DECEMBER 13, 2022
Sam Bankman-Fried, the former CEO of cryptocurrency giant FTX, defrauded investors by funneling money into his private hedge fund, according to a filing on Tuesday by the U.S. Securities and Exchange Commission.
The SEC charges were filed in the Southern District of New York one day after Bankman-Fried, the once-celebrated founder of FTX, was arrested in the Bahamas, and are separate from criminal charges the U.S. intends to pursue.
The SEC said in a press release that Bankmen-Fried, 30, raised more than $1.8 billion from equity investors since he founded FTX in May 2019, based in the Bahamas, and he allegedly “orchestrated a yearslong fraud to conceal” the undisclosed diversion of FTX customers’ funds to his privately-held crypto hedge fund Alameda Research LLC.
He also allowed the undisclosed special treatment to Alameda on the platform, including a “virtually unlimited line of credit” funded by the platform’s customers and exempted Alameda from certain key FTC risk mitigation measures, the SEC said.
He then allegedly used FTX customers’ funds at Alameda “to make undisclosed venture investments, lavish real estate purchases, and large political donations.”
The SEC further alleged that Bankman-Fried concealed from investors “undisclosed risk” from FTX’s exposure to Alameda’s “significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.”
“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.
Officials said that investigations into other securities law violations in connection with the alleged misconduct are ongoing.
The SEC’s complaint charges Bankman-Fried with violating anti-fraud provisions of securities law and seeks injunctions against future securities law violations, meaning if convicted, he could be banned from future securities trading beyond as an individual.
The SEC said the Commodity Futures Trading Commission is also charging Bankman-Fried.
Bankman-Fried was arrested after U.S. authorities filed criminal charges against him and he was taken into custody in the capital city, Nassau, shortly before 6 p.m. Monday.
He is expected to appear in court Tuesday, and U.S. authorities are expected to request his extradition.
Prime Minister of the Bahamas, Philip Davis, said in a statement that the island nation is continuing a regulatory and criminal investigation into the company’s collapse.
FTX was once seen as the face of the industry, a company reported to be worth $32 billion that attracted celebrity endorsements and major sports sponsorships. Bankman-Fried was seen as a crypto wunderkind who graced the cover of Forbes and Fortune and had emerged as a major Democratic donor.
But last month, after a crypto-focused news site published the balance sheet of an investment firm also owned by Bankman-Fried, FTX experienced the equivalent of a bank run: Customers and observers questioned whether its loans and investments were worth more than its debts. They also questioned whether the company could pay people trying to withdraw funds.
In a matter of days, Bankman-Fried resigned and the company filed for bankruptcy protection. Speaking at the New York Times DealBook Summit on Nov. 30, Bankman-Fried said he didn’t “try to commit fraud on anyone.”
Courtesy/Source: This article was originally published on NBCNews.com