The FTX files: US authorities outline a spacious case against the crypto exchange

a year ago Sam Bankman-Fried moved out his characteristic shorts and his T-shirt for a suit and sat as an acceptable face of crypto in front of the US representative house. The legislature could not see that his shoelaces were open under the table.

Bankman-Fried had a lot more to hide than sloppy clothes. This Tuesday, the man, who was once welcomed in Washington for his innovative regulatory vision, should say again, this time, however, to explain why his FTX cryptocurrency exchange, which was only valued at $ 32 billion in January, was imploded.

Now his public appearances in the coming months are reserved. Hours before he should testify, Bankman-Fried was arrested on the Bahamas and charged with three different US authorities for fraud. The 30-year-old, once a gold boy from crypto, threatens criminal and civil proceedings and possibly a prison sentence of over 100 years. A US prosecutor called it "one of the largest financial frauds in American history" this week.

ironic, his words before the congress last December, in which he prompted his "transparent", "robust", "consistent" risk controls as a model for the USA financial markets of the USA, now in the long list of allegations against him.

The Securities and Exchange Commission, which, in addition to a criminal prosecution of the Ministry of Justice, claims that this was one of many lies that the FTX founder told in the context of a long-term fraud in order to enrich himself by entrusted money customers in the private trade company Alameda Research.

"This type was the figurehead for stable stock exchanges. The idea was that he would bring a certain degree of reason onto the market," said Charles Whitehead, professor at the Cornell Law School. "And then it turns out that it was this fraternity in the Bahamas and all these terrible things."

The connections between Alameda, which was founded in 2017, and FTX, the trading center that he launched in 2019 are of crucial importance in case against Bankman-Fried.

"From the beginning, Bankman-Fried customer assets illegally redirected to his private crypto hedge funds Alameda Research and then used these customer funds in order not to make any open risk investments, wasteful real estate purchases and large political donations," says the SEC.

The charges that were submitted about a month after the bankruptcy of FTX mark a quick step towards retribution by the US authorities. But the guard dogs were also criticized for not discovering the alleged fraud before collapsing under his own weight. In the event of hearings this week, Senator Kyrsten Sinema said that the chargers were "reactive, not proactive and frankly the least what the government could do".

The allegations that are now being raised against Bankman-Fried represent what the Member of the congress Ritchie Torres called an "incestuous relationship" between Alameda and FTX this week.

The trading company provided important liquidity to get the FTX exchange, and helped her to climb the world of digital assets, whereby it processed $ 20 billion in daily transactions at peak times. In the meantime, Alameda allegedly benefited from a secret special treatment, including faster transactions, the possibility of leading negative balances, the exemption from liquidation in the case of overlange trades and - which is most important - an almost unlimited range of loans from the customer safe from FTX, according to the SEC and Commodity Futures Trading Commission.

Alameda also accepted cash deposits in billions in billions to his bank accounts of FTX customers, who “spent on his own trade transactions and to expand the Bankman-Fried empire,” said the Sec.

Bankman-Fried contested deliberate misconduct and tried in a number of media interviews before he arrived to present the collapse of his companies as an extreme mismanagement. At the beginning of this week, Bankman-Fried's lawyer said that the FTX founder "checks the charges with his lawyer team and consider all of his legal options".

He said that money was accidentally leaked to Alameda and that he largely did not know how the trade company spent it. Although he was a majority owner of both companies, he resigned as managing director of Alameda after the introduction of FTX.

The indictment claims that the public separation between Alameda and FTX was a cosmetic nature. In her complaint against the founder of the stock exchange and the two companies, the CFTC said that Bankman-Fried "retained direct decision-making for all important trade, investment and finance decisions from Alameda" and was in almost constant contact with managers of the trading company. The new management, which FTX and Alameda led to bankruptcy, rejected a statement.

former employees say that they have Bankman-Fried and Alameda boss Caroline Ellison, who were at times romantic partners and roommates, often seen how they ran in the parking lot of the company in Nassau and were involved in long discussions.

In an interview with the Financial Times,

Bankman-Fried also admitted that in June he was involved in discussions about the financial health of Alameda when the crypto prices crashed. The market crisis gave Alameda serious losses that were also a large extent faced with repayment claims.

The US authorities claim that Bankman-Fried personally led a rescue operation for Alameda with customer money and a cover-up of massive amounts that were acquired by FTX. In the spring he moved Alameda's 8 billion dollar liabilities to the FTX account of a person not mentioned by name, which Banksman-Fried called "the account of our Korean friend" and "the strange Korean account" according to CFTC.

Bankman-Fried also intervened to ensure that his trading company was freed from the payment of interest to its FTX positions, as other customers would normally do, claims SEC.

In September, Bankman-Fried considered closing the trading company. In an internal document, he wrote that the bad trades from Alameda had “cost more money [Expected Value] than everything that Alameda has ever earned or will ever earn,” says the CFTC.

But he also reflected the deeply intertwined relationship between Alameda and FTX. "In view of the crowd that Alameda does, we can't really switch it off," concluded Bankman-Fried.

At the beginning of November, a Coindesk report on the financial health of Alameda prompted customers to withdraw their deposits from FTX. But the money wasn't there.

On Monday afternoon, Bankman-Fried online said that he "didn't" believe that he would arrest if he set a foot in the USA. In a way, he was right. But the American judiciary has long arms. Hours later, the police patted his door on the Bahamas.

Additional reporting from Nikou Asgari