FTX Founder Sam Bankman-Fried Charged By SEC For Defrauding Investors

The United States Securities and Exchange Commission (SEC) has accused Sam Bankman-Fried of “fraud” following the collapse of FTX FTT/USD, the cryptocurrency exchange he founded.

The ex-CEO was accused of "orchestrating a scheme to defraud equity investors in FTX Trading Ltd.," according to an SEC statement.

The regulator alleges that FTX raised more than $1.8 billion, which included about $1.1 billion from about 90 U.S.-based investors. He then used "commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations," the SEC said.

The federal regulator stated that inquiries are still ongoing into additional infractions of securities laws.

A day before Bankman-Fried was supposed to virtually testify before the U.S. House Financial Services Committee for its initial hearing on the collapse of the exchange, he was detained in the Bahamas.

“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 in the release.

"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.”

The Securities Exchange Act of 1934 and the Securities Act of 1933 both have anti-fraud laws, which Bankman-Fried is accused of breaking.

Bankman-Fried would not be permitted to issue, buy, offer, or sell any securities other than for his own personal account as the SEC is also requesting an injunction against future violations of the securities laws.

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Bankman-Fried Must Return Ill-Gotten Gains

A civil fine, a restriction from serving as an officer or director at corporations that must file reports with the SEC, as well as the legal return of his "ill-gotten gains" are being sought by the federal regulator.

Charges against Bankman-Fried will also be made public by the Commodity Futures Trading Commission (CFTC) and the U.S. Attorney's Office for the Southern District of New York, according to the press release.

The CFTC, FBI, and SDNY were all acknowledged by the SEC as having been helpful in the case.

The Crypto Assets and Cyber Unit of the SEC, along with Brian Huchro and Pasha Salimi, Devlin Su, Ivan Snyder, and David S. Brown will undertake the investigation.

David D'Addio and Amy Burkart will serve as the lead attorneys in the case.

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