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 customer 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 32 days, Mr. Bankman-Fried has given countless interviews in which he has apologized and appeared confused dissolution of his empireShe pleaded ignorance and generally tried to shift the blame.
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 several ways. Regarding letting a margin position get too big.” 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 couldn’t explain the money that was transferred to Alameda: “I didn’t run Alameda, but I can go back now and guess where they ended up being spent or used or something.”
Mr. Bankman-Fried was born in the Bahamas on December 12 “at the request of the us government,” said Damian Williams, the prosecutor for the Southern District of New York, based on a criminal indictment. The next day he was denied bail; It is expected to be extradited to America shortly. The indictment charges Mr. Bankman-Fried with eight felonies, including wire fraud against his 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 financial regulators, have also filed complaints.
Some of the facts in the authorities’ files are known to those who heard Mr. Bankman-Fried’s letters last month. He has admitted telling customers to wire their funds straight to Alameda’s bank account – he suggested they did ftx hadn’t set up any accounts, and this ftx lost track of funds due to sloppy bookkeeping. That sec The complaint argues that Alameda used the funds to make venture investments, buy lavish real estate and make political donations, and that using it in this way means Mr Bankman-Fried “staged a massive year-long fraud.”
Mr Bankman-Fried said he wasn’t paying enough attention to what Alameda was doing and therefore didn’t know what the hedge fund was doing 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 on its account,” giving it an unofficial (and virtually unlimited) line of credit through which 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 (ie their assets sold) when the 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” to buy condos, make investments, and support political campaigns, none of which was passed on to investors or customers. In a congressional hearing on December 13, John Ray III, who was appointed chief of ftx by 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 were to be successfully extradited, tried, and 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 for decades, was convicted in 2009, the judge found the following: “The fraud damage known to date, amounting to more than $13 billion, is more than thirty-two times the starting level of Loss that would carry a life sentence us Sentencing Guidelines.” The judge recommended Mr. Madoff serve 150 years. Authorities put the cost of the fraud committed by Bankman-Fried at $8 billion.
Mr Bankman-Fried appears to be in denial about the situation. He was unable to attend a congressional hearing on December 13 after being taken into custody, but the contents of his intended testimony leaked out. In it, he alleges that he was manipulated by his general counsel into filing for bankruptcy, that the team handling the process is mismanaging it, and that Alameda and ftx‘s troubles really began when Changpeng Zhao, the head of a competing exchange, tweeted that he was going to sell tokens ftx had exhibited. Mr. Bankman-Fried continues to insist that the firms could have raised capital and made customers whole. When he pitched this idea to Ryne Miller, his General Counsel, Mr. Miller responded with an answer apparently clear to all but Mr. Bankman-Fried. “There’s nothing to save, Sam.” ■
