Charges filed over crypto fraud case

US prosecutors on Tuesday accused Sam Bankman-Fried — the founder and former chief executive of cryptocurrency exchange FTX — of fraud and violating campaign finance laws by misappropriating customer funds in what the new CEO called "old-fashioned embezzlement".

Police in the Bahamas said Bankman-Fried, 30, was arrested on Monday at his gated community in Nassau. He made a court appearance on Tuesday in the Bahamas, where FTX is based. It was Bankman-Fried's first in-person public appearance since the exchange's collapse. He told the court he might fight extradition to the United States.

Damian Williams, US attorney for the Southern District in New York, said at a news conference on Tuesday that the arrest came at the request of the US government. He also said that he would "strongly encourage" anyone involved in FTX wrongdoing "to come to see us before we come to see you".

Williams said Bankman-Fried also made illegal campaign contributions to Democrat and Republican politicians with "stolen customer money", saying it was part of one of the "biggest financial frauds in American history".

Bankman-Fried was one of the largest Democratic Party donors — contributing $5.2 million to President Joe Biden's 2020 campaign — and the second-largest Democratic donor in the 2021-22 election cycle after George Soros, according to the Center for Responsive Politics.

Bankman-Fried and FTX executive Nishad Singh together gave $3 million to Senate Majority PAC, a group affiliated with Senate Majority Leader Chuck Schumer, a Democrat of New York, The Wall Street Journal reported in November.

Bankman-Fried also donated $6 million to House Majority PAC, a group aligned with House of Representatives Speaker Nancy Pelosi, a Democrat of California.

The indictment states that "the defendant, and others known and unknown, would and did defraud the United States … by impairing, obstructing, and defeating the lawful functions of a department and agency of the United States through deceitful and dishonest means, to wit, the Federal Election Commission's function to administer federal law concerning source and amount restrictions in federal elections".

US Representative Alexandria Ocasio-Cortez, a New York Democrat, said on Tuesday that cryptocurrency regulation in Washington should be led by politicians who don't receive campaign funding from the industry.

Midterm donations

Bankman-Fried and his associates donated nearly $100,000 to at least a dozen members of the House Financial Services Committee ahead of November's midterm elections, The Wall Street Journal reported.

The individual contributions were part of FTX's more than $70 million in spending on Democratic and Republican political campaigns as the firm sought to influence the regulation of crypto, the Journal reported.

"I believe that it makes it extremely difficult for any politician to regulate an industry that they receive donations from," Ocasio-Cortez said. "It necessarily complicates the question, and even at the bare minimum I think it complicates faith in our institutions."

Bankman-Fried appeared before the House Financial Services Committee on Tuesday.

A lawyer for the defendant requested that his client be released on $250,000 bail. Bahamian prosecutors have asked that Bankman-Fried be denied bail if he fights extradition.

FTX's current CEO, John Ray, told the House committee on Tuesday that the exchange lost $8 billion of client money.

"The FTX group's collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced, non-sophisticated individuals," said Ray, who was named CEO of FTX after Bankman-Fried stepped down and the company filed for bankruptcy on Nov 11, leaving customers and other investors facing losses in the billions of dollars.

In the indictment unsealed on Tuesday, US prosecutors said Bankman-Fried had engaged in a scheme to defraud FTX's customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research.

Bankman-Fried founded FTX in 2019 and rode a cryptocurrency boom to build the company into one of the world's largest exchanges of digital tokens. Forbes put his net worth a year ago at $26.5 billion.

A crypto exchange is a platform on which investors can trade digital tokens such as bitcoin.

Agencies contributed to this story.