Feds Charge Former FTX CEO Sam Bankman-Fried With Money Laundering And All Kinds Of Fraud

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

The criminal charges were filed last Friday and disclosed today. They include eight counts that cover allegations of wire fraud against clients and those who lent money to his businesses, securities fraud and money laundering.

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

The CFTC complaint details SBF’s communications within FTX and Alameda, accusing it of committing commodity fraud through its omissions and misrepresentations.

SEC says Bankman-Fried’s ‘years-long’ fraud diverted billions in client funds to grow its crypto empire

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

The allegations against SBF also focus on its statements 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 levels. required.

What he did not tell investors or clients, according to the SEC, was that Alameda Research had special access to FTX funds bypassing one of the “self-liquidation” safety nets applied to others and an ability to maintain an unlimited negative balance with FTX. so that it can use funds deposited by clients for trading.

This unlimited negative balance didn’t shake things up until crypto prices plummeted earlier this year, leading lenders to demand repayment from Alameda. The SEC alleges that SBF ordered the company to pay them using funds from FTX while hiding the billions of dollars Alameda now owes FTX for its “line of credit” and continuing to withdraw hundreds of millions dollars for himself and other leaders.

From there, we know what happened — eventually, CoinDesk reported how closely Alameda and FTX are intertwined, with FTX’s native FTT token making up the majority of Alameda’s balance sheet. Changpeng “CZ” Zhao, the owner of rival exchange Binance, announced plans to dump his company’s FTT holdings, which sparked a run on FTX withdrawals and, very quickly, its collapse once failed to refund customers.

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

SEC Chairman Gary Gensler is quoted in the statement as saying, “We allege that Sam Bankman-Fried built a house of cards on a basis of deception while telling investors it was the one of the most secure buildings in cryptography.”

SBF will appear in court on Tuesday in the Bahamas, which had served as its base of operations as well as FTX.

Prior to his arrest, SBF had continued an ongoing media tour following the filing for bankruptcy 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. This hearing will continue and is scheduled to begin at 10 a.m. ET, with testimony from new FTX CEO John J. Ray III.

Correction on December 13, 10:21 a.m. ET: An earlier version of this story stated that SBF was facing criminal charges filed by the SEC. In fact, the SEC has so far only filed civil charges. He faces criminal charges filed by the U.S. Attorney’s Office for the Southern District of New York. We regret the error.

Update for December 13 at 10:21 a.m. ET: Additional fees from the CFTC and the US Attorney’s Office for the Southern District of New York.

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