Sam Bankman-Fried, the disgraced former CEO of the FTX crypto-exchange, was arrested at his home in the Bahamas on Monday night at the request of the U.S. government, which had filed a sealed indictment in the Southern District of New York.
The indictment was made public Tuesday morning, showing that the government has charged the 30-year-old with committing fraud, conspiracy and other crimes.
Meanwhile, the top U.S. financial regulators — the Securities and Exchange Commission and the Commodity Futures Trading Commission — filed civil charges against him, FTX Trading and Alameda Research, Bankman-Fried's crypto hedge fund, on Tuesday.
FTX was a sprawling enterprise, with affiliates all over the globe, that was mostly controlled by Bankman-Fried. But at the heart of all the allegations is how money flowed from the exchange to Alameda, and then ultimately to Bankman-Fried.
When the enterprise came crashing down last month, the CFTC wrote in its complaint, "FTX customers and the world at large discovered that FTX, through its sister-company Alameda, had been surreptitiously siphoning off customer funds for its own use — and over $8 billion in customer deposits were now missing."
The biggest allegation: taking billions from small investors to spend on his hedge fund
FTX brought everyday, smaller investors into the confusing world of crypto.
One of the biggest questions since FTX filed for bankruptcy on Nov. 11 is what happened to the billions of dollars that those customers poured into the exchange. In bankruptcy court, the company's lawyers have said that some of it has disappeared.
In the unsealed indictment, the U.S. government says, essentially, those customers were victims of fraud and many of those billions were used to prop up Alameda Research.
The first three counts in the unsealed indictment are: conspiracy to commit wire fraud on customers, wire fraud on customers, and conspiracy to commit wire fraud on lenders.
Bankman-Fried and others allegedly used customers' deposits to pay expenses and debts of Alameda Research, the indictment says. It also says he and others lied to Alameda's lenders about the hedge fund's financial condition.
The SEC says Bankman-Fried "was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform's customer funds for his own personal benefit and to help grow his crypto empire."
Possible money laundering, campaign finance violations and "lavish real estate"
Bankman-Fried and others also used money gained unlawfully to conduct at least one large financial transaction, according to the indictment, meaning he is accused of trying to launder dirty money.
The indictment also alleges he broke campaign finance laws by making contributions to candidates and committees that exceeded federal limits.
"From the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research, and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations," the SEC said.
Meanwhile, the CFTC says he and other FTX executives took "poorly-documented 'loans' from Alameda that they used to purchase luxury real estate and property, make political donations for other unauthorized uses."
Charges of securities and commodities fraud
The debate about whether cryptocurrencies should be regulated as securities akin to stocks or as commodities like futures contracts appears now moot, with Bankman-Fried in trouble for both possible securities and commodities fraud.
The indictment, as well as the complaints filed by the SEC and the CFTC, say he and others allegedly lied to investors about FTX's financial condition, committing securities fraud.
For the commodities side, he and others allegedly took money that customers wanted to use for trading or buying things like bitcoin and ether and put it into covering Alameda's expenses, paying its debts and making investments.
The CFTC also says that the FTX platform gave Alameda executives unfair advantages in making trades, which hurt customers.
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