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U.S. prosecutors on Tuesday accused Sam Bankman-Fried, the founder and former CEO of crypto currency exchange FTX, of fraud and violating campaign finance laws by misappropriating his customers' funds, saying the investigation is ongoing and "moving very quickly," Reuters reported. U.S. Attorney Damian Williams in New York said Bankman-Fried made illegal campaign contributions to Democrats and Republicans with "stolen customer money," saying it was part of one of the "biggest financial frauds in American history." "While this is our first public announcement, it will not be our last," he said, adding Bankman-Fried "made tens of millions of dollars in campaign contributions." Williams declined to say whether prosecutors would bring any charges against other FTX executives, emphasizing that the investigation was ongoing. He also declined to say whether any FTX insiders were cooperating with the investigation. Bankman-Fried made a court appearance on Tuesday in the Bahamas, where he was arrested on Monday and where FTX is based. A lawyer for Bankman-Fried requested that his client be released on $250,000 bail. Bahamian prosecutors have asked that Bankman-Fried be denied bail if he fights extradition. Read more.

In related news, Bahamas government officials worked closely with Sam Bankman-Fried and tried to help him regain access to key computer systems of bankrupt FTX Trading, lawyers for FTX said in a court filing before the failed crypto magnate was arrested on Monday, Bloomberg News reported. Before Bankman-Fried was blocked from FTX systems, the Bahamas asked him to mint new digital coins worth hundreds of millions of dollars and then transfer those tokens to the control of island officials, according to the legal team in control of FTX. The accusations escalate a battle between an American team of restructuring executives trying to collect FTX assets to repay creditors, and officials in the Bahamas. Liquidators in the island nation have asked a U.S. judge for access to FTX data controlled by their American counterparts. “It is a request for live, dynamic access that would be provided immediately to the government of the Bahamas and to Messrs. Samuel Bankman-Fried and Gary Wang, who are located in the Bahamas and working closely with Bahamian officials,” American lawyers wrote in a court filing yesterday. Wang is an FTX co-founder. In attempting to paint a portrait of coziness between Bankman-Fried and Bahamas authorities, the company’s U.S. lawyers called out a Nov. 9 email — just days before the bankruptcy — in which Bankman-Fried said he would be “more than happy” to open up withdrawals for all Bahamanian customers, allowing them to be made whole. “It’s your call whether you want us to do this — but we are more than happy to and would consider it the very least of our duty to the country, and could open it up immediately if you reply saying you want us to,” Bankman-Fried wrote, according to court papers. Read more.

Also, a growing group of non-U.S. customers of FTX.com, which currently counts up to around $1.6 billion in lost funds, has lawyered up and is looking to create an official customer committee in order to protect their rights of ownership over their assets on the exchange, CoinDesk.com reported. The non-U.S. FTX customers, led by Eversheds Sutherland attorneys Sarah Paul and Erin Broderick, had already formed the first FTX ad hoc group. “The rights of the non-U.S. customers and why they’re differently situated is really important,” said Paul, a former federal prosecutor in the U.S. Attorney’s Office for the Southern District of New York. “First, there is an irreconcilable conflict between the interests of the non-U.S. customers and the creditors of the other silos. The starkest example of that is the transfer of the $10 billion to Alameda from FTX.com. The terms of service situate the assets differently, as customer funds, as opposed to property of the estate.” Read more.

FTX was one of the largest overseas crypto exchanges, based on a Caribbean island with a friendly regulatory regime, and arguably beyond the reach of U.S. rules that govern how trading firms deal with investors and consumers, the Wall Street Journal reported. The lawsuits filed yesterday show how U.S. regulators have found a way to police global crypto conduct they don’t closely regulate. The Commodity Futures Trading Commission alleged, for instance, that Bahamas-based FTX affected the price of commodities sold in the U.S. That gave the CFTC authority to file a civil fraud lawsuit against FTX founder Samuel Bankman-Fried and his companies. Crypto exchanges including FTX don’t register with U.S. regulators such as the CFTC or the Securities and Exchange Commission and aren’t subject to inspections that check for compliance with American rules. But they are still subject to U.S. laws that prohibit fraud if they deal with local customers or work inside the U.S. The CFTC wields another advantage in fraud cases, thanks to a change in law that Congress passed in 2010. The newer statute says the CFTC doesn’t need to prove market manipulation. Instead, regulators only have to show that a defendant committed fraud and that the conduct affected commodity prices. The CFTC’s lawsuit alleges that FTX misused customer money to fund its sister trading firm, Alameda Research, and made misleading statements about the firms’ financial stability and risk-management practices. When the exchange collapsed last month, the price of bitcoin futures fell more than 23%, the CFTC said. The agency alleged a clear connection between FTX’s conduct and the price of digital commodities such as bitcoin and ether.

