Less than 24 hours after the arrest of the disgraced ex-CEO of the bankrupt FTX exchange, the US Securities and Exchange Commission charged him with defrauding investors in crypto asset trading on the FTX platform.
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SEC Charges Former FTX CEO With Defrauding Investors in Crypto Asset Trading
As per the release on Tuesday, December 13, the former CEO of the FTX exchange allegedly orchestrated a scheme to scam equity investors in FTX Trading Ltd, a crypto trading platform founded by Bankman-Fried, the SEC also added that investigation regarding other securities law violations and info on other entities as well as persons involved in the alleged misconduct is currently ongoing.
According to SEC, the disgraced ex-CEO of the insolvent FTX promoted FTX exchange as a safe responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets, and since at least May 2019, the exchange has raised over $1.8 billion from equity investors including approximately $1.1 billion from roughly 90 US-based investors.
The SEC complaints alleged Bankman-Fried diverted undisclosed amount 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; and 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.
“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,” said SEC Chair Gary Gensler. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business. It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action.”
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