The U.S. Securities and Exchange Commission (SEC) has filed charges against Sam Bankman-Fried (SBF) for deceiving FTX investors and misusing customer funds from the trading platform.
According to the complaint, at least since May 2019 FTX raised more than $1.8 billion, including about $1.1 billion from around 90 U.S. investors. SBF promoted the company as a safe and responsible platform, noting sophisticated automated safeguards for customer funds.
The agency said that Bankman-Fried organized a multi-year fraud scheme to conceal from investors FTX’s diversion of customer funds to Alameda Research and providing Alameda with an unlimited ‘credit line’ on the exchange.
The SEC’s complaint also mentions use of mixed customer funds for undisclosed venture investments, purchases of expensive real estate and large political donations.
“We assert that Sam Bankman-Fried built a card house on a lie, promising investors one of the safest buildings in the crypto industry,” said Gary Gensler, chair of the SEC.
He also described the alleged fraud as ‘a persistent call for compliance by crypto platforms’.
“The collapse of FTX underscores very real risks that unregistered crypto exchanges can pose to investors and customers,” added Gurbir Grewal, director of enforcement at the SEC.
The SEC allege that SBF remained the decision-maker at Alameda Research, even after Caroline Ellison and Sam Trabucco became co-CEOs.
Despite claims by the former head of FTX that he was ‘not very numbers-savvy’, the SEC says he controlled investment and operational activities, frequently communicated with Alameda staff, and had full access to internal records and data.
In May 2022 after Terra crash, Alameda creditors demanded repayment of obligations, but the market maker was already facing financial difficulties. According to the SEC, then SBF ordered to rescue the company using users’ funds to avoid losing access to investments in the future.
GMT Legal managing partner Andrey Tugarin, in a ForkLog comment, described the most likely charge against SBF as fraud involving electronic funds, with a maximum penalty of 20 years in prison. He also noted a high likelihood of holding the FTX founder to account.
On December 12, Bahamian authorities arrested SBF on the request of the U.S. government.
On December 13, the founder of FTX was due to testify before the Senate Banking Committee. According to Senate Banking Chair Maxine Waters, she was disappointed she wouldn’t be able to hear Bankman-Fried.
Recall that on November 11 FTX Group, which also includes Alameda Research, filed for bankruptcy. SBF stepped down as CEO.
Incoming CEO John Ray blamed former exchange leaders for hiding unlawful use of customer funds and for ‘secretly exempting Alameda from certain aspects of the auto-liquidation protocol’ on the platform.
Update (13.12, 19:30 MSK): added comment from GMT Legal managing partner Andrey Tugarin
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