The founder and CEO of the failed cryptocurrency exchange FTX has been charged with multiple crimes by the U.S. government.
According to the Associated Press, Bankman-Fried allegedly deceived customers and investors intentionally so he could become successful himself. He was a pivotal part in the multi-billion dollar company’s failure.
It is alleged that Bankman-Fried devised a scheme that would defraud customers of FTX starting in 2019. By illegally diverting investors money, he could pay for expenses, debts, and risky trades for a crypto hedge fund he started back in 2017. This company was called Alameda Research. In addition to all of this, he also used the money to buy lavish real estate and make large political donations.
He was arrested Monday this week in the Bahamas. Charges include wire fraud, money laundering, and conspiracy to commit fraud. If he is found guilty he could face decades behind bars.
He earned the trust of major celebrities and companies as well as the respect of people in Washington and on Wall Street before falling from success.
But how did he manage to pull this scheme off before being caught?
According to Reuters, in 2020 the chief engineer for FTX “tweaked the code” to Alameda Research. The change made it so Alameda Research was exempt from a feature on the trading platform that would have sold its assets if it was losing too much of the money that was borrowed and not actually the company’s.
The change in the coding was what caught the attention of the U.S. Securities and Exchange Commission. They then charged Bankman-Fried with fraud.
Not only was this an issue, but billions of dollars were lent to Alameda Research from FTX secretly for two years. The money did not belong to FTX and was actually FTX’s customers’.
When customers went to withdraw their money amid media reports of the company’s financial state, their money was already gone.
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