The former boss of one of the world’s biggest cryptocurrency exchanges has come under fire after being accused of defrauding investors out of $1.8bn (£1.5bn).
Sam Bankman-Fried, the founder of FTX, has been indicted by the United States Securities and Exchange Commission (SEC).
John Ray, who was appointed chief executive of FTX after Bankman-Fried resigned and the company filed for bankruptcy on Nov. 11, criticized the founder’s management and explained what led to FTX’s collapse.
Testifying at a congressional hearing in Washington, Mr Ray said there was “virtually no distinction” between the operations of FTX and Alameda Research – Bankman-Fried’s first venture.
According to the SEC complaint, Bankman-Fried diverted client funds to Alameda, without saying so.
Mr Ray said the collapse of the FTX group appears to stem from “the absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals”.
He added that there was “literally no record keeping” and said employees would report billing and expenses on Slack.
Congressman Brad Sherman also raised concerns about crypto and said, “I’m afraid we see Sam Bankman-Fried as one big snake in a crypto garden of Eden. The fact is, crypto is a garden of snakes From the outside, crypto looks like a non-fungible token… But in reality, the hope of crypto is to be a currency to compete with the US dollar.
Bankman Fried was arrested in the Bahamas after authorities received official notice that separate criminal charges had been filed against him in the United States.
The 30-year-old, whose net worth peaked at $26billion (£21billion), ran the business from the island until he resigned as chief executive last month.
Funds raised at Alameda were reportedly used to make undisclosed venture investments, lavish real estate purchases and large political donations.
The founder built a “house of cards on a basis of deception”
“We allege that Sam Bankman-Fried built a house of cards based on deception while telling investors that it was one of the safest buildings in crypto,” the chairman said. the SEC, Gary Gensler.
He was charged with eight counts, including conspiracy to launder money.
Bankman-Fried is also charged with counts related to wire and securities fraud, as well as conspiracy to defraud the United States and violate campaign finance laws.
How did we come here?
As for the separate charges that led to his arrest in the Bahamas, those are expected to come to light later.
Bankman-Fried has the right to challenge his extradition to confront them.
The charges were made a day before he was due to testify before the America’s House Financial Services Committee.
Sam Bankman-Fried: What happened at FTX?
How the FTX founder went from a star-studded £21billion empire to an indictment
Bankman-Fried has been under investigation by US and Bahamian authorities since the collapse of FTX, which ran out of money in the crypto equivalent of a bank run.
It had been the second-largest cryptocurrency exchange in the world, but was left on the brink of insolvency in early November when biggest rival exchange Binance dramatically withdrew from a non-binding bailout offer.
Binance has also indicated that it will sell the $529 million (£430 million) of FTT, FTX’s native token, on its books.
This led to other investors rushing to withdraw funds, but FTX couldn’t meet all the demands as it apparently used customer deposits to cover bad bets at Alameda.
In a series of recent media appearances, Bankman-Fried insisted he had not “knowingly” misused client funds and denied defrauding investors.
However, he admitted that “I clearly didn’t do a good job” of running FTX.