New York –
The SEC has charged the former CEO of failed cryptocurrency firm FTX with orchestrating a scheme to defraud investors.
Sam Bankman-Fried raised more than $1.8 billion from equity investors since May 2019 by promoting FTX as a safe and responsible platform for trading crypto assets, according to a complaint filed Tuesday by the SEC. funds.
The civil suit alleges that Bankman-Fried transferred client funds to his privately held crypto fund, Alameda Research LLC, without telling them. The complaint also alleges that Bankman-Fried co-mingled FTX client funds in Alameda into undisclosed venture capital investments, large real estate purchases, and large political donations.
“Bankman-Fried deposited billions of dollars of FTX client funds into Alameda. He then used Alameda as his personal piggy bank for things like buying luxury condos, supporting political campaigns, and making private investments ,” the complaint reads. “None of this was disclosed to FTX equity investors or trading clients of the platform.”
The SEC said Alameda did not separate FTX investor funds from Alameda Investments, using the funds to “indiscriminately fund its trading operations,” as well as Bankman-Fried’s other ventures.
“We allege that Sam Bankman-Fried built a house of cards based on deceit while telling investors it was one of the safest structures in cryptocurrency,” said SEC Chairman Gary Gensler. “Mr. Bankman-Fried’s alleged fraud is a clarion call to crypto platforms that they need to abide by our laws.”
Bankman-Fried was arrested in the Bahamas on Monday at the request of the U.S. government, U.S. and Bahamian authorities said.
The arrest follows criminal charges filed in the United States, which are expected to be released on Tuesday, according to U.S. Attorney Damian Williams. Bankman-Fried has been under criminal investigation by U.S. and Bahamian authorities following the collapse of FTX last month, which filed for bankruptcy on Nov. 11 when it ran out of funds after what amounted to a bank run on cryptocurrencies.
The SEC charges are separate from the criminal charges that are expected to be released later Tuesday.
A spokesman for Bankman-Fried had no comment late Monday. Bankman-Fried has the right to challenge his extradition, which could delay but is unlikely to prevent his transfer to the U.S.
The day before Bankman-Fried’s arrest, he was due to testify before the House Financial Services Committee. The committee chair, Rep. Maxine Waters, D-Calif., said she was “disappointed” that Bankman-Fried’s sworn testimony was not available to the American public and FTX’s clients.
However, that hearing will still take place Tuesday despite Bankman-Fried’s arrest.
Bankman-Fried is one of the richest men in the world with an estimated net worth of $32 billion. He is a well-known figure in Washington, donating millions of dollars to mostly left-leaning political causes and Democratic political campaigns. FTX grew to become the second largest cryptocurrency exchange in the world.
That all unraveled quickly last month when reports emerged questioning the strength of FTX’s balance sheet. Customers began withdrawing billions of dollars, but FTX couldn’t meet all demands as it apparently used customer deposits to cover bad bets by Bankman-Fried’s investment arm, Alameda Research.
Bankman-Fried recently said he did not “intentionally” misuse clients’ funds, and said he believed his millions of angry clients would eventually be whole.
The SEC disputed that claim in its complaint Tuesday.
“FTX operates under a facade of legitimacy created by Mr. Bankman-Fried to advertise, inter alia, its best-in-class controls, including a proprietary ‘risk engine’, and that FTX adheres to specific investor protection principles and detailed terms of service. But as This camouflage, as we allege in our complaint, is not only weak, but deceptive,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “The FTX debacle highlights the very real risks that unregistered crypto asset trading platforms can pose to investors and customers.”