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

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

The regulator is now alleging that the former FTX CEO was far from a good corporate leader, instead claiming that he “knowingly and intentionally” defrauded investors. was bankman-fried arrested on monday in the Bahamas on federal charges filed in the US, including multiple counts of wire fraud and conspiracy related to the collapse of FTX.

Bankman-Fried’s rise and surprise fall combine the get-rich-quick allure of cryptocurrencies with the breathless hype that surrounds the former 30-year-old MIT graduate whom Fortune magazine once dubbed possibly “the next Warren Buffett.” . And in the wake of FTX’s bankruptcy, the entrepreneur has upset investors and FTX. due to its creditors At least three billion dollars.

“Everyone loved the idea of ​​a politically progressive entrepreneur… who was going to change the world, all while giving them a nexus of money,” said Republican Rep. Bill Huizenga said. tumbled down.

Learn more about the allegations against Bankman-Fried here.

Why was Sam Bankman-Fried arrested?

Bankman-Fried was arrested in the Bahamas on Monday federal fee Which was opened on Tuesday morning, which includes 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 he knowingly defrauded clients to pay loans and expenses from Alameda Research, FTX’s hedge fund.

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

Is Bankman-Fried facing other charges?

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

In that case, the agency is accusing Bankman-Fried, along with Almeida, of funneling FTX clients’ money to 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, in a lawsuit alleging the companies caused customers to lose $8 billion.

How much money did FTX lose?

John Ray III, who stepped down as FTX CEO following Bankman-Fried’s resignation on Nov. 11 after a long career that included overseeing the Enron bankruptcy, told a House hearing Tuesday that the collapse nearly 7 billion dollars in damage. Ray alleged that Bankman-Fried and others at FTX misappropriated client funds, causing losses.

“It’s virtually unlimited ability to borrow customer funds or take customer funds and then deploy them for their own use,” Ray said at the hearing. ,This involves margin trading, which is inherently risky.”

He claimed, “It’s really old-fashioned embezzlement – ​​it’s not sophisticated at all.”

Bankman-Fried had been expected to testify at the hearing, but following her arrest she was removed from the witness list.

What did FTX tell customers about what it was doing?

FTX customers use the exchange to buy, store, and trade hundreds of different cryptocurrencies, including bitcoin, ether, Solana, Litecoin, and Dogecoin. According to CoinMarketCap, at one point, $840 million worth of crypto assets were exchanged on its platform each day.

FTX gained national attention this year with its expensive Super Bowl commercials featuring quarterback Tom Brady and comedian Larry David. In a Larry David ad, when the comedian was told that FTX was “a safe and easy way to get into crypto,” he replied, “Eh, I don’t think so — and I’m never wrong about this stuff.” “

FTX portrays itself as being able to help those interested in crypto safely navigate the complexity of a notoriously risky asset class. But the company had too few internal controls to protect customers’ assets, moved investor money to Alameda and pooled customer funds into “a pot of crypto,” Ray testified Tuesday. Gave.

What caused the downfall of FTX?

Ray and regulators have been probing the inner workings of FTX to get to the bottom of the failure, but the company came to light in early November after it found itself billions of dollars in debt due to speculative investments, including its own digital coin, which It turned sour. And a series of other miscalculations.

Bankman-Fried has said that he mistakenly believed that FTX had sufficient cash in hand To pay 24 times the amount users usually withdraw in a day. In fact, the firm had a very thin capital cushion, with only enough cash to pay 0.8 times that amount.

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

Ray highlighted other issues with FTX, such as misappropriation of client funds and what he alleged was Bankman-Fried’s decision to invest without properly valuing assets.

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

Now what happened?

The US is expected to ask authorities in the Bahamas to extradite Bankman-Fried, which experts said would likely fall within the scope of a 1931 treaty between the two countries.

Michael Parker, head of the anti-money laundering and sanctions practice at the law firm Ferrari & Associates, told CBS News that because of the current legal framework, “this will be a moment where the iron can strike while the iron is hot.” “If Mr. Bankman-Fried, for example, went to another jurisdiction, it might be more difficult, and therefore the Bahamas could be seen as a friendly jurisdiction from which to draw jurisdiction.”


Sam Bankman-Fried likely to be extradited to US after arrest in Bahamas

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In pursuing the case against Bankman-Fried, Parker said prosecutors must show beyond a reasonable doubt that he intentionally committed the alleged crimes outlined in his indictment.

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