The first set of criminal charges against Sam Bankman-Fried were revealed by the US Securities and Exchange Commission.
According to the SEC complaint, Bankman-Fried diverted customers' funds from FTX to his firm. Since the main FTX exchange wasn't allowed to operate in the US, the charges cite the more than $1.8 billion FTX received from equity investors.
Bankman-Fried diverted billions of dollars in customer funds to grow his empire, according to the SEC.
Bankman- Fried diverted FTX customer funds to Alameda until FTX's collapse in November 2022. SBF was accused by the SEC of using customers' money for investments, real estate, and political contributions. FTX co-founders Gary Wang and Nishad Singh borrowed over half a billion dollars, according to the report.
The allegations against SBF focus on his statements to investors that FTX was a safe place to invest because of an automated risk engine that would sell off a customer's assets to make sure their Collateral stayed at the required levels.
According to the SEC, he did not tell investors or customers that he had access to FTX funds that were not subject to the auto-liquidation backstops.
The negative balance didn't make a difference until the prices of cryptocurrencies fell. According to the SEC, SBF directed the firm to pay them using funds from FTX while hiding the billions of dollars Alameda now owed to FTX and continuing to withdraw hundreds of millions of dollars for himself and other executives.
The majority of Alameda's balance sheet was made up of FTX's native FTT token, according to a report by CoinDesk. The owner of the rival exchange, Changpeng "CZ" Zhao, announced plans to dump his company's holdings, which sparked a run on withdrawals from FTX, and, very quickly, its collapse.
Other charges may follow, but these are the ones he is facing so far, and that is just from the SEC.
The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors (1) the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including 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; and (3) undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens.
The statement says 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.
According to a report by the New York Times, Bankman-Fried will be charged with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money-laundering. The base of operations for him and FTX was in the Bahamas.
Prior to his arrest, SBF had continued an ongoing post-bankruptcy-filing media tour of social media, with at least two live appearances on Monday, and he was expected to testify remotely today. John J. Ray III, FTX's new CEO, is expected to testify at 10 AM.
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