Disgraced former CEO of FTX crypto exchange is arrested in the Bahamas
ROB SCHMITZ, HOST:
The Securities and Exchange Commission has charged the former CEO of the cryptocurrency exchange FTX with violating securities laws. Prosecutors say Sam Bankman-Fried orchestrated a massive, yearslong fraud. NPR's David Gura joins us now. David, hello.
DAVID GURA, BYLINE: Hey, Rob.
SCHMITZ: Walk us through this indictment, David. What does the SEC allege?
GURA: Well, prosecutors say that Sam Bankman-Fried, who founded FTX in 2019, was defrauding investors in his company and customers who used the site to buy and sell cryptocurrencies. For years, they allege he was, quote, "diverting billions of dollars of the trading platform's customer funds for his own personal benefit and to help grow his crypto empire." The SEC says Bankman-Fried took customer money and he used it to make investments. He also bought millions of dollars of real estate with it in the Bahamas, where he was based. And he used it to make substantial political donations.
You know, at the center of this, Rob, is an extremely cozy relationship between FTX and a trading firm called Alameda Research, which was, essentially, Bankman-Fried's personal crypto hedge fund. The SEC says he was co-mingling customer funds, using customer money for investments. And when the crypto market soured a few months ago, he used it to plug holes that just kept getting bigger and bigger.
SCHMITZ: This does not sound good. How does this comport with the image that Sam Bankman-Fried projected?
GURA: You know, this is really central to this indictment. SEC Chair Gary Gensler says in a statement, 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. The SEC alleges Bankman-Fried misled investors about what he was doing, what he wasn't doing and the risk protocols FTX had in place. Prosecutors said Bankman-Fried, quote, "held himself out as a visionary leader in the crypto industry and touted his efforts to create a regulated and thriving crypto asset market." They go on to note he conducted an intensive public relations campaign to brand himself and his companies as honest stewards of crypto, Rob. But the SEC says the reality was very different.
SCHMITZ: And, David, remind us, how did this all come about?
GURA: Well, extremely quickly. Remember, FTX imploded and filed for bankruptcy just one month ago. We learned Bankman-Fried was arrested in the Bahamas at the request of the U.S. government on Monday night. Bahamian police say he was taken into custody without incident at his apartment. And he's scheduled to appear before a judge there today. This is going to be a busy day, with the U.S. attorney for the southern district announcing criminal charges of its own, another indictment from the Commodity Futures Trading Commission.
We've known pretty much since FTX imploded that regulators and law enforcement in the U.S., but also in a handful of other countries, have been investigating what happened. And FTX's new CEO, who's shepherding it through bankruptcy proceedings, said in a court filing, FTX has been fielding lots of information requests. FTX has more than a million creditors, Rob. And hundreds of millions of dollars have just gone missing.
SCHMITZ: Gosh. What are the implications for the other investigations into FTX?
GURA: Well, the attorney general in the Bahamas is doing his own investigation. FTX is doing a postmortem. There's been a request in U.S. bankruptcy court for an independent examiner. And then there's Congress. Lawmakers in both the House and the Senate in both parties are digging into this. And Bankman-Fried was supposed to appear virtually before the House Financial Services Committee today. Of course, that's now not in the cards.
But the chairwoman of that committee said in a statement the hearing is going to go forward as scheduled. The other witness, John Ray, who is FTX's new CEO, is going to testify as planned. And in his testimony, he says basically what we see laid out in this indictment, that FTX was a total mess with no corporate governance. And what he's trying to do, with a new executive team and a new independent board, is to track down those hundreds of millions I mentioned just a moment ago that have disappeared.
SCHMITZ: NPR's David Gura. Thanks.
GURA: Thank you. Transcript provided by NPR, Copyright NPR.