Poor management practices and inexperienced leaders led to FTX's implosion, the crypto exchange's new chief executive told lawmakers on Tuesday, shortly after U.S. regulators charged founder Samuel Bankman-Fried with defrauding investors, Reuters reported. "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 John Ray, who was named CEO of FTX after Bankman-Fried stepped down and the company filed for bankruptcy on Nov. 11. Ray also said there was virtually no distinction between the operations of FTX and Alameda Research, Bankman-Fried's crypto trading firm, which maintained close ties with his exchange. "I've just never seen an utter lack of record keeping — absolutely no internal controls whatsoever," Ray told the U.S. House of Representatives Financial Services Committee. A representative for Bankman-Fried did not immediately respond to a request for comment on Ray's testimony. He said he was shocked to learn FTX was using Quickbooks — software geared toward small and mid-size businesses — for accounting and approving invoices via Slack messages. Asked why he had testified that he did not believe the audited financial statements were reliable, Ray said: "We've lost 8 billion dollars of customer money. So by definition, I don't trust a single piece of paper in this organization." It will take weeks, perhaps months, to secure all the group's assets, Ray said, warning it would be a lengthy process. "At the end of the day, we're not going to be able to recover all the losses here," he said. Read more.

To view a replay of yesterday's hearing and access Ray's prepared testimony, please click here.

The Senate Banking Committee will hold a hearing today at 10 a.m. ET titled "Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers." Witnesses currently scheduled to testify include Prof. Hilary J. Allen of the American University Washington College of Law, Kevin O’Leary, an investor, Jennifer J. Schulp Director Of Financial Regulation Studies at the Cato Institute's Center for Monetary and Financial Alternatives, Cato Institute and actor and author Ben McKenzie Schenkkan. Click here to access the live web stream for today's hearing.

FTX founder Sam Bankman-Fried was arrested in the Bahamas at the behest of U.S. prosecutors on Monday, the day before he was due to testify before Congress about the abrupt failure last month of one of the world’s largest cryptocurrency exchanges, Reuters reported. The arrest marks a stunning fall from grace for the 30-year-old entrepreneur widely known by his initials SBF, who rode a boom in bitcoin and other digital assets to become a billionaire many times over until FTX's rapid demise. The exchange, launched in 2019 and based in the Bahamas, filed for bankruptcy Nov. 11 after it struggled to raise money to stave off collapse as traders rushed to withdraw $6 billion from the platform in just 72 hours. Since then it emerged Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business. The arrest came as Bankman-Fried prepared to lash out at his former lawyers at Sullivan and Cromwell, new FTX CEO John Ray and rival exchange operator Binance at a Congressional hearing. In the testimony, a draft copy of which was seen by Reuters, Bankman-Fried planned to say he was pressured by Sullivan and Cromwell lawyers to nominate Ray as CEO following the sudden exodus of customer funds. And when within minutes he changed his mind, following an offer of billions of dollars of fresh funding, he was told it was too late. Bankman-Fried will now be unable to testify, according to Congresswoman Maxine Waters, who said in a statement she was surprised to hear of his arrest. Ray's testimony will go ahead.
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The House Financial Services Committee’s hearing is scheduled today at 10 a.m. ET to investigate FTX’s collapse. Click here to access a live web stream of the hearing.

Additionally, the Senate Banking Committee will hold a hearing tomorrow at 10 a.m. ET titled "Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers." Witnesses currently scheduled to testify include Prof. Hilary J. Allen of the American University Washington College of Law, Kevin O’Leary, an investor, Jennifer J. Schulp Director Of Financial Regulation Studies at the Cato Institute's Center for Monetary and Financial Alternatives, Cato Institute and actor and author Ben McKenzie Schenkkan. Click here to access the live web stream for tomorrow's hearing. Read more.

U.S. regulators filed civil securities fraud charges today against Sam Bankman-Fried, the founder of the collapsed FTX crypto exchange, who was arrested last night at his home in the Bahamas, the New York Times reported. The Securities and Exchange Commission charged him with misleading big investors, who committed nearly $2 billion to FTX in recent years, about the financial health of the crypto exchange and its sister crypto trading platform, Alameda Research. The SEC also said that Mr. Bankman-Fried misled customers by taking in billions of dollars to trade crypto on FTX and telling them it was safe. But the SEC said that money from customers was commingled with funds at Alameda and used to finance investments in outside ventures, buy real estate and make political donations. “We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” the S.E.C. chair, Gary Gensler, said in a statement.
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At least $73 million of political donations tied to Sam Bankman-Fried’s FTX may be at risk of being clawed back as bankruptcy lawyers sort through the remnants of his crypto empire in search of assets to repay creditors, Bloomberg News reported. Just a few months ago, Bankman-Fried, the 30-year-old founder of the crypto exchange, had pledged to give as much as $1 billion in the 2024 presidential election cycle. While there’s precedent for forcing political entities to return contributions in cases of fraud, recovery prospects are unclear in FTX’s case. Recouping campaign funds as part of the bankruptcy proceedings is a complicated and lengthy process, and the scope of the total funds eligible for clawback depends on myriad federal and state laws. It is also subject to the bankruptcy lawyers’ judgment on what money, which may be long spent by the time the FTX trustees try to go after it, is worth the effort.

