Article updated 13:10 UTC to add details.
The Securities and Exchange Commission (SEC) charged Sam Bankman-Fried (SBF) on Dec. 13, with “orchestrating a scheme to defraud equity investors in FTX Trading Ltd (FTX).”
The SEC stated that SBF “concealed his diversion of FTX customers’ funds to crypto trading firm Alameda Research while raising more than $1.8 billion from investors.”
Since May 2019, FTX raised over $1.8 billion from equity investors, according to the SEC press release — which clarified:
“Including $1.1 billion from approximately 90 U.S.-based investors.”
SBF promoted FTX as both a safe and responsible crypto asset trading platform, “specifically touting FTX’s sophisticated, automated risk measure to protect customer assets.”
However, the SEC complaint alleged that “in reality,” SBF orchestrated a “years-long fraud to conceal from FTX’s investors” three undisclosed fraudulent actions:
- “The undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund.”
- “The undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures.”
- “Undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.
The SEC has charged SBF with violation of anti-fraud provisions of the Securities Act 1933 and the Securities Exchange Act of 1934.
Overseeing the SEC Chair, Gary Gensler 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.”
Highlighting trading platform conduct for both investors and regulators, Gensler warned that for “platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action.”