New Criminal Charges Allege Bankman-Fried Used FTX Funds as Personal Piggy Bank
Sam Bankman-Fried’s associates have flipped on him, and now here comes the script.
This, as a superseding indictment charging the failed FTX and Alameda Research founder with an additional four criminal counts was filed with the United States District Court for the Southern District of New York earlier this week (Feb. 22) and subsequently unsealed to the public.
“I just had an increasing dread of this day that was weighing on me for a long time, and now that it’s actually happening it just feels great to get it over with one way or another,” Alameda CEO Caroline Ellison, who has pleaded guilty to multiple criminal fraud charges for her role in the FTX collapse, reportedly said to Bankman-Fried on Nov. 6, 2022, just days before the far-flung crypto enterprise and its over 100 affiliate companies filed for bankruptcy.
The knock-on crimes being alleged bring the curly-haired crypto fraudster’s new count to an even dozen.
He’ll be looking at a lot more years in jail than that if convicted. Wire fraud sentences alone can run up to 20 years.
Corrupted Operations and Fraudulent Schemes
The freshly unsealed indictment sheds considerable light on the illegal activities allegedly performed from 2019 to 2022 at Bankman-Fried’s direction, as well as underscores the incestuous, back-door relationships between the FTX group’s various businesses, revealing how they enabled the willful misappropriation and loss of billions of dollars of customer funds.
As reported by PYMNTS Thursday (Feb. 23), the filing takes a no-holds-barred approach in puncturing the portrait Bankman-Fried presented of himself as “the figurehead of a trustworthy and law-abiding segment of the cryptocurrency industry that was focused not only on profits, but also on investor and client protection.”
Rather, the unsealed document alleges that Bankman-Fried, “routinely tapped FTX customer assets to provide interest-free capital for his and Alameda's private expenditures, and in the process exposed FTX customers to massive, undisclosed risk … the defendant corrupted the operations of the cryptocurrency companies he founded and controlled through a pattern of fraudulent schemes that victimized FTX customers, investors, financial institutions, lenders, and the Federal Election Commission.”
Bankman-Fried is being charged with the third largest corporate fraud in U.S. history, topped only by the Bernie Madoff and Enron scandals.
The court filing states, “FTX never held customer funds in dedicated accounts for the benefit of customers.”
Bankman-Fried pleaded not guilty to his previous indictment of eight criminal counts.
The Political Kingmaker’s own Hollow Kingdom
The FTX crypto exchange grew quickly, and Bankman-Fried’s political influence and public profile ballooned alongside with it.
While the existence of “secret loopholes in the computer code that powered FTX's trading platform … allowing Alameda and FTX to prop each other up, notwithstanding conflicts of interests and outright lies to the contrary,” has been all but confirmed by FTX Co-founder and Chief Technology Officer Gary Wang’s guilty plea, the new court filing dissects in detail the fraudulent and misleading mechanisms enabling the company’s leaders to give tens of millions of dollars in political donations to around one in every three members of U.S. Congress.
Per the court filing, “from at least in or around March 2022, the defendant, and his co-conspirators began coordinating political contributions paid for using FTX and Alameda funds through an encrypted, auto-deleting Signal chat called ‘Donation Processing.’”
As PYMNTS has previously covered, Bankman-Fried’s continued use of encryption services while under home arrest is proving to be a contentious sticking point in his ongoing bail negotiations.
The court filing stressed that Bankman-Fried repeatedly turned to company leaders to make donations on his behalf to various causes and parties across both sides of the aisle, in many cases using misappropriated customer funds.
An unnamed executive was reportedly told that, “in general, you being the center left face of our spending will mean you giving to a lot of woke shit for transactional purposes.”
The executive was said to have expressed discomfort with making the contribution, “but agreed there was not anyone ‘trusted at FTX [who was] bi/gay’ in a position to make the donation.”
As previously reported by PYMNTS, the lawmakers who received ill-gotten funds from FTX have until next Tuesday (Feb. 28) to return the donations to the FTX Debtors.
‘The Auditors Won’t Find Out’
The unsealed indictment also highlights discussions between Bankman-Fried and an unnamed co-conspirator who raised concerns that company auditors would uncover the commingling of customer assets with Alameda funds.
Bankman-Fried reportedly “assured the co-conspirator that the auditors would not find out,” then used the audited financials to “falsely reassure customers and investors that FTX had proper risk management controls and systems for storing customer assets.”
Mere days before the company filed for bankruptcy, the general counsel of FTX.US demanded of Bankman-Fried, “I need to know the f***ing truth about FTX US right now.”
Twenty-four hours later, Bankman-Fried transferred $46 million from Alameda to FTX.US, and the filing claims that Bankman-Fried repeatedly “prioritized certain disbursements at the expense of satisfying FTX customer withdrawals.”
Bankman-Fried has repeatedly and publicly claimed that FTX US is solvent and its customers should be made whole. If the filing is to be believed, that supposed solvency is yet another mirage of stolen customer funds.
As reported by PYMNTS, Nishad Singh, FTX’s engineering director whose 7.8% stake in the company made him a one-time paper billionaire, is said to be meeting with authorities and has agreed to plead guilty to fraud.
Industry observers following the FTX saga have noted that the recent superseding indictment may be relying on his and other cooperating executives’ testimony.