Oonly a month has passed since Sam Bankman-Fried, the founder of ftx, a crypto exchange, bankrupted the company along with Alameda Research, its sister hedge fund. The exchange was unable to fulfill customers’ withdrawal requests; The problem, it turned out, was that about $8 billion in client assets ended up in Alameda’s custody and disappeared. Over the past few days, Mr. Bankman-Fried has given countless interviews in which he has apologized, appearing confused by the dissolution of his empireShe pleaded ignorance and generally tried to shift the blame.
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He told Good Morning America that he “didn’t have proper supervision.” In conversation with new York magazine, he said: “I screwed up. I did. Honestly, in more ways than one.” He explained that New York Times that there were mysterious discrepancies between “the audited financials, the true financials, what the stock market understood…” and told dem Wall Street Journal that he could not explain the lack of money: “I did not manage Alameda.”
Mr Bankman-Fried was arrested on December 12 in the Bahamas at the request of the US government. The next day he was denied bail; his delivery is expected shortly. The indictment charges Mr. Bankman-Fried with eight felonies, including wire fraud against customers, lenders and investors, and conspiracy to commit money laundering and commodity and securities fraud. Finally, he is accused of defrauding the United States by violating campaign finance laws. The Securities and Exchange Commission and the Commodities and Futures Trading Commission, two regulators, have also filed complaints.
Some of the facts on file are known to those who have heard Mr. Bankman-Fried’s missives. He has admitted telling customers to divert their funds to Alameda’s bank account – he suggested it was because of that ftx had not set up any accounts and the funds were lost due to sloppy bookkeeping. That sec The complaint argues that Alameda used the funds to make investments, buy lavish real estate and offer political donations, and that such use means Mr Bankman-Fried “orchestrated a massive year-long fraud.”
Mr Bankman-Fried said he didn’t know what the hedge fund did with the money. The complaint alleges that he was aware of this and that he created ways for Alameda to borrow client funds. On several occasions that sec he writes “director ftx to increase the amount by which Alameda could maintain a negative balance” to obtain an unofficial line of credit to accept customer funds. That sec The complaint also alleges that Mr. Bankman-Fried exempted Alameda from the processes by which clients’ trading positions were liquidated when markets moved against them.
In May, when the crypto markets collapsed despite having “already made billions of dollars ftx Customer Assets” when Alameda failed to meet loan commitments that sec alleges that Mr. Bankman-Fried “directed ftx divert billions more in client assets to Alameda.” Perhaps most galling is the claim that “although it was becoming increasingly clear that Alameda and ftx clients couldn’t quite make it,” Mr. Bankman-Fried continued to make venture investments and take out personal “loans” from Alameda for himself and others ftx higher.
The sum of these actions that sec argued is that there is no real difference between Alameda and ftx, and that Mr. Bankman-Fried used the hedge fund as his “personal piggy bank” without disclosing this to investors or customers. In a December 13 congressional hearing, John appointed Ray III chief of ftx of Mr. Bankman-Fried, before the company filed for bankruptcy, summed it up similarly: “This is really old-fashioned embezzlement. That’s just taking money from customers and using it for your own purposes.”
Mr. Bankman-Fried denies any illegal activity and has attempted in interviews to distance himself from criminal wrongdoing. If he’s successfully convicted, the former ftx Chef could spend the rest of his life behind bars. When Bernard Madoff, a notorious financier who ran a Ponzi scheme, was convicted in 2009, the judge found the following: “The known fraud loss to date, which is more than $13 billion, is more than 32 times the base loss that would incur a life sentence under the us Sentencing Guidelines.” The judge recommended that Madoff serve 150 years. Authorities put the cost of Mr Bankman-Fried’s alleged fraud at $8 billion.
Mr Bankman-Fried appears to be in denial about the situation. He was unable to attend the congressional hearing because he was in custody, but his intended testimony leaked out. In it, he alleges that he was manipulated by his general counsel into filing for bankruptcy, that the team responsible mismanaged the process, and that Alameda and ftx‘s troubles really began when the head of a competing exchange tweeted that it was selling ftx tokens Mr. Bankman-Fried insists the firms could have raised capital and made customers whole. When he presented this to Ryne Miller, his General Counsel, Mr. Miller responded with an answer that seemed clear to all but Mr. Bankman-Fried. “There’s nothing to save, Sam.” ■
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