A US federal indictment was unsealed on Tuesday alleging widespread fraud by FTX co-founder Sam Bankman-Fried, a day after he was arrested in the Bahamas in connection with the charges.
The indictment in US District Court in Manhattan hit Mr Bankman-Fried with eight criminal charges: conspiracy to commit wire and securities fraud, individual charges of securities and wire fraud, money laundering, and conspiracy to avoid campaign finance regulations.
Prosecutors say Mr Bankman-Fried was engaging in criminal activity as far back as 2019.
Mr Bankman-Fried, according to the indictment, deliberately and knowingly “agreed with others to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts” of his research company, Alameda Research.
He is also accused of conspiring with others to defraud FTX lenders “by providing false and misleading information to those lenders regarding Alameda Research’s financial condition”.
The indictment also states Mr Bankman-Fried conspired with others to make illegal donations to political candidates.
What is Bitcoin and how did it start? — video
What is Bitcoin and how did it start?
His lawyer has said he is “reviewing the charges with his legal team and considering all of his legal options”.
US regulators have accused Mr Bankman-Fried of carrying out a multiyear scheme to defraud investors.
The Securities and Exchange Commission said on Tuesday that he raised almost $2 billion from investors.
The regulator also said he concealed risks, FTX’s relationship with Alameda Research, and used commingled customer funds.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC chairman Gary Gensler said.
Mr Bankman-Fried diverted billions of dollars of customer funds to grow his other entities, the SEC said in its complaint filed on Tuesday in New York’s Southern District court.
The SEC complaint alleges that FTX raised more than $1.8 billion, including $1.1 billion from about 90 US-based investors, in an “orchestrated scheme to defraud equity investors” who bought in based on the belief that FTX had appropriate controls.
Alameda Research was allowed to carry a negative balance on FTX and was exempt from the exchange’s risk protocols, according to the complaint.
The SEC said that Mr Bankman-Fried personally directed that FTX’s “risk engine” not apply to Alameda and hid the extent of the ties between the two entities from investors.
The regulator claimed that as late as last month, Mr Bankman-Fried was continuing to mislead investors while trying to fill a multi-billion-dollar hole while FTX was unable to make good on billions in withdrawal demands from customers.
It only stopped when FTX and Alameda filed for bankruptcy protection on November 11, the regulator said.
The SEC is seeking to bar Mr Bankman-Fried as an officer or director of a public company or from offering cryptocurrency or other securities. It is also seeking to force him to turn over his ill-gotten assets.
Members of the US House of Representatives were supposed to get their chance to grill Mr Bankman-Fried at a hearing on Tuesday morning, but federal authorities beat them to it.
Representative Maxine Waters, chairwoman of the House Financial Services Committee, expressed displeasure over the timing of the arrest, saying before the hearing that Americans deserved a chance to hear from Mr Bankman-Fried.
At the hearing, she said she was “deeply troubled to learn how common it was for Bankman-Fried and other employees to steal from the cookie jar”.
