Senate Democrats call for criminal investigation of FTX founder Sam Bankman-Fried

Sens. Elizabeth Warren (D-Mass.) and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice (DOJ) Wednesday calling for a criminal investigation of what they called the “fraudulent tactics” of Sam Bankman-Fried, the founder and CEO of FTX Trading Ltd., which filed for bankruptcy this month.  

“Given the department’s commitment to holding perpetrators of white-collar crime personally accountable, we expect DOJ to investigate the actions leading to the collapse of FTX with the utmost scrutiny,” the senators wrote in a letter addressed to Attorney General Merrick Garland.

The collapse of FTX, one of the world’s largest cryptocurrency exchanges, which was once valued at $32 billion, leaves investors facing as much as $8 billion in losses.  

The senators pointed out that in the days leading up to FTX’s collapse, Bankman-Fried tweeted that the exchange “has enough to cover all client holdings” and asserted “we don’t invest client assets (even in treasuries).” 

Bankman-Fried later admitted that an affiliated trading platform that he also founded, Alameda Research, owed FTX approximately $10 billion in customer deposits that were lent without customers’ consent, which Warren and Whitehouse called “a violation of both U.S. securities laws and FTX’s own terms of service.” 

“The fall of FTX was not simply a result of sloppy business and management practices, but rather appears to have been caused by intentional and fraudulent tactics employed by Mr. Bankman-Fried and other FTX executives to enrich themselves,” the senators wrote in the letter addressed to Garland and Kenneth Polite, the assistant attorney general in charge of the DOJ’s civil division.

Warren is a member of the Senate Banking Committee, and Whitehouse sits on the Senate Judiciary Committee. 

They argue that Bankman-Fried “revealed his true interests of self-enrichment last year when he siphoned $300 million to his own wallet,” citing a Wall Street Journal report.  

The Journal reported that “it couldn’t be determined” what Bankman-Fried did with the $300 million, but Reuters reported on Tuesday that Bankman-Fried, his parents and senior executives at FTX bought at least 19 properties worth $121 million in the Bahamas over the past two years.

The Democratic senators also pointed out that John Jay Ray, the corporate turnaround specialist who has taken over as FTX’s CEO, reported in a recent court filing that he had never seen “such a complete failure of corporate control” at the exchange and described the use of software to conceal the misuse of customers’ funds.  

“New facts will undoubtedly shed more light on how Bankman-Fried and his associates’ deception has harmed FTX’s customers, and customers of any company that was exposed to the contagion,” the senators wrote. “We urge the Department to center these ‘flesh-and-blood victims’ as it investigates, and, if it deems necessary, prosecute the individuals responsible for their harm.”  

Warren called for broader federal regulation of cryptocurrency markets in a Wall Street Journal op-ed published Tuesday.  

“FTX’s implosion should be a wake-up call. Regulators must enforce the law before more people get cheated, and Congress must plug the remaining holes in our regulatory structure — before the next crypto catastrophe takes down our economy,” she warned.  

She urged the Justice Department to use “its full range of tools, including criminal penalties” against crypto executives who break the wall.  

“If Mr. Bankman-Fried and FTX executives committed fraud, then federal prosecutors should send them to prison,” she wrote in The Journal.  

Bankman-Fried donated nearly $40 million to Democratic candidates, political action committees and liberal-leaning groups during the 2022 midterm elections.  

His father, Joseph Bankman, a Stanford Law professor, helped draft tax legislation in 2016 and donated $2,500 to her campaign in 2011, according to reporting by Fortune and Fox News.