FTX founder Sam Bankman-Fried indicted on battery of fraud charges

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• Judy Woodruff:

  The investigation into the collapse of the crypto firm FTX moved into a new phase today, as founder Sam Bankman-Fried was formally charged.

  John Yang has the story and looks at some key questions the case has brought to light.

• Speaker:

  It does appear that they are filing Chapter 11.

• John Yang:

  The huge failure of cryptocurrency firm FTX has now led to a barrage of criminal and civil charges against its disgraced founder and former CEO.

  Sam Bankman-Fried appeared today at a court in the Bahamas where he was arrested yesterday. Bahamian authorities said they would grant a U.S. request to extradite him. A New York grand jury indicted Bankman-Fried on eight counts, including wire fraud, money laundering and illegal campaign contributions.

  Damian Williams, U.S. Attorney, Southern District of New York: This investigation is complex, and it's sprawling. I think it's fair to say that, by any — anyone's lights, this is one of the biggest financial frauds in American history.

• John Yang:

  It's the first move by regulators to hold someone accountable for last month's sudden multibillion-dollar collapse at FTX.

  The second largest crypto exchange filed for bankruptcy after it ran out of money, and Bankman-Fried resigned from his leadership post. In addition, the Commodity Futures Trading Commission and the Securities and Exchange Commission brought civil suits. The SEC's court filing described a massive, years-long fraud.

  SEC Chairman Gary Gensler said Bankman-Fried built a house of cards on a foundation of deception. The SEC alleges that Bankman-Fried diverted his customers' money to his private hedge fund, Alameda Research. That money was then used to make venture investments for his own benefit, buy lavish real estate, and give large political contributions.

  And when investors became nervous about whether FTX had sufficient funds, they pulled their money out, triggering the collapse.

  At a New York Times event earlier this month, Bankman-Fried denied knowingly defrauding investors. Instead, he blamed the implosion of FTX on sloppy accounting and a failure to appreciate the risks.

• Sam Bankman-Fried, Former CEO, FTX:

  Look, I screwed up. Like, I was CEO. I was the CEO of FTX. And, I mean — and I would say this again and again, that that means I had a responsibility. That means that I was responsible, ultimately, for us doing the right things.

  And, I mean, I — we didn't. Like, we messed up big.

• John Yang:

  The 30-year-old could spend the rest of his life behind bars. Bankman-Fried had been set to testify today before the House Financial Services Committee remotely from the Bahamas.

• John Ray, CEO, FTX:

  The scope of our investigation is truly enormous.

• John Yang:

  The company's current court-appointed CEO, John Ray, did appears. Ray led Enron through its bankruptcy proceeding some 20 years ago.

  He described the financial disarray he encountered at FTX.

• John Ray:

  I have just never seen an utter lack of record-keeping, absolutely no internal controls whatsoever. This is really old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose. Not sophisticated at all.

• John Yang:

  Meanwhile, the SEC and Justice Department said today others could be charged in the case.

  The charges against Bankman-Fried add to the growing skepticism around cryptocurrencies. In his statement today, the SEC chairman said it should be a wakeup call to all crypto platforms.

  Roben Farzad is host of public radio's "Full Disclosure."

  Roben, Bankman-Fried said that this is not anything intentional, that this was due to his lack of oversight. But when you look at the charges that were brought today, is the gist of these charges that this was a fraud from the get-go?

  Roben Farzad, Host, "Full Disclosure": Yes, John, it's so hard to square with his persona, if there's a shadow persona bifurcation here.

  You had what we in the industry called the kind of charismatic megafauna of Sam Bankman-Fried. This is a person who would return your direct messages on Twitter. This is the person who, in the intense fire of the company falling apart and this big scandal over the past month, does an interview with Andrew Ross Sorkin of The New York Times and various other people and makes himself accessible and vulnerable and is — he's dressed in shorts and pulls up his tube socks and everything.

  You can't really squared away with this idea of a kind of a twirling moustache villain who secreted billions of dollars from investors and had a personal slush fund and an ex-girlfriend running the hedge fund and a charmed life in the Bahamas.

  It's still a head-scratcher for all of us.

• John Yang:

  What did the SEC chairman mean when he said, as we heard in the tape, he called this a house of cards? What did he mean by that?

• Roben Farzad:

  That you're effectively using this big exchange, which trafficked in this idea of safety and had Super Bowl ads, it sponsored arenas and everything that you can safely and transparently transact — this was an exchange.

  You would think that, even though it's offshore, even though it's largely unregulated, that your assets are going to be protected. But he's pulling assets out willy-nilly, using it as this kind of unrestricted credit window to fund real estate purchases, political donations, media investments, this hedge fund that he effectively controlled, Alameda, which was closely related to him.

  You can't use it as a personal piggy bank. We do see this time and time again when asset prices fall apart. It happened during the Madoff bunco. And clients were seeing redemptions after the financial crisis. You lay bare some of the scams, or at the very least something that management took for granted.

  We didn't have to have great internal controls because the assets were just going up and the accounts were just opening left and right. We could be, at best sloppy, with it. At worst, what regulators are alleging here is downright fraud.

• John Yang:

  You talked about his persona, his charisma, his accessibility to reporters.

  Is that, do you think, one reason why it was so easy for him to do this?

• Roben Farzad:

  I wonder if it was, because not many crypt — let's put it this way.

  Crypto bros — I'm from Miami. You see them a lot. There's a lot of kind of: "You just can't possibly get it, you mere mortals."

  And this guy was the opposite. This was out there. He's talking about his plan of effective, targeted altruism, of talking to the press, engaging the press, certain liberal causes, engaging with congresspeople, being out there, being: I can be the kinder, gentler face of crypto and maybe have some sort of enlightened regulation in mind.

  He hit all the right buttons. It almost reminds me of the Elizabeth Holmes charm offensive at Theranos. Everybody wanted to believe it. She was magazine cover material. And you kind of said, at worst, maybe this person was just self-deluded a bit. But you couldn't imagine the extent of fraud being alleged here, the fact that you had this, effectively, window, this piggy bank being used between the hedge fund and billions and billions of dollars in customer assets.

  It's certainly one of the largest frauds would be alleged in Wall Street history.

• John Yang:

  Was there anything about the fact that this was crypto that made this either easier to do or something intrinsic about crypto, or could this have been any hot commodity?

• Roben Farzad:

  Well, therein lies the paradox, because crypto is unregulated. There's this element of Wild West frontier investing to it, and the fact that you did it offshore in the Bahamas.

  But go back and look at that Super Bowl ad with Larry David. I mean, this was a safe, transparent way to transact in crypto. It's an exchange. You would think, as an investor, that your assets are going to be protected and segregated. But this is not like being invested in a brokerage account in the United States where, if the company goes under, or if there's a run on the bank, you have FDIC or SIPC insurance on the assets.

  This was largely unregulated. It was treated, as several different regulatory arms are alleging, as an open piggy bank, an open line of credit, a one-directional line of credit, with no internal controls. It's stunning to see the CEO, the cleanup guy Ray's testimony come in here and say just, it was really run like a Wild West.

  You have — when you invest in the United States in a regulated brokerage account or regulated bank account, you have protections and controls. But when you want to be part of an asset that's new, and the distributed blockchain, and it's exotic, and you take the trade of going with the Bahamas-based exchange, this is what you could reap on the other end of it.

• John Yang:

  Roben Farzad of public radio's "Full Disclosure," thank you very much.

• Roben Farzad:

  Thank you, John. My pleasure.

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