US Securities Watchdog Charges Sam Bankman-Fried With Fraud Over FTX Collapse

According to a statement published on Dec. 13, 2022, the U.S. Securities and Exchange Commission (SEC) has charged the disgraced FTX co-founder Sam Bankman-Fried (SBF) with defrauding investors. SEC chairman Gary Gensler explained that the U.S. financial regulator alleges that SBF “built a house of cards on a foundation of deception.”

U.S. SEC Contends Former FTX CEO SBF Committed Fraud, Crypto Firms Warned the ‘Sec’s Enforcement Division Is Ready to Take Action’

Following the arrest of the former FTX CEO Sam Bankman-Fried (SBF) in The Bahamas, the U.S. Securities and Exchange Commission (SEC) has revealed charges against the FTX co-founder. The SEC complaint contends that “Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors” the undisclosed funneling of customer funds from FTX to Alameda Research. This includes providing Alameda “with a virtually unlimited ‘line of credit’ funded by the platform’s customers.”

In addition to the SEC, on Dec. 12, 2022, after SBF was arrested, a report detailed that the Southern District of New York (SDNY) prosecutors office and SDNY attorney Damian Williams have confirmed SBF was charged. The report noted that SBF’s charges included “wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.”

“Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the SDNY,” Williams disclosed on Twitter. “We expect to move to unseal the indictment in the morning and will have more to say at that time.” In the press release published by the SEC, chairman Gary Gensler explained that the U.S. regulator believes SBF is responsible for defrauding investors.

“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,” Gensler remarked in a statement.

“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,” Gensler continued. “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.”

Gensler further added a warning for other crypto platforms:

To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action.

The SEC charges follow the controversy that surrounded Gensler and his meeting with Sam Bankman-Fried on March 29. Congressman Tom Emmer explained in a tweet that his office received reports that the SEC chairman allegedly helped SBF with legal loopholes. Yet a contradictory view of the meeting reported on by Fox Business correspondent Charles Gasparino claims that Gensler gave SBF a “45-minute lecture.” Gasparino alleged that Gensler made no promises to SBF, and “ordered [FTX] to provide much more in the way of disclosure etc to the SEC about their model.”

Additionally, the chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, recently told the press that the CFTC met with SBF roughly ten times before FTX collapsed. The director of the SEC’s Division of Enforcement, Gurbir S. Grewal, stressed that “Bankman-Fried [is] responsible for fraudulently raising billions of dollars from investors in FTX and misusing funds belonging to FTX’s trading customers.” The fraud, Grewal said, was painted as legitimate, and the SEC alleges that the perception of legitimacy was the furthest from the truth.

“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,” Grewal detailed. “But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”

According to the SEC, SBF is also being charged by other law enforcement officials and financial regulators in the United States. This includes the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC). The ongoing investigation will be conducted by members of the SEC’s Crypto Assets and Cyber Unit.

“The SEC’s complaint seeks injunctions against future securities law violations; an injunction that prohibits Bankman-Fried from participating in the issuance, purchase, offer, or sale of any securities, except for his own personal account; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar,” the SEC’s charges against SBF conclude.

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