Sam Bankman-Fried has been formally charged with defrauding FTX investors by the United States Securities and Exchange Commission (SEC). The former CEO of the embattled crypto firm is accused of “defrauding investors in crypto asset trading platform FTX”, according to a report from the SEC.
This was announced today following the previously filed accusations against the FTX co-founder in December 2022. On the other hand, according to the allegations filed today, Bankman-Fried hid his diversion of FTX customer cash to crypto trading business Alameda Research while raising more than $1.8 billion from investors’ funds.
In the SEC’s lawsuit, it is stated that since at least May 2019, the Bahamas-based FTX has raised more than $1.8 billion from equity investors, including roughly $1.1 billion from 90 or so investors in the United States. In his pitches to investors, Bankman-Fried marketed FTX as a secure, responsible platform for trading crypto assets, praising, in particular, FTX’s advanced, automated risk controls to safeguard client investments.
The complaint claims that, in actuality, Bankman-Fried masterminded a deceptive scheme over an extended period to hide from FTX’s investors the hidden transfer of FTX clients’ cash to his own privately held cryptocurrency hedge fund, Alameda Research LLC. SBF also withheld information on the preferential treatment Alameda received on the FTX platform, including the provision of a virtually limitless “line of credit” funded by the platform’s users and the exclusion of Alameda from some crucial FTX risk mitigation procedures. Additionally, according to the lawsuit document, SBF failed to disclose the risk associated with FTX’s exposure to Alameda’s significant holdings of overpriced, illiquid assets, including tokens related to FTX. The complaint further asserts that Bankman-Fried made sizable political contributions and undeclared venture investments at Alameda using money from FTX customers that were mixed with other cash.
Commenting on this new development, the chairman of the security and exchange commission Gary Gensler stated that “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.”
He also called on other crypto platforms to comply with SEC’s laws, stating that “compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business.”
Bankman-Fried is accused of breaking the anti-fraud provisions of both the Securities Act of 1933 and the Securities Exchange Act of 1934 in the SEC’s complaint. The SEC’s complaint calls for disgorgement of Bankman-unjustified Fried’s profits, a civil fine, an officer and director bar, injunctions against further violations of the securities laws, and a ban on him from participating in the issuance, purchase, offer, or sale of any securities other than for his account.
In a concurrent action, the Commodity Futures Trading Commission (CFTC) and the U.S. The Attorney’s Office for the Southern District of New York has also announced charges against Bankman-Fried, according to the SEC press release.
The collapse of Sam Bankman-Fried’s empire is one of the most recent tragic events in the relatively nascent history of cryptocurrency. The co-founder and CEO of FTX had allegedly planned and executed one of the biggest financial fraud schemes in history. The collapse of FTX was not solo as it has now had a crippling effect on several other firms in the space.
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