LET’S CLARIFY FTX FRAUD

Good morning dear readers of Tecnogalaxy, today we will talk about the FTX case and massive fraud.

Since the founding of his FTX cryptocurrency exchange in 2019, Mr Bankman-Fried has engaged in fraud, now accused by federal authorities, having used the deposits of his clients to finance his activities, including buying lavish real estate and investing in other companies.

A series of civil and criminal charges brought against the Bankman-Fried in the New York district states that he has repeatedly lied to clients, investors and lenders on the structure of its commercial empire and how it has managed the billions of dollars in funds that cryptocurrencies users deposited in its exchange.

On a 13-page criminal charge, Mr Bankman-Fried has been charged with eight counts, including online fraud, conspiracy to defraud the United States and violation of campaign funding laws. A civil complaint lodged by the Securities and Exchange Commission presented a detailed description of the collapse of FTX, claiming that for three years Mr Bankman-Fried had embezzled billions of customer deposits to finance his economic and political activities.

HOW THE STORY UNFOLDED

The charges against Mr Bankman-Fried came in one of the most dramatic days of the rapidly evolving collapse of FTX, which rocked the cryptocurrency industry. In Washington, the new CEO of the company, who took over when the company filed for bankruptcy, testified to Congress, exposing the myriad of management failures that contributed to the implosion of the stock exchange. In Nassau, the capital of the Bahamas, Mr Bankman-Fried appeared in court for the first time after spending the night in a police cell after being arrested at his home on Monday evening. He has been denied bail and will remain in custody.

The arrest surprised the founder of FTX and his parents, who were visiting him, according to a person aware of the matter. Mr Bankman-Fried was taken away in handcuffs.

The chief prosecutor of the Bahamian authorities, Franklyn Williams, claimed that Mr Bankman-Fried was at risk of fleeing, with sufficient financial resources to flee the country. A lawyer for Mr Bankman-Fried said that his decision to stay in the Bahamas after the collapse of the FTX showed that he had no intention of escaping, adding that he needed medication for depression and attention deficit disorder.

The arrest of Mr Bankman-Fried was a stunning downfall for an executive who was once described as a modern John Pierpont Morgan, and became a darling of the big investors in Silicon Valley and a prolific donor to the Democratic Party. These days, Mr Bankman-Fried, at 30, is more often compared to Bernie Madoff, the con artist who orchestrated a notorious Ponzi scheme.

When FTX collapsed, the SEC stated in its complaint, investors were kept in the dark about what was happening.

“Bankman-Fried was orchestrating a massive years-long fraud, diverting billions of dollars of client funds from the trading platform to his own personal advantage and to help grow his empire,” the SEC said.

According to court documents, Mr Bankman-Fried was indicted by a grand jury on 9 December. The arrest occurred three days later, when the Bahamian authorities took Mr Bankman-Fried into custody in Albany, the luxury apartment complex where he has lived since he moved FTX to the island from Hong Kong last year.

At a press conference, Damian Williams, the United States attorney for the southern district of New York, said the FTX investigation was ongoing. This called the company’s collapse “one of the biggest financial frauds in American history”.

Federal prosecutors will have to extradite Mr Bankman-Fried so that he can be tried in a federal court in the United States. But while the Bahamas have an extradition treaty with the United States, such a trial could last weeks or months if Bankman-Fried disputes it.

Mark Cohen, a lawyer at Bankman-Fried, said his client “is reviewing the allegations with his legal team and considering all his legal options”.

A little over a month ago, Mr Bankman-Fried was widely seen as one of the few reliable figures in a freewheel and unregulated industry. He contributed $5.6 million to President Biden’s 2020 campaign effort and FTX generously spent on television commercials with a series of celebrity testimonials such as basketball star Stephen Curry and NFL quarterback Tom Brady. It was at the forefront of an industry-wide effort to bring cryptocurrencies into the mainstream of American commerce.

The SEC claims that Bankman-Fried deceived investors in the financial relationships of FTX and its subsidiary, Alameda Research, a cryptocurrency trading platform it had helped launch. He also deceived investors about the close links between the two companies, the SEC said, and hid the way he had allowed his trading company to regularly borrow money from FTX clients, a loan that occurred despite claims that all the customers’ money was safe.

The Commodity Futures Trading Commission also filed a civil suit, claiming that Mr Bankman-Fried, FTX and Alameda had defrauded customers and other cryptocurrency investors by manipulating the prices of certain digital assets, leading the way to other traders on the FTX platform and lying about the location and use of client funds.

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