Sam Bankman-Fried, the founder and former CEO of FTX, was detained by Bahamian police on Monday night at the US government’s request. The following morning, formal civil and criminal accusations were brought against Bankman-Fried in “parallel actions” by the Securities and Exchange Commission (SEC), Department of Justice (DOJ), and Commodity Futures Trading Commission (CFTC). It was a lot to process all at once, but AFKFree has broken out the most recent accusations against SBF by agency below, along with some more background.
Most likely, the accusations are just the beginning of Bankman-problems. Fried’s The SEC said it was looking into Bankman-Fried for additional securities violations in addition to the accusations it had previously issued on Tuesday. The agency also disclosed that it is actively looking into the conduct of several FTX executives and staff members. As new charges are revealed, AFKFree will keep this article updated.
Securities and Exchange Commission
The Securities and Exchange Commission accused SBF of defrauding FTX investors and customers of more than $1.9 billion. Starting as early as May 2019 until as recently as this past November, “Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customers’ funds for his benefit and to help grow his crypto empire,” the SEC said.
All the while, Bankman-Fried portrayed himself as a responsible business leader building a safe trading platform with “sophisticated, automated measures to protect customer assets.” In reality, the SEC says, “Bankman-Fried orchestrated a fraud to conceal the diversion of customer funds to his privately-held crypto hedge fund, Alameda Research.”
Bankman-Fried told investors and customers FTX’s sister company was just another platform on the exchange with no special privileges to speak of. “These statements were false and misleading,” according to the SEC. Alameda had access to a “virtually unlimited ‘line of credit” unknowingly funded by FTX customers. In May 2022, when Alameda’s lenders demanded the firm repay loans worth billions of dollars, Bankman-Fried allegedly directed FTX to divert even more money to the hedge fund.
The SEC seeks to bar Bankman-Friend from trading securities in the future. The agency also wants to seize his ill-gotten gains and bar him from acting as an officer or director at another company.
Current FTX CEO John Ray III testified before the House Financial Services Committee on Tuesday — SBF had said he would attend the hearing before his arrest. Ray spoke to some of the allegations detailed by the SEC. “This is old-fashioned embezzlement,” he told the panel. “We’ve lost $8 billion. I don’t trust a single piece of paper in this organization.”
Department of Justice
In addition to civil charges, Bankman-Fried faces a criminal indictment from the Justice Department. On Tuesday, prosecutors from the Southern District of New York filed eight charges against the former executive, including multiple counts of wire fraud. The Justice Department alleges SBF conspired with other individuals to defraud investors by sharing misleading information about FTX and Alameda’s financial condition. Prosecutors further accused him of attempting to commit commodities and securities fraud. On top of that, Bankman-Fried allegedly broke federal election laws by donating more than is legally allowed and in the names of other people.
SBF spoke about his political donations in a recent interview with journalist Tiffany Fong. “I donated to both parties. I donated about the same amount to both parties,” he said. “All my Republican donations were dark. The reason was not for regulatory reasons, it’s because reporters freak the fuck out if you donate to Republicans.”
It’s worth emphasizing how serious the criminal charges against Bankman-Fried are. For context, a federal judge recently sentenced Theranos founder and former CEO Elizabeth Holmes to 11 years in prison for defrauding the company’s investors and patients. Meanwhile, Ramesh “Sunny” Balwani, the startup’s former chief operating officer, was sentenced to nearly 13 years in prison for his role in the scheme. Sam Bankman-Fried stands accused of defrauding investors of almost $2 billion, or about twice what investors lost to Theranos.
Commodity Futures Trading Commission
Rounding out the current charges against Bankman-Fried, the Commodity Futures Trading Commission accused the former executive of using Alameda Research to “surreptitiously” siphon customer funds. “At Bankman-Fried’s direction, FTX executives created features in the underlying code for FTX that allowed Alameda to maintain an essentially unlimited line of credit on FTX,” the regulator alleges. It adds that Alameda had other “unfair” advantages, including an exemption from the platform’s auto-liquidation risk management process.
As early as May 2019, SBF and “at least one” other Alameda executive directed the firm to use FTX customer funds to trade on competing platforms and buy “high-risk” digital assets. Additionally, the CFTC alleges that Bankman-Fried and his cohorts “took hundreds of millions of dollars in poorly-documented ‘loans’ from Alameda,” which they then used to purchase real estate and make political donations.
For his actions, the CFTC is seeking to ban Bankman-Fried from trading derivatives and impose civil penalties against him. It also wants to bar him from acting as a director or officer in the future.
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