DOJ, SEC charge FTX founder with conspiracy, fraud

Following his arrest in the Bahamas on Monday night, FTX founder and former CEO Sam Bankman-Fried was charged Tuesday by the Department of Justice (DOJ) with eight crimes including wire fraud, securities fraud and commodities fraud, as well as conspiracy to violate campaign finance laws following the collapse of his crypto platform in November. 

The criminal charges come amid a whirlwind of legal and governmental activity directed at Bankman-Friedman this week that encompass a civil complaint filed by the Securities and Exchange Commission (SEC) as well as demands for Bankman-Fried to testify before both chambers of Congress. 

• The unsealed indictment signed by U.S. Attorney Damian Williams and filed in the Southern District of New York alleges that Bankman-Fried used customer deposits at FTX to pay his own hedge fund, a privately held company called Alameda Research. 
  
• Bankman-Fried knowingly devised a scheme “to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research, Bankman-Fried’s proprietary crypto hedge fund, and to make investments,” the indictment says. 
  
• The SEC’s complaint alleges that FTX defrauded investors of $1.8 billion,
  $1.1 billion of which belonged to investors from the U.S., and also centers on the relationship between FTX and Alameda. 

“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,” SEC Chairman Gary Gensler said in a statement. 

The Hill’s Tobias Burns breaks it down here. And we have more on the fallout from Sam Bankman-Fried’s arrest below. 

FTX HEARING

6 big revelations from House panel questioning

The first House hearing on the collapse of FTX didn’t have the company’s disgraced founder Bankman-Fried, who was arrested on the eve of his highly anticipated testimony.  

But lawmakers still drew crucial revelations about the company’s demise from John J. Ray III, a veteran of corporate bankruptcies tapped to clean up the mess left by Bankman-Fried. 

Ray, who has shepherded Enron and other high-profile companies through bankruptcy, laid out the stunning lack of oversight, experience and scruples that led to FTX’s demise. He also explained how hard it would be to make customers whole and how Bankman-Fried’s lengthy apologies were simply a cover for “old-fashioned embezzlement.” 

• FTX collapse was Enron-like in scale but not sophistication: Ray and lawmakers frequently compared the demise of FTX to that of Enron, the Texas energy company that collapsed in 2001 and caused $11 billion in losses after years of inflating and lying about its financial holdings. The big difference, Ray said, was how conspicuously FTX leaders were ripping off customers and mismanaging money. 
  
• We don’t know how much money FTX lost or has: FTX’s lack of adequate record-keeping helped lay the groundwork for its collapse, Ray said, and has made it incredibly difficult to figure out the company’s total assets and outstanding debts. 
  
• No walls between FTX leaders, Alameda, customers’ money: Ray said FTX also lacked basic controls any major company would impose to protect customer money, uphold terms of service and ensure FTX executives were not abusing their power. FTX executives took roughly $1.5 billion in payments from the company and it is unclear where all that money went and for what purposes. 

Sylvan has it all here. 

Read more:

• FTX founder Bankman-Fried’s campaign finance charges ‘just the tip of the iceberg’

HELP IS ON THE WAY

Inflation remains sky high, but November slowdown may offer some relief

A November slowdown in inflation could give consumers relief both from rising prices and rapidly rising interest rates. 

Consumer price index (CPI) data released Tuesday by the Labor Department still showed inflation near 40-year highs. But a slower pace of price growth may help Americans catch a break from more than a year of rapid inflation, all while giving the Federal Reserve room to hike interest rates at a slower pace. 

• The annual inflation rate fell to 7.1 percent in November, down from 7.7 percent in October and in line with economist estimates of a 7.3 percent annual inflation rate. Prices rose just 0.1 percent in November alone, down from a 0.4 percent monthly inflation rate in October. 
  
• The November dip in inflation is a promising, if early, sign that the worst of rapid price growth may be behind the U.S. After peaking at 9.1 percent in June, the annual inflation rate as measured by the CPI has fallen steadily over the fall and is expected to fall even further into winter. 

Sylvan takes it away here. 

UNDER THE WIRE

House races to pass short-term funding bill to delay shutdown deadline

The House is racing to pass a one-week government funding bill to buy time for negotiations into a broader budget package as a shutdown deadline looms on Friday. 

House negotiators on Tuesday afternoon released text of the continuing resolution (CR), which will allow the government to remain funded through Dec. 23.  

• The House Rules Committee met Tuesday to send the CR to the House floor, where House Majority Leader Steny Hoyer (D-Md.) said it would receive a vote on Wednesday “or, at the latest, Thursday.” 
  
• Hoyer said there is no deal yet on the omnibus, but he anticipates an agreement “in the next few days.” The CR will allow the space for negotiators to reach that deal without a government shutdown. 

Aris and The Hill’s Mike Lillis have more here. 

Read more:

• Schumer: Omnibus expected to include Electoral Count Act, Ukraine funding 

Good to Know

Senate Majority Leader Charles Schumer (D-N.Y.) is granting Sen. Joe Manchin (D-W.Va.) another stab at getting his effort to speed up approvals for the country’s energy projects into a defense spending bill. 

Here’s what else we have our eye on: 

• Scientists at a federal facility have created more energy from nuclear fusion reactions than they used to start the process, Energy Secretary Jennifer Granholm confirmed on Tuesday. 
  
• Kristin Smith, executive director of the Blockchain Association, one of the largest cryptocurrency lobbying groups, knows it won’t be easy to rebuild the industry’s reputation.

That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.