US regulators on Tuesday filed civil securities fraud charges against Sam Bankman-Fried, the founder of the collapsed cryptocurrency exchange FTX, who was arrested Monday night at his home in the Bahamas.
The Securities and Exchange Commission accused him of misleading large investors, who committed nearly $2 billion to FTX in recent years, about the financial health of the crypto exchange and its sister trading platform. cryptography, Alameda Research.
The SEC also said that Mr. Bankman-Fried duped customers by taking billions of dollars to trade crypto on FTX and telling them it was safe. But the SEC said client money was commingled with funds in Alameda and used to finance investments in outside companies, buy real estate and make political donations.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors it was one of the most secure edifices in crypto,” SEC Chairman Gary Gensler said in a communicated
The SEC’s civil complaint said Mr. Bankman-Fried “was orchestrating a massive fraud for years, siphoning off billions of dollars of trading platform customer funds for his own personal gain and to help grow his crypto empire.”
Federal prosecutors in Manhattan are expected to bring criminal charges against Mr. Bankman-Fried on Tuesday, who is expected to charge him with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering.
The collapse of the FTX empire rocked the crypto world and has made many investors grapple with not only the volatility of crypto assets, but also the safety and security of the platforms on which cryptocurrencies are traded. FTX was one of the largest exchanges in the world and spent heavily on advertising and marketing.
“From the beginning, Bankman-Fried improperly diverted client assets to its private crypto hedge fund,” the SEC said in its civil complaint, “and then used those client funds to make undisclosed venture investments , lavish purchases of real estate and large political donations”.
Regulators said there was no distinction between customer funds and money Alameda used for trading. The SEC said that Mr. Bankman-Fried misled investors by telling them that Alameda did not receive any special treatment from FTX.
A representative of Mr. Bankman-Fried, often known simply as SBF, declined to comment.
During the last few weeks, Mr. Bankman-Fried has given several media interviews, saying she never intended to defraud anyone and that she was completely unaware of how much customer money had been siphoned off to prop up Alameda.
“SBF’s repeated public claims give the SEC 90 percent of what it needs,” said Erik Gordon, a law and business professor at the University of Michigan. “No need for a secret smoking gun.”
Federal authorities will likely try to extradite Mr. Bankman-Fried, 30, of the Bahamas and that could take some time, especially if he chooses to fight it out.