​SEC accuses FTX ex-CEO of fraud

What’s new? The US Securities and Exchange Commission (SEC) has accused the former CEO of the bankrupt crypto exchange FTX, Sam Bankman-Fried, of running a scheme to defraud investors. According to the SEC, Bankman-Fried concealed the diversion of $1,8 billion of FTX customers’ funds to his company, Alameda Research. The Commission reported in a press release on December 13.

The SEC’s press release

Details of the charge. SEC officials said that FTX raised more than $1,8 billion since at least May 2019, with about $1,1 billion coming from 90 US-based customers. In his statements, Bankman-Fried represented FTX to investors as a safe and responsible platform for trading crypto assets. In reality, he orchestrated a multi-year fraud scheme in which he concealed the fact of the diversion of customer funds to a private fund, Alameda Research, as well as providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers.

In addition, FTX concealed from investors the risk that Alameda had significant reserves of overvalued and illiquid assets. The SEC also said in a statement that Bankman-Fried used FTX customers’ funds for his own venture investments as well as luxury real estate purchases and large political donations.

SEC chair Gary Gensler said that 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 alleged fraud is a wake-up call for crypto platforms that they need to comply with SEC laws and requirements. For those platforms that fail to comply with securities laws, the SEC’s Enforcement Division is ready to take action, Gensler concluded.

The SEC accuses Bankman-Fried of violating the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission seeks an injunction prohibiting future violations, including prohibiting the former FTX chief from participating in the issuance, offer, or sale of any securities (other than for his personal account), as well as disgorgement of illegally obtained gains and prohibiting him from serving as an officer or director.

The Wall Street Journal reports that following Bankman-Fried’s arrest in the Bahamas, FTX’s new CEO, John J. Ray, is scheduled to testify before the US Congress. Previously, Bankman-Fried himself was scheduled to testify.

News on the WSJ website

Bankman-Fried was arrested on December 12. This came after the US Attorney For The Southern District Of New York Damian Williams briefed Bahamian authorities on the sealed indictment. The US federal government expects to announce the indictment as early as December 13. According to the NYT, Bankman-Fried is charged with money laundering and fraud.

To find out what Alameda Research invested billions of dollars in, check out GetBlock Magazine’s article.