Sam Bankman-Fried, the founder and former chief executive of the crypto exchange FTX, has been charged by the US Securities and Exchange Commission with defrauding investors in the company.
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 crypto trading platform of which he was the CEO and co-founder. Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.”
The SEC said Bankman-Fried concealed his diversion of FTX customers’ funds to Alameda Research, FTX’s crypto hedge fund, while raising more than $1.8bn (£1.5bn) from investors, including about $1.1bn from about 90 US-based investors.
“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,” the SEC chair, Gary Gensler, said. “The alleged fraud committed by Mr Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”
The SEC further alleges that Bankman-Fried used FTX customer funds, commingled 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 the harm to investors rather than customer. With $1.1bn raised from US-based investors, the agency is asserting its right to oversee the case, despite FTX itself being nominally based in the Bahamas.
“FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike,” Gurbir S Grewal, the director of the SEC’s division of enforcement, said. “While we continue to investigate FTX and other entities and individuals for potential violations of the federal securities laws, as alleged in our complaint, today we are holding Mr Bankman-Fried responsible for fraudulently raising billions of dollars from investors in FTX and misusing funds belonging to FTX’s trading customers.”
Unusually, Bankman-Fried has been very publicly discussing the collapse of FTX even while investigations are ongoing. In a conversation with Bloomberg’s Zeke Faux in late November, he listed $6.5bn of losses from FTX and Alameda, resulting in the insolvency of both companies, including “$250m for real estate, $1.5bn for expenses, $4bn for venture capital investments, $1.5bn for acquisitions and $1bn labelled ‘fuck-ups’”.
Earlier this month he told a conference in New York: “Look, I screwed up,” but he maintained he “didn’t ever try to commit fraud” and was “shocked” by the collapse of his businesses.
On Monday Bahamas police arrested Bankman-Fried, 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, further charges are forthcoming from the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission.