FTX Founder Sam Bankman-Fried Charged with Fraud, Money Laundering

FTX Founder Sam Bankman-Fried Charged with Fraud, Money Laundering

The US Securities and Exchange Commission (SEC) has charged FTX co-founder Sam Bankman-Fried (SBF) with defrauding investors, according to a statement published on December 13, 2022. SEC chairman Gary Gensler explained that the US financial regulator alleges that SBF "built a house of cards on a foundation of deception."

SEC Claims Former FTX CEO, SBF Committed Fraud

Following the arrest of the former FTX CEO Sam Bankman-Fried (SBF) in the Bahamas, the Securities and Exchange Commission (SEC) has revealed charges against the FTX founder. The SEC complaint contends that "Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors" the undisclosed siphoning of customer funds from FTX to Alameda Research. This includes providing Alameda "with a virtually unlimited ‘line of credit’ funded by the platform’s customers."

The Southern District of New York (SDNY) prosecutor’s office and SDNY attorney Damian Williams have confirmed the charges against SBF, in addition to the SEC. The charges included "wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering."

"Earlier this evening, Bahamas authorities arrested Samuel Bankman-Fried at the request of the US Government, based on a sealed indictment filed by the SDNY," Williams disclosed on Twitter. "We expect to unseal the indictment in the morning and will have more to say at that time." In the press release published by the SEC, Chairman Gary Gensler explained that the US regulator believes SBF is responsible for defrauding investors.

"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," Gensler remarked in a statement.

"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," Gensler continued. "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."

Gensler further added a warning for other crypto platforms:

"For those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action."

Charges by Other Law Enforcement Officials and Regulators

Additionally, the chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, revealed to the media that the CFTC met with SBF roughly ten times before FTX collapsed. The director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said that "Bankman-Fried is responsible for fraudulently raising billions of dollars from investors in FTX and misusing funds belonging to FTX’s trading customers." The fraud, Grewal said, was painted as legitimate, and the SEC alleges that the perception of legitimacy was the furthest from the truth.

"FTX operated behind a veneer of legitimacy created by Bankman-Fried, 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," Grewal detailed. "But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent."

SBF is also being charged by other law enforcement officials and financial regulators in the United States. This includes the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC). The ongoing investigation will be conducted by members of the SEC’s Crypto Assets and Cyber Unit.

"The SEC’s complaint seeks injunctions against future securities law violations; an injunction that prohibits Bankman-Fried from participating in the issuance, purchase, offer, or sale of any securities, except for his account; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar." 

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