Sam Bankman-Fried has formally been charged and will be held without bail following his arrest Monday night.
- FTX founder Sam Bankman-Fried (SBF) was arrested Monday night in the Bahamas following the month-long collapse of one of the largest cryptocurrency exchanges.
- Charges filed on Tuesday by the Securities and Exchange Commission (SEC) allege SBF defrauded investors, diverted customer assets to a private crypto hedge fund, funneled money to Alameda that could be loaned back to him, and lied to the public to hide his actions.
- SBF has repeatedly denied claims that he committed fraud and claimed the company’s bankruptcy was caused by unintentional mismanagement.
Why it’s Important
Despite SBF’s claims of hapless mismanagement, the SEC’s 28-page report directly asserts he knowingly engaged in fraud, hiding funds in hidden accounts, and diverting user funds for personal investments and projects. Furthermore, it accuses him of deliberately and repeatedly lying to the public about his intentions and actions.
“Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC, and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations,” says the SEC.
Backing up a Bit
SBF repeatedly shifted money between FTX and Alamada to the point where the two organizations were indistinguishable. FTX gave Alamada special treatment and no risk management and Alameda gave FTX essentially an unlimited line of credit, Bloomberg reports.
Hidden accounts held by an Alameda subsidiary North Division Inc. discovered by the SEC showed the company was mixing customer and company assets together and used the money to finance SBF’s investments.
“When falling crypto prices meant the time came to start actually liquidating Alameda’s positions on FTX, Bankman-Fried said in interviews with media that he wasn’t aware of just how illiquid Alameda’s collateral had become,” says Bloomberg.
“Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire. Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible,” says the SEC.