Sam Bankman-Fried accused of fraud and money laundering

Sam Bankman-Fried accused of fraud and money laundering

Sam Bankman-Fried accused of fraud and money laundering

About 12 hours after learning that Bahamian authorities have arrested FTX co-founder and former CEO Sam Bankman-Fried (SBF), the U.S. Securities and Exchange Commission (SEC) has revealed the first of multiple sets of charges that he will have to face. Those were quickly followed by another civil lawsuit filed by the Commodity Futures Trading Commission (CFTC), and finally, criminal charges filed by the United States Attorney’s Office for the Southern District of New York.

The criminal charges were filed last Friday and opened today. They include eight counts covering wire fraud charges against customers and those who have lent money to his companies, securities fraud and money laundering.

The SEC complaint accuses Bankman-Fried of executing a “years-long fraud” while diverting client funds from FTX to his cryptocurrency trading firm, Alameda Research. These allegations cite the more than $1.8 billion in FTX received from equity investors since 2019, including $1.1 billion from investors in the US, key to establishing SEC jurisdiction as the major FTX exchange was not licensed to operate in the US United.

The CFTC complaint details SBF’s communications within FTX and Alameda, accusing him of committing commodity fraud due to his omissions and misrepresentations.

SEC Says ‘Years Long’ Bankman-Fried Fraud Diverted Billions in Client Funds to Grow Its Crypto Empire

According to the SEC complaint (included in full below), FTX has been a fraud since its inception: “Since FTX’s inception, Bankman-Fried has been diverting FTX client funds to Alameda and continued to do so until the crash of FTX in November 2022.” The SEC accused SBF of personally borrowing more than $1.338 billion from Alameda, using clients’ money for investments, real estate and political donations.It also says fellow FTX co-founders Nishad Singh and Gary Wang have borrowed $554 million and $224.7 million, respectively.

The allegations against SBF also center on its claims to investors that FTX was a safe place to invest due to an automated “risk engine” that would sell a client’s assets to ensure its collateral remained at required levels .

What it didn’t tell investors or clients, according to the SEC, is that Alameda Research had special access to FTX funds bypassing any “self-liquidating” backstops that applied to others, and the ability to maintain an unlimited negative balance with FTX so that it could use client deposited funds for trading.

That unlimited negative balance didn’t shake things up until cryptocurrency prices fell earlier this year, leading lenders to call Alameda for payback. The SEC alleges that SBF ordered the firm to pay them using FTX funds by hiding the billions of dollars Alameda now owed FTX for its “credit line” and continuing to withdraw hundreds of millions of dollars for itself and others senior executives.

From there, we know what happened – in the end, CoinDesk reported how closely related Alameda and FTX were, with FTX’s native FTT token making up the majority of Alameda’s balance sheet. Changpeng “CZ” Zhao, the owner of rival exchange Binance, has announced plans to exit his firm’s FTT holdings, which sparked a rush of withdrawals from FTX and, very quickly, its collapse once it was able to refund customers.

The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to hide from FTX investors (1) the undisclosed diversion of FTX client funds to Alameda Research LLC, its private crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “credit facility” funded by customers of the platform and exempting Alameda from certain key FTX risk mitigation measures; and (3) undisclosed risk from FTX’s exposure to Alameda’s significant holdings of overvalued and illiquid assets such as FTX-affiliated tokens.

SEC Chairman Gary Gensler is quoted in the statement as saying, “We argue that Sam Bankman-Fried built a house of cards on a foundation of deception as he told investors it was one of the safest buildings in crypto.”

SBF will appear in court Tuesday in the Bahamas, which had served as a base of operations for him and FTX.

Prior to his arrest, SBF had continued a post-declaration media tour of Twitter Spaces chats and Zoom calls, with at least two live appearances on Monday. He was scheduled to appear remotely today to testify before the House Financial Services Committee. The hearing will continue and is scheduled to begin at 10:00 AM ET, with testimony from FTX’s new CEO, John J. Ray III.

Correction December 13, 10:21 AM ET: An earlier version of this story said SBF is facing criminal charges filed by the SEC. In fact, the SEC has only filed civil charges so far. He faces criminal charges filed by the United States Attorney’s Office for the Southern District of New York. We are sorry for the mistake.

Update December 13, 10:21 AM ET: Added charges from the CFTC and the United States Attorney’s Office for the Southern District of New York.

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