Crypto exchange founder Bankman-Fried faces federal fraud changes

Samuel Bankman-Fried, a Bay Area native and son to two Stanford professors, has been arrested in the Bahamas on various federal fraud charges in connection to his cryptocurrency exchange FTX.

Prosecutors in the U.S. District Court for the Southern District of New York unsealed an indictment on Tuesday, Dec. 13, that charges Bankman-Fried with eight counts, including wire fraud on customers and lenders, and conspiracy to commit commodities fraud, securities fraud, money laundering and to violate campaign finance laws.

The U.S. Securities and Exchange Commission (SEC) also announced on Tuesday that it was civilly charging Bankman-Fried for allegedly defrauding FTX investors in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934.

According to the SEC, FTX raised over $1.8 billion, with Bankman-Fried representing the company as a “safe, responsible crypto asset trading platform.” The SEC alleges that Bankman-Fried concealed from investors that FTX customers’ money was being diverted to his privately held cryptocurrency hedge fund, Alameda Research LLC, which was being given special treatment on FTX.

“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 Chair Gary Gensler said in a press release. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”

Bankman-Fried was arrested without incident at roughly 6 p.m. local time at his apartment complex in the Bahamas on Monday, according to a press release from the Royal Bahamas Police Force.

The arrest came after the United States told officials in the Bahamas that criminal charges had been filed against Bankman-Friend and the U.S. was likely to request his extradition, according to a statement from the attorney general of the Bahamas.

Various officials have called in recent months for greater oversight of cryptocurrencies. U.S. Treasury Secretary Janet Yellen told CBS News last month that FTX’s collapse was the result of the “absence of appropriate supervision and regulation” and described cryptocurrencies as “extremely risky assets, and even dangerous in some ways.”

Bankman-Fried’s parents — Joseph Bankman and Barbara Fried — are both longtime teachers at Stanford Law School and have drawn scrutiny for their connections to their son’s business ventures.

Bankman was a paid FTX employee who publicly appeared on behalf of the company, according to a New York Times article about the family. Neither parent has been linked to potential criminal wrongdoing, according to the Times, but both have been impacted by the demise of their son’s business.

Fried resigned as the board chair of a political donor group and Bankman announced that he wouldn’t teach a scheduled class at Stanford this winter, according to the Times. Fried is an emerita professor who retired this year, the Times said.