SEC charged Sam Bankman-Fried with “orchestrating a scheme to defraud equity investors in FTX”

The United States Securities and Exchange Commission (SEC) has charged Samuel Bankman-Fried (SBF) with “orchestrating a scheme to defraud equity investors” in FTX, the agency said. The announcement came the same day Bankman-Fried was supposed to appear before the US Congress.

“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,” SEC Chair Gary Gensler said in a statement.

The disgraced FTX founder Sam Bankman-Fried (SBF) was arrested by Bahamian authorities on Monday night after the United States Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government. The arrest sets the stage for his extradition to the US.

The embattled crypto exchange FTX filed for Chapter 11 bankruptcy protection on November 11. Immediately after the news, the disgraced FTX founder Sam Bankman-Fried (also known as SBF) resigned as the CEO of the crypto exchange FTX Group and John J. Ray III was appointed the new CEO.

“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. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business. It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action,” SEC said in a press release.

Before its collapse, FTX had raised more than $1.8 billion from equity investors in a years-long fraud in which SBF concealed that FTX was diverting customer money to the sister company Alameda Research LLC, the SEC alleged in a statement.

“FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike. While we continue to investigate FTX and other entities and individuals for potential violations of the federal securities laws, as alleged in our complaint, today we are holding Mr. Bankman-Fried responsible for fraudulently raising billions of dollars from investors in FTX and misusing funds belonging to FTX’s trading customers.”

According to the bankruptcy filings (see PDF below), FTX is a complex web of 134 corporate entities around the world, collectively referred to now as FTX Group. All of these 134 companies are now been put into bankruptcy.

Bankman-Fried first came into the spotlight in 2020 after he donated a whopping $5.2 million to Joe Biden’s campaign, making him the second-biggest donor.

Bankman-Fried founded FTX in 2019 with his co-founder Gary Wang. The Bahamas-based crypto exchange FTX offers derivatives products like futures and options as well as spot trading. Once an unknown startup, FTX has become a key player in the crypto space, rivaling the likes of Coinbase and Binance.