SEC charges FTX co-founder Sam Bankman-Fried with ‘defrauding investors’

Following his arrest in the Bahamas, the US Securities and Exchange Commission (SEC) has charged FTX co-founder Sam Bankman-Fried with “defrauding investors,” it announced. It alleges that Bankman-Fried “concealed his diversion of FTX customers’ funds to [the] crypto trading firm Alameda Research while raising more than $1.8 million from investors.” 

At the same time, the US Attorney’s Office or the Southern District of New York and the Commodity Futures Trading Commission (CFTC) also announced charges against Bankman-Fried in parallel actions, according to the SEC. 

“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,” said SEC Chair Gary Gensler. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”

The SEC alleges that since at least May 2019, FTX raised $1.8 billion from equity investors, including $1.1 billion from 90 US investors alone. Bankman-Fried promoted the exchange as a safe trading platform with “sophisticated, automated measures to protect customer assets,” it said. In reality, though, Bankman-Fried orchestrated a fraud to conceal the diversion of customer funds to his privately-held crypto hedge fund, Alameda Research. 

That fund was given special treatment, “including an unlimited ‘line of credit’ funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures,” the commissioner added. And finally, customers were exposed to undisclosed risk from FTX’s exposure to Alameda holdings of “overvalued, illiquid assets such as FTX-affiliated tokens.” It further alleges that Bankman-Fried used commingled FTX customer funds to make “undisclosed venture investments, lavish real estate purchases and large political donations.” 

Developing…