Sam Bankman-Fried, the founder and former CEO of cryptocurrency exchange FTX, has been charged by the US Securities and Exchange Commission with defrauding the company’s investors.
The SEC said: “The Securities and Exchange Commission today charged Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors in FTX Trading Ltd, the cryptocurrency trading platform of which he was CEO and co-founder. Investigations into other securities law violations and into other entities and individuals connected to the alleged misconduct are ongoing.”
The SEC said Bankman-Fried hid his diversion of FTX client funds to Alameda Research, FTX’s crypto hedge fund, while raising more than $1.8 billion (£1.5 billion) from investors , including about $1.1 billion from about 90 U.S.-based investors.
“We allege 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,” SEC Chairman Gary Gensler said. “The alleged fraud committed by Mr. Bankman-Fried is a call to crypto platforms that they need to comply with our laws.”
The SEC further alleges that Bankman-Fried used funds from FTX clients, combined with Alameda’s own capital, “to make undisclosed venture investments, lavish real estate purchases and large political donations.” . But the SEC’s focus is on harming investors rather than clients. With $1.1 billion raised from US-based investors, the agency is asserting its right to oversee the case, despite FTX nominally being based in the Bahamas.
“The collapse of FTX highlights the very real risks that unregistered crypto asset trading platforms can pose to both investors and clients,” said Gurbir S Grewal, director of the enforcement division of the SEC. “While we continue to investigate FTX and other entities and individuals for possible violations of the federal securities laws as alleged in our complaint, today we hold Mr. Bankman-Fried responsible for fraudulently raising billions of investor dollars to FTX and misusing funds that belong to FTX’s commercial customers.”
Unusually, Bankman-Fried has been publicly discussing the FTX collapse even as investigations are ongoing. In a conversation with Bloomberg’s Zeke Faux in late November, he listed $6.5 billion in losses from FTX and Alameda, which led to the insolvency of both companies, including “$250 million for real estate, $1.5 billion for dollars for expenses, $4 billion for venture capital investments, $1.5 billion for acquisitions, and $1 billion labeled as “merits.”
Earlier this month he told a conference in New York: “Look, I’ve screwed up,” but insisted he “never tried to commit fraud” and was “shocked” by the collapse of his businesses.
Police in the Bahamas arrested Bankman-Fried on Monday, the country’s attorney general said in a statement, adding that it had received formal notification from the US of criminal charges against him. According to the SEC, there will be further charges by the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission.