The U.S. Securities and Exchange Commission(SEC) has charged the former CEO of failed cryptocurrency firm FTX with orchestrating a scheme to defraud investors.

SEC complaint filed today, December 13, 2022 alleges that Sam Bankman-Fried raised more than $1.8 billion from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.

The SEC says Bankman-Fried further concealed from investors the risk stemming from FTX’s exposure to significant holdings of overvalued, illiquid assets such as FTX-related tokens.

The civil complaint says Bankman-Fried diverted customer funds to Alameda Research LLC, his privately-held crypto fund, without telling them.

The complaint also says Bankman-Fried commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.

“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 alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”
SEC Chair Gary Gensler

Bankman-Fried said recently that he did not “knowingly” misuse customers’ funds, and said he believes his millions of angry customers will eventually be compensated.

The SEC challenged that assertion in its complaint.

“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. FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike.”
Gurbir Grewal, Director of the SEC’s Division of Enforcement

The SEC charges are separate from the criminal charges expected to be unsealed later today, December 13, 2022.

Multiple Charges To Come

Regulators have indicated that this may be just the first of multiple charges to come.

The SEC said there are ongoing investigations into “other securities law violations” and into other entities and individuals. The agency added that another regulator, the Commodity Futures Trading Commission, is also charging Bankman-Fried.

Bankman-Fried’s lawyer was not immediately available for comment.

Popularly known as “SBF,” Sam Bankman-Fried is the 30-year-old crypto celebrity who became an outcast overnight last month as his company suffered a liquidity crisis and filed for bankruptcy, leaving at least a million depositors unable to access their funds.

According to the Royal Bahamas Police Force, He was arrested without incident at his Bahamas apartment complex shortly after 6 pm ET on Monday, December 12, 2022 and is set to appear in a court today, December 13, 2022.

Bankman-Fried’s arrest comes just a day before he was due to testify in front of the House Financial Services Committee.

Rep. Maxine Waters, D-Calif., chairwoman of the committee, said she was “disappointed” that the American public, and FTX’s customers, would not get to see Bankman-Fried testify under oath.

That hearing, however, will be held despite his arrest.