- The SEC accused Bankman-Fried of diverting customer funds for personal use.
- The 30-year-old was said to have given investors the false impression that FTX was safe and had appropriate risk management systems.
- Bankman-Fried was arrested in the Bahamas recently after being charged in the United States.
The United States Securities and Exchange Commission (SEC) has reportedly filed charges against the recently arrested founder of the bankrupt exchange, FTX, Sam Bankman-Fried. The watchdog accused Bankman-Fried of violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The SEC claimed SBF ran nothing less than a “brazen,” years-long fraud from the start of FTX, which enabled him to mismanage and divert billions of users’ funds for personal use. Legal filings released on Tuesday said Bankman-Fried used customer funds to bail out his trading company, Alameda Research, which was supposed to operate separately from FTX. The 30-year-old is also said to have misused funds to push his political ambitions with heavy donations.
According to the civil lawsuit the agency filed in the Southern District of New York, Bankman-Fried generated more than $1.8 billion from investors who purchased equity stakes in the exchange under the impression that FTX had effective control and proactive risk management.
Customers allegedly “believed his lies” and thought the platform was secure, and trusted the exchange with billions of dollars. The filing claimed SBF “spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments.”
SEC Chair Gary Gensler said in a statement,
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.
The SEC filed the lawsuit a day after Bankman-Fried was arrested in the Bahamas by law enforcement after being informed that a criminal indictment had been brought against him in a New York court. Bankman-Fried previously claimed he did not knowingly commit fraud. However, regulators believe that had been the plan from the start.
SBF was accused of misleading investors with lies regarding the relationship between FTX and Alameda Research. The FTX founder reportedly claimed, “Alameda was just another platform customer with no special privileges.” But the complaint said Alameda was illegally granted special status with lines of credit and a waiver from the FTX’ liquidation protocols, enabling it access to users’ funds.
Bankman-Fried’s arrest could give regulators increased control over the crypto space.