The U.S. Securities and Exchange Commission (SEC) has officially charged disgraced FTX founder Sam Bankman-Fried (aka SBF) with defrauding investors, it revealed on Tuesday morning follwing his arrest in the Bahamas. The SEC said in a press release that in addition to being charges with fraud regarding equity investors in FTX, he’s also being investigated regarding other securities law violations — and noted that there are ongoing investigations pending against others involved as well.
The SEC isn’t the only one getting a hand on this ball, however: Both the Southern District of New York’s Attorney’s office and the Commodity Futures Trading Commission (CFTC) also filed charges against SBF in “parallel actions.”
The complaint from the U.S. securities regulator alleges that while Bankman-Fried presented FTX as “a safe, responsible crypto asset trading platform,” in reality the founder sometimes described as ‘crypto’s white knight’ was engaged in a “years-long fraud” designed to hide from FTX investors the fact that their funds were being redirected to SBF’s Alameda crypto hedge fund, while Alameda enjoyed a kind of favored status that protected it from the usual risk mitigation measures FTX employed. The SEC also takes issue with the degree of exposure FTX had to Alameda’s very large holdings of “illiquid assets such as FTX-affiliated tokens.”
Also included in the complaint are allegations that FTX customer funds were employed via Alameda for other expenditures including VC investments, “lavish real estate purchases,” and political donations, all of which have been documented in numerous reports and in some cases, by SBF’s own admission during his many interviews following the collapse of his businesses.
SEC Chair Gary Gensler reiterated his oft-repeated position that in fact, crypto trading platforms need to comply with existing securities laws in a quote in the release announcing the charges. This stands to be likely the most impactful and significant test of that position to date, since SBF’s specific charges in this action are allegations of violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. One consequence if SBF is convicted could be that he’s banned from future securities trading beyond as an individual, and prevented from acting as a corporate officer or board member, in addition to monetary penalties.
This story is developing…