with The New York Times/DealBook. “There are things I would give anything to be able to do over again. I didn’t ever try to commit fraud on anyone.”
Bankman-Fried had become the institutional face of crypto, spending most of his time in Washington, where he tried to influence the direction of the young industry’s regulation.
He consequently contributed millions of dollars to elected Democrats. The former trader emerged as major donor to Democratic candidates, leading up to the Nov. 8 midterm elections.
His political action committee gave over $23 million to the Democratic Party while the 30-year old founder of FTX gave $13 million of his own money to both the Democrats and Republicans, according to filings with the Federal Election Commission.
But executives of FTX and its American subsidiary, FTX US, were making donations to Republicans.
On Oct. 27, 12 days before the midterm elections, FTX US donated $1 million to the Senate Leadership Fund Super-PAC, according to a filing with the FEC.
The Super-PAC, which is lined up with Senate Minority Leader Mitch McConnell (R-Kentucky), said it “has one goal: to build a Republican Senate majority that will defend America from Chuck Schumer and Senate Democrats’ destructive far-left agenda.”
The donation was made by West Realm Shires Services, which is the trading name of FTX US.
FTX US also gave $750,000 to the Congressional Leadership Fund and $150,000 to the American Patriots PAC. The two PACs backed House Republican candidates.
It also donated $100,000 to the Alabama Conservatives Fund.
Ryan Salame, the co-CEO of FTX Digital Markets, one of FTX’s affiliates, donated nearly $24 million to the Republican Party, the records show.
These donations were made amid growing calls for strict regulation of the crypto industry.
Since the FTX bankruptcy, most politicians have tried to distance themselves from Bankman-Fried for fear of being tarnished by scandal.