"US History's Largest Financial Fraud" Prosecutors and Financial Authorities Take Legal Action Against FTX Founder (Comprehensive)

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "One of the largest financial frauds in U.S. history." The U.S. prosecutors and financial authorities have taken legal action against Sam Bankman-Fried, the founder of FTX, one of the world's top three cryptocurrency exchanges that has entered bankruptcy protection proceedings. It is expected that he could face a massive compensation payment and up to 115 years in prison if found guilty of fraud charges. Bankman-Fried, who was previously arrested by Bahamian prosecutors, is scheduled to be extradited to the U.S. soon.

The U.S. Attorney’s Office for the Southern District of New York announced on the 13th (local time) through an indictment that Bankman-Fried has been charged with eight counts including fraud under criminal law, fraud using internet banking, money laundering, and illegal political contributions.

In the 13-page indictment, prosecutors claimed that since 2019, Bankman-Fried deceived FTX customers by diverting their funds to his affiliate Alameda Research and used the money to pay off company debts and expenses. They also pointed out that he conspired to commit fraud by providing false information to lenders regarding Alameda Research’s financial status. Additionally, Bankman-Fried used customers’ and investors’ money to make large political donations, sometimes using other people’s names, confirming allegations of illegal contributions.

Damian Williams, U.S. Attorney for the Southern District of New York, who has been investigating the collapse of FTX, criticized at a press conference held in Manhattan on the afternoon of the same day, saying, "The investigation is progressing very quickly," and "The dirty money stolen from customers was disguised as donations from the wealthy to buy bipartisan influence and was used to realize Bankman-Fried’s desire to influence Washington’s policy direction with money." He added that the charges against Bankman-Fried represent "a series of frauds that impacted the collapse of FTX" and called it "one of the largest financial frauds in U.S. history."

If these charges are proven, prosecutors expect Bankman-Fried could face up to 115 years in prison. Until now, Bankman-Fried has emphasized that he did not fully understand how the situation unfolded and that it was a mistake, never intending to commit fraud. He has also denied criminal responsibility. However, local media and related industries anticipate that a multi-decade prison sentence is inevitable.

[Image source=Reuters Yonhap News]

Bankman-Fried is currently also facing civil lawsuits from U.S. financial regulatory authorities. On the same day, the U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Bankman-Fried for investor fraud in the U.S. District Court for the Southern District of New York. According to the complaint, Bankman-Fried raised $1.8 billion (approximately 2.3364 trillion KRW) from FTX equity investors starting in May 2019, diverted it to his affiliate Alameda Research, and used it for undisclosed venture investments, luxury real estate purchases, and large political donations.

The SEC judged that Bankman-Fried’s deception of investors was a planned fraudulent conspiracy spanning several years. SEC Chairman Gary Gensler criticized in a statement, "While Bankman-Fried’s ‘house of cards’ (a plan with little chance of success) began to collapse, he was sinking billions of dollars of customer funds into speculative venture investments."

On the same day, the U.S. Commodity Futures Trading Commission (CFTC) also filed a lawsuit against Bankman-Fried, FTX, and Alameda Research in the Southern District of New York. The CFTC, which oversees derivatives, claimed that Bankman-Fried violated federal commodities laws by borrowing hundreds of millions of dollars from Alameda and using it for real estate purchases and political donations.

According to documents submitted by Bahamian regulators to the Delaware bankruptcy court, FTX purchased 35 properties in the Bahamas, totaling approximately $256.3 million (about 330 billion KRW). The Bahamas is where FTX’s headquarters are located, and Bahamian regulators have been investigating FTX’s bankruptcy separately from U.S. prosecutors and financial authorities.

Demian Williams, U.S. Attorney for the Southern District of New York, explained the investigation after unveiling the indictment against FTX founder Sam Bankman-Fried at a press conference held in Manhattan, New York, on the afternoon of the 13th (local time).
[Image source=EPA Yonhap News]

John J. Ray III, the new CEO of FTX, attended a hearing on the causes of FTX’s collapse hosted by the U.S. House Financial Services Committee on the same day and described the FTX collapse as "just a plain and old-fashioned embezzlement."

Ray, a leading restructuring expert who successfully led Enron’s bankruptcy proceedings in the past, responded to a question about why this case is "one of the largest corporate frauds in history" by saying, "FTX has no records at all," calling it "abnormal." He also confirmed that FTX customers are unlikely to fully recover their investments, stating, "Not all losses can be recovered." Bankman-Fried was originally scheduled to testify remotely at the hearing but was unable to do so due to his arrest the day before.

Bankman-Fried, who was arrested in the Bahamas the previous day, spent the night in a police station detention center in Nassau, the capital, and underwent a procedure to acknowledge the charges at a local court on the same day. He is expected to be subject to extradition to the U.S. Bankman-Fried’s legal team stated in a press release that day, "We are reviewing all charges with our legal team and considering all legal options."

This content was produced with the assistance of AI translation services.