U.S. files more charges against FTX founder Bankman-Fried

Through his spokesman Mark Botnick, Bankman-Fried declined to comment. He has pleaded not guilty to the prior criminal charges and has maintained that he did not misuse customer funds. He is currently under house arrest at his parents’ home on the Stanford University campus.

The superseding indictment provides new details into what prosecutors allege was a “pattern of fraudulent schemes” by Bankman-Fried, including “routinely” tapping customer accounts to prop up his hedge fund, Alameda Research, and donating tens of millions of dollars to Democrats and Republicans. All the while, prosecutors charge, Bankman-Fried cast himself as a “savior of the crypto industry.”

The indictment accuses Bankman-Fried of deploying two fellow FTX executives to make contributions in their names, but with FTX and Alameda funds and as part of a broader bid by Bankman-Fried to gain influence while avoiding public scrutiny and backlash. The details could add to pressure on recipients of funds from Bankman-Fried and other former FTX executives — who were some of the largest donors in the 2022 election cycle — to return those contributions.

The two executives are not named. They are identified only as co-conspirators — CC-1 and CC-2 — but the descriptions match details and contribution records for Nishad Singh, a major left-leaning donor, and Ryan Salame, a major right-leaning donor.

A lawyer for Singh declined to comment. A lawyer for Salame did not respond to a request for comment.

Prosecutors argue that Bankman-Fried “did not want to be known as a left-leaning partisan, or to have his name publicly attached to Republican candidates.” To obscure his association with certain contributions, “Bankman-Fried and others conspired to and did have those contributions made in the names of CC-1 and CC-2,” prosecutors allege.

The system, according to prosecutors, allowed Bankman-Fried to evade contribution limits and caused false statements to be submitted to the Federal Election Commission.

Concealing the true source of political contributions, using what are known as straw donors, is a violation of federal campaign finance law. The arrangement also broke rules restricting how corporate money can be used for political contributions, according to prosecutors.

The indictment states that contributions came out of Alameda’s bank accounts, which included FTX customer funds, and were routed through the bank accounts in the straw donors’ names. In one instance described in the indictment, Bankman-Fried and his associates decided that they should contribute $1 million to a pro-LGBTQ super PAC and tapped one of his co-conspirators to make the donation.

A political consultant working for Bankman-Fried allegedly told the co-conspirator that the contributions were “for transactional purposes.”

Meanwhile, prosecutors say, Bankman-Fried’s preference was to “keep contributions to Republicans ‘dark,’ ” meaning the money was routed through nonprofit groups that don’t have to disclose their donors, so his other co-conspirator was tapped to make public-facing donations to GOP candidates.

Bankman-Fried and his associates coordinated these contributions using a chat group called “Donation Processing” on the messaging app Signal, according to the indictment. Prosecutors say the FTX executives collectively made more than 300 political contributions, totaling tens of millions of dollars, “that were unlawful because they were made in the name of a straw donor or paid for with corporate funds.”

One of the co-conspirators raised concerns about the alleged scheme shortly before the midterm elections, according to the indictment. As customer withdrawals intensified and FTX encountered solvency issues, prosecutors allege, the executive sent a message to Bankman-Fried stating that he was concerned about the “maybe 80m” of “donations/personal/etc that went through my bank [account] and are in my name.”

The co-conspirator proposed backdating the transaction to erase any debt he might owe, as transfers from Alameda were recorded as “loans,” according to the indictment. But no suchtransaction was completed.

Prosecutors also detailed its allegations of how Bankman-Fried went about commingling FTX customer funds with Alameda’s funds — allegations that largely mirror those made by federal regulators. Prosecutors say that Bankman-Fried allowed FTX to extend billions in credit to Alameda. Bankman-Fried then used some of that money for his personal use, including borrowing $1 billion from the hedge fund to make personal investments, prosecutors say.

Bankman-Fried says he was careless at FTX. Prosecutors say it was fraud.

To distance himself from the hedge fund, Bankman-Fried stepped down as chief executive in October 2021 and named Caroline Ellison, who in December pleaded guilty to fraud charges and agreed to cooperate with prosecutors.

And when the crypto market experienced a downturn last summer, Bankman-Fried allowed Alameda research to withdraw billions of dollars in customer funds from FTX to repay crypto lenders who demanded repayment on “substantial” loans, prosecutors alleged.

Moreover, prosecutors allege that Bankman-Fried set up a company, North Dimension, to open a bank account that could receive FTX customer cash deposits while dodging federal registration and due diligence requirements. That account was controlled by Alameda and Bankman-Fried, prosecutors say.

FTX filed for bankruptcy in November, punctuating a year that saw multiple crypto institutions fail amid a marketwide downturn. FTX’s collapse nonetheless stunned many in the crypto world because Bankman-Fried had cast his exchange as a bastion of reliability in a notoriously volatile market. Before and even after his arrest in the Bahamas in December, Bankman-Fried publicly denied that he used FTX customer funds improperly.

Meanwhile, FTX’s Chapter 11 bankruptcy proceedings continue, as FTX customers and institutional investors seek to claw their money back.