Bankman-Fried Charged in ‘Years Long’ Fraud Against FTX Investors

FTX’s founder carried out a “years-long” fraud against investors who gave $1.8 billion to his cryptocurrency exchange.

That’s according to a suit filed Tuesday (Dec. 13) by the Securities and Exchange Commission (SEC), charging Sam Bankman-Fried with fraudulently raising funds from investors and misusing funds belonging to FTX customers.

“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.”

According to the SEC’s complaint, Bankman-Fried hid from investors that he was diverting customer funds to sister company Alameda Research, and “the undisclosed special treatment afforded to Alameda on the FTX platform.”

That treatment included “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,” the SEC says.

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

Bankman-Fried was arrested Monday in the Bahamas — where FTX is headquartered — after the U.S. Attorney’s Office for the Southern District of New York shared a sealed indictment against Bankman-Fried with Bahamian authorities.

He is expected to be extradited to the U.S. He was also expected to testify Tuesday before the U.S. House Financial Services Committee in its investigation into FTX’s downfall.

Rep. Maxine Waters, who chairs the committee, expressed disappointment over the timing of the arrest in a statement emailed to PYMNTS.

“The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity,” Waters said.

The hearing is still set to feature John L. Ray III, who took over as CEO of FTX after the company declared bankruptcy last month.

FTX — which was once one of the biggest cryptocurrency exchanges in the world — imploded over the course of a few days after reports emerged last month that the platform was commingling funds with Alameda Research.

In recent interviews, Bankman-Fried has repeatedly claimed he did not “knowingly commingle funds,” and has blamed the failure on “a lack of oversight” and “pretty big mistakes I’m embarrassed to have made.”

For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.