A House of Cards Falls Down

Posted On Thursday, December 15, 2022

Takeaway: Ignorance was not bliss for Samuel Bankman-Fried. The young cryptocurrency entrepreneur faces 8 charges in the Southern District of New York for allegations that his company, FTX, mishandled millions of dollars of its investors money.

Samuel Bankman-Fried’s “house of cards” played its final hand on Tuesday, December 13, 2022, as a federal grand jury in Manhattan returned an indictment against him. Fried is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering, and conspiracy to defraud the Federal Election Commission and commit campaign finance violations. The grand jury handed down the indictment amidst allegations that Fried mislead investors out of approximately $1.8 billion.

In 2019, Fried founded FTX, a cryptocurrency exchange, when he was 27 years old. By 2022 it had a $32 billion valuation and was backed by investors and celebrities alike. FTX’s demise, ironically, was nearly as rapid as its ascent. In less than a week, Fried went from being portrayed in the media as the ‘white knight’ of cryptocurrency, to a disgraced former CEO. FTX’s swift downfall comes as no surprise, however, as Fried admittedly had no Board of Directors and was reportedly blissfully ignorant of his duties as CEO. According to the SEC Complaint, “FTX customers deposited billions of dollars into Alameda[1]-owned bank accounts, which Alameda spent on Its own trading operations and to expand Bankman-Fried’s empire.”

Despite being at the center of a heavily regulated space, i.e., cryptocurrency, it is alleged that Fried was able to assuage sophisticated investors that FTX was the premier cryptocurrency domain. Fried was over funded and under educated in the cryptocurrency space. While his public apologetic stance is refreshing, the full effects of his reported lack of concern for compliance remains to be seen. In an interview with the New York Times on November 30, 2022, after stepping down as FTX’s CEO, Fried maintained that he never intended to defraud his customers, and that he did not ‘intentionally co-mingle’ funds.

SEC Chair Gary Gensler stated that Fried “built a house of cards on a foundation of deception while telling investors that it  was one of the safest buildings in crypto.” Fried is being prosecuted criminally by the Southern District of New York. He is also being sued and investigated civilly by a number of federal agencies.  

Fried’s empire allegedly includes tens of millions of dollars of real estate in the Bahamas, political favor bought with customer funds, private jet excursions, a Super Bowl ad, and a sports stadium sponsorship. Fried’s pocket was limitless. Until it wasn’t.

Pietragallo Gordon Alfano Bosick & Raspanti, LLP has a robust white-collar practice that includes involvement at all stages of a criminal or civil investigation. Our attorneys have decades of experience advising companies of their regulatory and compliance duties, as well as defending individuals and companies against criminal allegations. Our attorneys are equipped to handle complex cases across the United States. For more information on our team and specific practice areas, visit our website here.  

The SEC Complaint can be viewed here.

[1] Alameda was originally founded in October 2017 and was utilized for over-the-counter trading services and to make and manage debt and equity investments.