U.S. prosecutors, laying the groundwork for a potential fraud case against Sam Bankman-Fried and others involved in the collapse of cryptocurrency giant FTX, are scrutinizing how funds held by the exchange operator moved outside the U.S. as it was hurtling toward bankruptcy, Bloomberg News reported. Prosecutors are closely examining whether hundreds of millions of dollars were improperly transferred to the Bahamas around the time of FTX’s Nov. 11 bankruptcy filing in Delaware, the person said, asking not to be named without authorization to discuss the case publicly. As Justice Department officials embark on a sweeping investigation into how FTX handled customers’ cash and assets, they met this week with FTX’s court-appointed overseers to discuss materials they aim to gather, the person said. They’re also digging into whether FTX broke the law by transferring funds to Alameda Research, the bankrupt investment firm also founded by Bankman-Fried, an area of inquiry that has been reported previously. Bankman-Fried, who’s in the Bahamas and hasn’t been charged with any crimes, has admitted to grievous managerial errors at FTX but steadfastly denied that he ever knowingly misused customers’ funds.

Juul Labs has agreed to pay $1.7 billion to settle more than 5,000 lawsuits by school districts, local governments and individuals who claimed that its e-cigarettes were more addictive than advertised, the New York Times reported. The amount for the deal, which involves a consolidation of cases centered in Northern California, is more than three times the sum reported for other Juul settlements in other state and local cases thus far. In September, the company agreed to pay $438.5 million to settle a multistate investigation into whether the company had targeted young people. States investigating the company bristled at ads featuring young models and fruit and dessert flavors that appealed to adolescents. The resulting settlement restricted Juul from aiming marketing of its products at young people.

FTX's new chief executive officer and attorneys this week met with Justice Department officials as the investigation into the crypto firm's collapse continues, Reuters reported. FTX Trading's new CEO John J. Ray III and lawyers for the crypto firm met in person with prosecutors from the Manhattan U.S. attorney's office, which has been leading a probe into the firm's sudden collapse. A Justice Department spokesperson declined to comment. Last month, FTX filed for U.S. bankruptcy protection and its founder Sam Bankman-Fried resigned as chief executive, after rival exchange Binance walked away from a proposed acquisition. Ray, who was tapped to oversee the firm's restructuring, has said the company is working with law enforcement and regulators. FTX is cooperating with the government's investigations and may have further meetings with prosecutors, said the source, who declined to be named, as the meeting and the investigation are not public.

A U.S. judge this week is considering for the first time the question of who owns bitcoin and other tokens in frozen accounts at a bankrupt digital asset exchange in a case that could shape customer protections in the cryptocurrency industry. Bankruptcy Judge Martin Glenn in New York City will sort through who owns cryptocurrencies held in accounts at the Celsius Network LLC exchange, which suspended withdrawals and then fell into chapter 11 during this year's crypto crash. Judge Glenn's eventual rulings will help shape the treatment of crypto in accounts that have been frozen at other failed firms such as FTX, Voyager Digital Ltd. and BlockFi, which do not have enough funds to repay everyone in full. If Celsius deposits are determined to belong to customers, users are far more likely to get their assets returned. If the account holdings belong to Celsius, those customers will be at the back of the line for repayment, collecting pennies on the dollar. Unlike bank deposits or brokerage accounts, which are backed by the U.S. government up to $250,000 and $500,000 respectively, crypto deposits are not insured, and digital-asset companies are lightly regulated and often operate offshore. Crypto companies typically offer a variety of accounts and will likely be treated differently in bankruptcy. Celsius, for one, has argued that its "earn" accounts, which offer interest to customers, should be treated differently than its "custody" accounts, which provide a place to store cryptocurrency without generating interest. BlockFi, which is at the beginning of its own bankruptcy case, also offers both interest-bearing and custody accounts.

FTX founder Sam Bankman-Fried said he couldn’t explain what happened to billions of dollars that customers of his failed cryptocurrency exchange sent to the bank accounts of his trading firm, Alameda Research, the Wall Street Journal reported. And he said that he couldn’t rule out the possibility that money deposited by FTX customers who were told their money was theirs alone was in fact lent to Alameda. Bankman-Fried distanced himself from Alameda, saying that he had stepped back from running the firm and had little insight into its workings even though he owned 90% of it. Some FTX customers made deposits by wiring money to Alameda-controlled bank accounts, with the intention that the money be used to fund their FTX accounts. That was a legacy of the exchange’s early days when FTX didn’t have its own bank account, Bankman-Fried said. Over time, FTX customers deposited more than $5 billion in those Alameda accounts, he said. Now those funds are gone. “They were wired to Alameda, and … I can only speculate about what happened after that,” Bankman-Fried said. “Dollars are fungible with each other. And so it’s not like there’s this $1 bill over here that you can trace through from start to finish. What you get is more just omnibus, you know, pots of assets of various forms,” he added.