The SEC accuses Sam Bankman-Fried of defrauding FTX investors
An SEC complaint filed on Tuesday alleges that Sam Bankman-Fried has raised more than $1.8 billion from stock investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets .
The civil lawsuit states that Bankman-Fried diverted client funds to Alameda Research LLC, its private crypto fund, without telling them. The complaint also states that Bankman-Fried commingled FTX client funds at Alameda to make secret venture investments, lavish real estate purchases and large political donations.
“We contend that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors it was one of the most secure buildings in crypto,” said SEC Chairman Gary Gensler. “Mr Bankman-Fried’s alleged fraud is a wake-up call to crypto platforms that they must comply with our laws.”
Bankman-Fried was arrested in the Bahamas on Monday at the request of the US government, US and Bahamian authorities said.
The arrest came after the US filed criminal charges, which US Attorney Damian Williams said is scheduled to be unsealed on Tuesday. Bankman-Fried has been under criminal investigation by US and Bahamian authorities following last month’s collapse of FTX, which filed for bankruptcy on Nov. 11 when it ran out of money following the cryptocurrency equivalent of a bank run.
The SEC indictments are separate from the criminal complaints, which are expected to be unsealed later Tuesday.
A spokesman for Bankman-Fried did not comment Monday night. Bankman-Fried has the right to appeal his extradition, which could delay, but probably not stop, his extradition to the US
Bankman-Fried’s arrest comes just a day before he was due to testify before the House Financial Services Committee. Rep. Maxine Waters, D-Calif., chair of the committee, said she was “disappointed” that the American public and clients of FTX would not see Bankman-Fried testify under oath.
However, that hearing will take place despite Bankman-Fried’s arrest on Tuesday.
Bankman-Fried was one of the richest people in the world on paper with an estimated net worth of $32 billion. He was a prominent figure in Washington and donated 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 quickly unraveled last month as reports questioned the strength of FTX’s balance sheet. Clients wanted to withdraw billions of dollars, but FTX couldn’t fulfill all requests because it appears to have used its clients’ deposits to cover bad bets at Alameda Research, Bankman-Fried’s investment arm.
Bankman-Fried recently said he had not “knowingly” misappropriated his customers’ funds and said he believed his millions of disgruntled customers would eventually recover.
The SEC challenged that claim in Tuesday’s complaint.
“FTX operated behind a cloak of legitimacy created by Mr. Bankman-Fried, among other things, by touting its world-class controls, including a proprietary ‘risk engine’, and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that facade was not just thin, it was fraudulent,” said Gurbir Grewal, director of the SEC’s Enforcement Division. “The collapse of FTX underscores the very real risks that unregistered crypto asset trading platforms can pose to investors and clients alike.”
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