FTX founder Sam Bankman-Fried, popularly known as SBF, has just been charged with fraud by the SEC.
Take a look at the charges the SEC brought against SBF, and find out what they reveal about the fraud committed at FTX!
FTX Founder SBF Arrested, Awaiting US Extradition!
On Monday, December 12, 2022, the Royal Bahamas Police Force arrested FTX founder, Sam Bankman-Fried who is popularly known as SBF in the cryptocurrency community.
SBF was arrested after the United States government formally notified the Bahamas government that it filed criminal charges and is likely to request his extradition.
The Attorney General of the Bahamas then ordered SBF’s arrest, to hold him in custody until a formal request for extradition comes forth. Then the Bahamas intends to process the extradition request “promptly”.
Read more : FTX Founder SBF Arrested, Awaiting US Extradition!
SEC Charges Reveal Fraud Committed By SBF In FTX!
On Tuesday, December 13, 2022, the US Securities and Exchange Commission (SEC) charged SBF with “orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX)”.
The SEC also sought injunctions against future securities law violations, an injunction against SBF participating in securities (except for his personal account), the disgorgement of his “ill-gotten gains”, a civil penalty, and barring him from being an officer or director of any company.
“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.”
FTX Customer Funds Funnelled To Alameda
The SEC accused SBF of funnelling FTX customer funds to Alameda Research, which were then used to fund speculative investments, and provide large loans to Bankman-Fried and top FTX executives.
Customer Funds Used For Real Estate Purchases
SBF allegedly used the commingled funds from Alameda to pay for massive real estate purchases, including office space and luxury condominiums in The Bahamas.
“FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, 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. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
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Customer Funds Used For Political Contributions
The SEC also alleged that SBF used commingled funds to fund political contributions. He was one of the top political donors in the 2022 election cycle.
SBF Was Both Borrower + Lender
According to the SEC, Sam Bankman-Fried was both the borrower and the lender in two instances. SBF also executed more than $1 billion from promissory notes for loans from Alameda Research.
SBF Accused Of Misleading Investors
The SEC also alleged that SBF misled investors into believing that FTX was a safe and responsible crypto asset trading platform, thus allowing FTX to raise more than $1.8 billion in funds from 90 US investors.
FTX Exposure To Alameda Not Disclosed
The SEC also alleged that Sam Bankman-Fried failed to disclose FTX’s deep exposure to Alameda, or how he was diverting FTX customer funds to Alameda for its own trading operations, or other purposes that SBF saw fit.
There was no meaningful distinction between FTX customer funds and Alameda’s own funds. Bankman-Fried thus gave Alameda carte blanche to use FTX customer assets for its own trading operations and for whatever other purposes Bankman-Fried saw fit.
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The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors
(1) the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund;
(2) 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
(3) 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.
In addition to the SEC charges, the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) also announced charges against Sam Bankman-Fried.
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Dr. Adrian Wong has been writing about tech and science since 1997, even publishing a book with Prentice Hall called Breaking Through The BIOS Barrier (ISBN 978-0131455368) while in medical school.
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