The Securities and Exchange Commission charged Sam Bankman-Fried on Tuesday of fraud against customers and investors in his failed cryptocurrency exchange FTX.
The SEC found that Bankman-Fried “orchestrated a years-long fraud” to hide his from FTX investors the transfer of funds from customers into Alameda Research, his crypto trading company.
“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 said in a statement.
Regulators indicated this could be the beginning of a series of charges that will follow. The SEC stated that it is conducting investigation regarding “other securities law violations” as well as other entities as well as individuals. The agency also said that a different regulator is called the Commodity Futures Trading Commission, is also pursuing Bankman-Fried for a felony.
The lawyer of Bankman-Fried was unavailable for comment at the time of publication.
The name is “SBF,” Bankman-Fried is the crypto star of the 30s who was a sham this month after his business faced a liquidity crisis, and declared bankruptcy, leading to at least one million depositors not able to access their money. The suspect was detained without incident in his Bahamas apartment just after 6 pm ET Monday and scheduled to appear in an Nassau court on Tuesday, according to according to the Royal Bahamas Police Force said in a statement on Monday.
Risky bets, lavish spending
FTX reached a staggering $32 billion valuation after raising over $1.8 billion since its launch in May of this year, including wealthy investors like BlackRock, Sequoia Capital and Ontario Teachers Pension Plan. Famous athletes and stars who have backed FTX also received an investment in the company, such as Tom Brady and Gisele.
The SEC asserts that Bankman-Fried 30, deceived investors who invested in FTX by advertising it as an “safe, responsible” crypto trading firm that utilized “sophisticated, automated” risk security measures to guard the funds of customers.
The complaint actually claims that Bankman-Fried in secretly moved FTX customer funds to offer the “unlimited ‘line of credit'” to Alameda. The SEC declares that Bankman-Fried additionally kept investors from the danger caused by FTX’s vulnerability to substantial assets that were overvalued and illiquid assets like FTX-related tokens.
Bankman-Fried did not just use FTX customer money to make gambles that were risky for the hedge fund he managed. The SEC claims he used the funds to fund unidentified venture investments, as well as make “lavish” real estate purchases and make large political contributions.
“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 Grewal head of SEC’s Division for enforcement stated in an announcement. “But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”
“I made a mistake”
In the past four weeks, since FTX declared bankruptcy, Bankman-Fried has attempted to paint himself as a rather unlucky chief executive who slipped out on skis and denied allegations that he defrauded the customers of FTX.
“I didn’t knowingly commit fraud,” he said to the BBC at the weekend. “I did not want any of this to occur. I certainly wasn’t as skilled as I believed I was.”
However, Bankman-Fried has admitted to making errors while running FTX that he stepped off last month when it declared bankruptcy.
“Look, I screwed up,” Bankman-Fried admitted in a live appearance at the New York Times’ DealBook Summit. “There are things I would do anything to do over.”
