The FTX founder stands accused of diverting customers from the crypto exchange FTX to his trading firm Alameda Research.
Sam Bankman-Fried also allegedly defrauded equity investors from around May 2019 till November 2022.
The SEC announced charges against SBF hours after Bahamian authorities arrested the fallen FTX founder and Southern District of New York prosecutors filed criminal charges.
The U.S. Securities and Exchange Commission charged FTX founder Sam Bankman-Fried with defrauding equity investors and customers of the bankruptcy cryptocurrency exchange. SBF was also arrested in the Bahamas after authorities received formal confirmation of criminal charges against Bankman-Fried in the United States.
Southern District of New York prosecutors charged Sam Bankman-Fried with wire fraud, securities fraud, and money laundering, per the New York Times.
SEC vs Sam Bankman-Fried
According to the SECs filing, SBF deceived equity investors of FTX Trading Ltd while also defrauding retail customers as well. The commission noted that Bankman-Fried raised over $1.8 billion from around 90 U.S.-based investors between May 2019 and November 2022.
The SEC said SBF branded himself as a “responsible leader of the crypto community” while “orchestrating a massive, years-long fraud”.
Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations.
Tuesday’s filing noted that Bankman-Fried continued funding Alameda with FTX customer deposits when his trading giant was unable to meet loan obligations after the crypto crash in May 2022.
The SECs filing argued that Alameda was bolstered with FTX customer assets in order to keep up appearances and maintain access to cash injections from investors and lenders. Also, the charges confirmed that company assets were used to fund personal loans to SBF and other top FTX executives.
But Bankman-Fried did not stop there. Even as it was increasingly clear that Alameda and FTX could not make customers whole, Bankman-Fried continued to misappropriate FTX customer funds. Through the summer of 2022, he directed hundreds of millions more in FTX customer funds to Alameda, which he then used for additional venture investments and for “loans” to himself and other FTX executives.
SEC prosecutors further opined that Sam Bankman-Fried remained active in decision-making at Alameda despite appointing Caroline Ellison and Sam Trabucco as joint heads of the company. The allegations threw more doubt on claims from SBF that he had little knowledge of day-to-day operations at Alameda.
Bankman-Fried remained the ultimate decision-maker at Alameda, even after Ellison and Trabucco became co-CEOs in or around October 2021. Bankman-Fried directed investment and operational decisions, frequently communicated with Alameda employees, and had full access to Alameda’s records and databases.
Sam Bankman-Fried was the first to face charges following FTX’s collapse in November 2022. The fallen crypto tycoon was in custody and awaiting possible extradition to the U.S. at press time.