SEC charges former FTX CEO Sam Bankman-Fried with defrauding crypto investors
The U.S. Securities and Exchange Commission has charged the former CEO of failed cryptocurrency firm FTX with orchestrating a scheme to defraud investors.
An SEC complaint filed Tuesday alleges that Sam Bankman-Fried raised more than $1.8 billion from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.
The complaint says Bankman-Fried diverted customer funds to Alameda Research LLC, his privately-held crypto fund, without telling them. The complaint also says Bankman-Fried commingled FTX customers' funds at Alameda to make undisclosed venture investments, lavish real estate purchases and large political donations.
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"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," Gurbir S. Grewal, director of the SEC's Division of Enforcement, in a statement. "But as we allege in our complaint, that veneer wasn't just thin, it was fraudulent."
Bankman-Fried was arrested Monday in the Bahamas at the request of the U.S. government, U.S. and Bahamian authorities said.
"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," SEC Chair Gary Gensler added in announcing the agency's charges.
The agency is seeking to claw back what it termed any "ill-gotten gains" from Bankman-Fried and is pursuing a civil penalty, among other remedies.
The arrest was made after the U.S. filed criminal charges that are expected to be unsealed Tuesday, according to U.S. Attorney Damian Williams. Bankman-Fried had been under criminal investigation by U.S. and Bahamian authorities following the collapse last month of FTX, which filed for bankruptcy on Nov. 11, when it ran out of money after the cryptocurrency equivalent of a bank run.
The SEC charges are separate from the criminal charges expected to be unsealed later Tuesday. In parallel actions, the U.S. Attorney's Office for the Southern District of New York and the Commodity Futures Trading Commission also have announced charges against Bankman-Fried.
FTX was one of the world's largest cryptocurrency exchanges before it collapsed last month. Users withdrew roughly $5 billion of crypto assets in a single day as concerns mounted over the exchange's solvency. Bankman-Fried resigned on November 11 and FTX filed for Chapter 11 bankruptcy protection.
Before his arrest, Bankman-Fried was scheduled to appear before a House panel on Tuesday to answer questions about FTX's collapse. In prepared testimony for the hearing, new FTX CEO John J. Ray III said FTX "failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people's money or assets."