A month after the collapse of his cryptocurrency exchange, the FTX founder has finally been arrested, pending charges from the Southern District of New York. Based on the complaint released by the Securities and Exchange Commission, his legal prospects do not look good. The SEC has accused Bankman-Fried of “orchestrating a massive, years-long fraud” from the start, diverting billions of FTX deposits to his quantitative trading firm, Alameda Research. Even worse for the corporate media’s (former) favorite financier, his colleagues could be turning on him to save themselves.
Accusing FTX of diverting customer deposits to Alameda “from the inception” of FTX, the SEC has now charged “Bankman-Fried with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.” Law enforcement in the Bahamas, where the former cryptocurrency tycoon lived and ran his since-bankrupted business, took Bankman-Fried into custody after an indictment by American prosecutors. According to the New York Times, the SDNY’s charges, which will be released later on Tuesday, include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.
So just how bad is it for Bankman-Fried? The SEC case against him looks much like the case against Bernie Madoff, who died in prison after defrauding investors of millions. Unlike Madoff, Bankman-Fried isn’t confessing. Instead, and perhaps even more unfavorably, Bankman-Fried spent a month denying what the SEC complaint says.
One key associate is Caroline Ellison, a former girlfriend whom Bankman-Fried appointed as the CEO of Alameda Research earlier this year. Rather than run to a country that does not share an extradition treaty with the United States, Ellison has been spotted as a free woman in New York amid reports that she retained Wilmer Hale, a law firm well known in the city.
By the SEC’s account, the fraud outlined by the SEC was intentional from the start and, worse, highlights the ways it enriched both Bankman-Fried’s coffers and his reputation personally. The SEC alleges that Bankman-Fried “directed software code” to be written, allowing Alameda the unique ability to carry negative balances in FTX “in or around August 2019.” Alameda’s line of credit “effectively became limitless.”
How will this translate to consequences? Complaint witnesses and the scope of the crime already imperil Bankman-Fried, who previously came under fire from the Federal Deposit Insurance Corporation for falsely advertising that investor funds were insured by the FDIC. Add on the fact that he made himself the face of cryptocurrency, and the government will be inclined to throw the book at an industry that has resisted government regulation.
When all is said and done, the total amount of cash incinerated by Bankman-Fried’s fraud may rival that of Madoff’s. But unlike that Ponzi-schemer, Bankman-Fried has fought accountability until the bitter end.