By Senad Karaahmetovic
Sam Bankman-Fried, better known as SBF, was arrested yesterday in the Bahamas. He was the co-founder and former CEO of the cryptocurrency trading company FTX, which went bankrupt.
SBF was arrested after the U.S. Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government. Today, the United States Securities Commission (SEC) accused SBF of defrauding investors.
SBF is accused of having “orchestrated a plan to defraud stock investors” of FTX. The cryptocurrency exchange raised $1.8 billion from equity investors, including about $1.1 billion from 90 U.S.-based investors, the SEC said in a statement.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors it was one of the safest buildings in crypto,” said SEC Chairman Gary Gensler.
According to the complaint, SBF organized a “fraud that lasted for years”. FTX investors were unaware that SBF was diverting funds from FTX clients to Alameda Research, described as “its private crypto hedge fund.”
In addition, Alameda received “undisclosed special treatment” on the FTX platform, “including providing Alameda with a virtually unlimited ‘line of credit’ funded by platform customers and exempting Alameda from certain key compliance measures. FTX Risk Mitigation.”
Additionally, the SEC said investors did not have sufficient information about “the undisclosed risk arising from FTX’s exposure to Alameda’s large holdings of overvalued and illiquid assets such as FTX-affiliated tokens. “
SBF is also accused of using funds from FTX clients at Alameda to “make undisclosed venture investments, lavish real estate purchases, and large political donations,” the SEC added.
“The collapse of FTX highlights the very real risks that unregistered crypto-asset trading platforms can pose to investors and clients,” added Gurbir Grewal, director of the SEC’s enforcement division.
The United States Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) also announced charges against SBF.