Sam Bankman-Fried, the former CEO and co-founder of the cryptocurrency exchange FTX, has been accused by the US Securities and Exchange Commission of "orchestrating a scheme to defraud equity investors."
The firm raised more than $1.8 billion from equity investors, according to a statement from the SEC, including roughly $1.1 billion from 90 US-based investors since May 2019.
The SEC stated that "in his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets,” said the SEC."
To hide from investors the "undisclosed diversion of FTX customers' funds to Alameda Research, his privately-held crypto hedge fund," according to the lawsuit, Mr. Bankman-Fried allegedly staged a "years-long fraud."
The former CEO is also accused of concealing "special treatment afforded to Alameda on the FTX platform," which included exempting Alameda from some crucial FTX risk mitigation measures, as well as "risk stemming from FTX's exposure to Alameda's significant holdings of overvalued illiquid assets such as FTX-affiliated tokens."
The lawsuit further claims that Mr. Bankman-Fried utilized "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," stated 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," he 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. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action," he said.
The Commodity Futures Trading Commission (CFTC) and the US Attorney's Office for the Southern District of New York also announced charges against Bankman-Fried concurrently.
In the Bahamas, where he had been residing, he was taken into custody on Monday.
By fLEXI tEAM