By Senad Karaahmetovic
Sam Bankman-Fried, popularly known as SBF, was arrested yesterday in the Bahamas. He was the co-founder and former CEO of the bankrupt crypto trading firm FTX.
SBF was arrested after the U.S. attorney for the Southern District of New York shared a sealed indictment with the government of Bahamas. Today, the U.S. Securities and Exchange Commission (SEC) has charged SBF for defrauding investors.
SBF is accused of "orchestrating a scheme to defraud equity investors" in FTX. The crypto exchange raised $1.8 billion from equity investors, including about $1.1 billion from 90 U.S.-based investors, the SEC said in a press release.
"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.
According to the complaint, SBF organized a "years-long fraud." Investors in FTX were not aware that SBF was diverting FTX customers' funds to Alameda Research, described as "his privately-held crypto hedge fund."
Moreover, Alameda was enjoying "the undisclosed special treatment" 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."
Moreover, the SEC said investors did not have enough information about "undisclosed risk stemming from FTX's exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens."
SBF is also accused of using FTX customers' funds at Alameda to "make undisclosed venture investments, lavish real estate purchases, and large political donations," the SEC further added.
"FTX's collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike," added Gurbir Grewal, Director of the SEC’s Division of Enforcement.
The U.S. Attorney's Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) also announced charges against SBF.