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FTX’s Sam Bankman-Fried: What to know about his arrest and the charges he faces

In a moment of self-reflection after the collapse of his cryptocurrency exchange FTX Trading, Sam Bankman-Fried tweeted on December 9 that he considered himself a “model CEO” who nevertheless “made a lot of big mistakes this year.”

Regulators are now alleging that the former FTX CEO is far from a well-meaning corporate leader, instead claiming that he “deliberately and knowingly” defrauded investors. Bankman-Fried was arrested on monday in the Bahamas on federal charges filed in the US, including multiple counts of wire fraud and conspiracy related to the FTX collapse.

The rise and fall of Bankman-Fried combines the get-rich-quick allure of cryptocurrency with the breathless hype that previously surrounded the 30-year-old MIT grad, whom Fortune magazine once called arguably the “next Warren Buffett.” And in the wake of FTX’s bankruptcy, the businessman has left investors reeling and FTX you owe your creditors at least $3 billion.

“Everybody loved the idea of ​​a politically progressive businessman … who was going to change the world, all while making them a lot of money,” Rep. Bill Huizenga, R-Mich., said at a congressional hearing on Tuesday. about the FTX. to collapse.

Here’s what you need to know about the charges Bankman-Fried is facing.

Why was Sam Bankman-Fried arrested?

Bankman-Fried was arrested in the Bahamas on Monday for federal charges that were unsealed Tuesday morning, including eight counts of wire fraud, money laundering, violations of securities laws and other financial crimes.

The charges, which were filed by the US Attorney’s office for the Southern District of New York, allege that he knowingly defrauded clients by using their cryptocurrency assets to pay off debts and expenses of Alameda Research, the fund of FTX coverage.

The charges allege that the fraud began in 2019, or the year FTX was founded.

Is Bankman-Fried facing other charges?

Yes, the US Securities and Exchange Commission, the agency that regulates financial markets, also filed charges against Bankman-Fried on Tuesday.

In that case, the agency accuses Bankman-Fried of mixing FTX client funds with Alameda to make undisclosed venture investments, expensive real estate purchases and large political donations.

The Commodity Futures Trading Commission on Tuesday Announced similar fraud charges against Bankman-Fried and FTX, alleging in a lawsuit that the company caused customers to lose $8 billion.

How much money did FTX lose?

John Ray III, who took over as FTX chief executive after Bankman-Fried resigned on November 11 after a long career that included overseeing the Enron bankruptcy, told a House hearing on Tuesday that they lost about $7 billion in the collapse. Ray alleged that Bankman-Fried and others at FTX embezzled client funds, contributing to the losses.

“It’s really just the unlimited ability of those in positions of control to borrow customer funds or take customer funds and then use it for their own use,” Ray said at the hearing. That use involved margin trading, which is inherently risky.”

He stated: “This is really old-fashioned embezzlement, it’s nothing fancy.”

Bankman-Fried was expected to testify at the hearing but was removed from the witness list following his arrest.

What did FTX tell clients it was doing?

FTX clients used the exchange to buy, store, and trade hundreds of different cryptocurrencies, including bitcoin, ether, solana, litecoin, and dogecoin. At one point, $840 million worth of crypto assets were traded on its platform every day, according to to CoinMarketCap.

FTX gained national attention with its expensive Super Bowl ads this year featuring quarterback Tom Brady and comedian Larry David. In Larry David’s ad, when the comedian is told that FTX is a “safe and easy way into crypto,” he replies, “Uh, I don’t think so, and I’m never wrong about these things.”

FTX pitched itself as being able to help those interested in cryptocurrency safely navigate the complexity of what is a notoriously risky asset class. But the company had very few internal controls to protect client assets, with investor money transferred to Alameda and client funds mixed in “a pot of crypto,” Ray testified Tuesday.

What led to the collapse of FTX?

Ray and regulators are scrutinizing FTX’s inner workings to get to the bottom of the flaw, but the company collapsed in early November after finding itself in billions of dollars in debt due to speculative investments, including in the company itself. the company’s digital currency, which turned sour. and a host of other miscalculations.

Bankman-Fried has said that it mistakenly believed that FTX had enough cash available pay 24 times the amount of money that users usually withdraw in a day. In reality, the company had a much smaller capital cushion, with only enough cash to pay 0.8 times that amount.

When customers tried to withdraw their money amid fears about the company’s solvency, there was “a run on the bank,” Ray said Tuesday.

Ray highlighted other issues with FTX, such as misuse of client funds and what he claimed was Bankman-Fried’s decision to make investments without properly valuing the assets.

“By definition, I don’t trust a single piece of paper in this organization,” Ray said Tuesday.

What happens now?

The United States is expected to ask Bahamian authorities to extradite Bankman-Fried, which experts say is likely within the scope of a 1931 case. treaty between the two countries.

Because of that existing legal framework, “This would be a time where one could strike while the iron is hot,” Michael Parker, head of the anti-money laundering and sanctions practice at law firm Ferrari & Associates, told CBS News. . “If Mr. Bankman-Fried, for example, went to another jurisdiction, it might be more difficult, so the Bahamas might have been seen as a friendlier jurisdiction from which jurisdiction could take place.”

Sam Bankman-Fried faces probable extradition to the US after his arrest in the Bahamas


In pursuing the case against Bankman-Fried, Parker said prosecutors will have to prove that she knowingly committed the alleged crimes outlined in her indictment beyond a reasonable doubt.

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