Wednesday, February 8, 2023

What Sam Bankman-Fried is charged with and why it’s “One of the Biggest Financial Frauds”

NewsWhat Sam Bankman-Fried is charged with and why it's "One of the...

The mastermind behind this multibillion-dollar fraud? T-shirts-and-shorts-wearing Sam Bankman-Fried.

“This is one of the biggest financial frauds in American history,” U.S. Attorney Damian Williams declared on Tuesday in a news conference in New York.

Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, has received negative press for all the wrong reasons.

The evolving and escalating narrative of FTX (which is definitely greater than previously realised) has engulfed the cryptocurrency world with his arrest and charges occurring just hours apart.

The Crash of FTX

FTX was a well-known corporation and one of the biggest cryptocurrency exchanges in the world, valued at $32 billion.

It succeeded in persuading everyone that it was a reliable and secure investment.

All of FTX’s customers, who made up a long and elite list, had faith that the company’s exchanges would safely store their cryptocurrency holdings.

Some of the well-known investors in FTX included Sequoia Capital, SoftBank, BlackRock, Tiger Global, Insight Partners, and Paradigm.

In addition to this, FTX had received investments from reputable venture capital firms, lavishly funded its advertising, and even contributed to political campaigns and causes.

In summary, FTX was treasured by retail investors and clients and was a shining example of the cryptocurrency industry.

The breakdown of FTX in November was caused by spontaneous combustion, which collapsed over a short period of time.

FTX rapidly became involved in bankruptcy procedures after failing to meet customer withdrawal requests, which put large names in the cryptocurrency industry on the defensive.

Millions of creditors immediately and harshly reacted, as they should have since they stood to lose billions of dollars as a result.

Users withdrew around $5 billion worth of cryptocurrency assets in a single day as worries about FTX’s viability increased.

After that, Bankman-Fried resigned as CEO and John Ray III took over (an attorney and insolvency professional who specialises in recovering funds from failed corporations).

Ray stated during a House hearing that the fall of FTX cost the economy about $7 billion.

Sam Bankman-Fried’s Charges

Bankman-Fried, who has been dominating the news with his developing cryptocurrency drama, is now being investigated by the Justice Department, the Securities and Exchange Commission (S.E.C.), and the Commodity Futures Trading Commission on a number of counts.

He has been charged with breaching campaign funding rules, conspiring to commit securities fraud, defrauding customers via wire, and money laundering.

Bankman-Fried is charged with eight offences in total.

According to U.S. officials, Bankman-case Fried’s is far more complicated than it first appears and that he was actually planning a multibillion-dollar fraud that began the day he introduced FTX.

Bankman-Fried had “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” said Gary Gensler, the S.E.C.’s chair, in a statement.

Tuesday’s news conference in New York featured U.S. Attorney Damian Williams outlining the accusations brought against Bankman-Fried.

He described how Bankman-Fried and his accomplices began stealing “billions of dollars” from FTX clients starting in 2019 and continuing through the beginning of 2022, using the money for Bankman-“personal Fried’s profit.”

Using the stolen funds, Bankman-Fried funded his personal investments and paid off obligations and expenditures incurred by his cryptocurrency hedge fund, Alameda Research.

And as if that weren’t horrible enough, it now seems like most of this money has vanished.

On top of this, Bankman-Fried is accused of having violated campaign finance laws by “causing tens of millions of dollars in illegal campaign contributions to be made to candidates and committees associated with both Democrats and Republicans”.

Williams said that Bankman-Fried used this “dirty money” to “buy bipartisan influence and impact the direction of public policy in Washington”.

A trial for the case is expected to commence late next year.

Summary of the Charges

Alameda Research, another business owned by Bankman-Fried, is one of the most prominent names involved with FTX in this scam.

Bankman-Fried is charged with cheating investors in FTX out of $1.8 billion (including $1.1 billion from U.S. organisations) through the “undisclosed flow of FTX customers’ monies” to Alameda Research.

It was discovered that he had moved client deposits totaling $8 billion from an Alameda-controlled bank into a different account marked “[email protected]” in order to avoid being charged interest.

The SEC asserts that four months after FTX started operating, Bankman-Fried gave internal instructions to software developers on how to write code that permitted Alameda to operate with a negative balance in its FTX client account.

Alameda had an unrestricted line of credit that was backed by client assets as a result.

Bankman-Fried later used these monies as his “personal piggy bank” to acquire opulent residences, donate to political causes, and engage in other covert operations that investors were unaware of.

Bankman-Fried withdrew more than $1.338 billion in loans from Alameda between March 2020 and September 2022 as a result of his extravagant lifestyle. This included the two occasions when he served as both a lender and a borrower simultaneously while serving as CEO of Alameda.

By signing promissory notes with Alameda in 2021 and 2022, Alameda’s co-founders Nishad Singh and Gary Wang both borrowed their respective portions of the funds ($554 million and $224.7 million, respectively) for Alameda.

However, no criminal charges have been brought against them as of yet.

The loans that Bankman-Fried and others obtained, according to the SEC’s lawsuit, were “poorly recorded, and at times not documented at all.”

Bankman-Fried increased his multibillion-dollar liabilities in May 2022 when crypto asset prices fell and he paid back Alameda’s demanding third-party lenders, further digging his own grave and increasing his multibillion-dollar liability. But to avoid scaring investors, he accomplished this using Alameda’s FTX “line of credit” and then went on to hide it in Alameda’s balance sheet.

Loaning himself $136 million in late July 2022, just one month after providing BlockFi (a cryptocurrency financial services company) a $250 million revolving line of credit to help its own liquidity concerns, he continued to misuse and exploit the companies for his personal purposes.

Bankman-Fried also gave investors a “false and misleading positive account” of the company during this time as financial conditions became “tenuous” in order to calm investors down.

Bankman-Fried also gave $40 million during the midterm elections, so we’re not finished yet.

Between November 2020 and November 2022, Bankman-Fried made political donations to federal politicians and other political committees beyond the federal legal limit and in other people’s names, as part of a conspiracy to break federal election laws.

This accusation is significant because Bankman-Fried was one of the greatest political contributors to the just concluded midterm elections, raising concerns about the legality and fairness of the voting process.

In fact, Bankman-Fried was the sixth greatest individual donor of the 2022 election, giving over $900,000 to candidates and nearly $39 million to outside groups, according to a count by OpenSecrets, a neutral organisation that records political donations.

The Arrest

Bankman-Fried was arrested on Monday, which astonished many people—including Bankman-Fried.

He had been residing in his opulent apartment in the Bahamas prior to his arrest for a number of weeks.

He was supposed to give a testimony before the House Financial Services Committee on Tuesday.

115 Years Behind Bars

Bankman-Fried may spend up to 115 years behind bars if found guilty on each of the eight charges brought against him.

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