Sam Bankman-Fried has been charged with defrauding investors in his FTX cryptocurrency exchange, the Securities and Exchange Commission announced Tuesday, following his arrest on criminal charges filed by the Justice Department.
The SEC’s civil complaint accuses the 30-year-old former billionaire of presenting his company, based in the Bahamas, to investors as a “safe, responsible crypto asset trading platform.” In reality, it’s alleged that Bankman-Fried ran a years-long fraud to divert FTX customers’ funds to a sister investment company, Alameda Research.
The SEC also accuses FTX of giving Alameda “undisclosed special treatment” which amounted to a “virtually unlimited ‘line of credit’” using FTX customers’ cash, and that Bankman-Fried also used the money to make “undisclosed venture investments, lavish real estate purchases, and large political donations.” He did this, the SEC claims, while raising over $1.8 billion from investors.
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“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. “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. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business.”
The SEC’s allegations come after Bankman-Fried was arrested in the Bahamas Monday on charges filed by U.S. prosecutors. The federal indictment against him—which is anticipated to include counts of wire fraud, conspiracy, money laundering, and more—is expected to be unsealed by Manhattan prosecutors on Tuesday, according to the New York Times.
Court documents filed by the SEC further describe Bankman-Fried’s alleged fraud as “massive,” in which he had diverted “billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.” They also said customers the world over “believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform.”
“FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-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 veneer wasn’t just thin, it was fraudulent,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
“FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike,” he added. “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.”
Before his arrest, Bankman-Fried had been planning to testify remotely before the House Committee on Financial Services on Tuesday. It would have been his first public appearance before U.S. lawmakers since the collapse of FTX in November.
Committee chair Rep. Maxine Waters (D-CA) said she was “disappointed” the panel would not hear from Bankman-Fried. “Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people, and wiped out the hard-earned life savings of so many,” she said in a statement. “The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity.”
