Criminal Justice

FTX founder faces criminal and civil charges for alleged $1.8B fraud at FTX Trading

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The founder of cryptocurrency exchange FTX is facing criminal and civil securities charges in connection with an alleged $1.8 billion fraud for touting FTX Trading as a safe platform for crypto asset trading while diverting investor money to his privately held hedge fund.

FTX founder Samuel Bankman-Fried was arrested Monday in the Bahamas based on a sealed indictment, according to the U.S. attorney’s office for the Southern District of New York in a tweet.

FTX Trading collapsed last month after a run on deposits exposed $8 billion in missing customer funds, according to previous reporting by the New York Times and a separate Dec. 13 complaint filed against Bankman-Fried by the Commodity Futures Trading Commission. FTX filed for bankruptcy Nov. 11.

The Dec. 9 indictment, unsealed Dec. 13., charges Bankman-Fried with wire fraud on customers and lenders, conspiracy to commit wire fraud on customers and lenders, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering, and conspiracy to defraud the United States and violate campaign finance laws.

The U.S. Securities and Exchange Commission alleges in its Dec. 13 civil complaint that Bankman-Fried raised $1.8 billion from investors who bought an equity stake in FTX without revealing that he was diverting assets to his privately held crypto hedge fund, Alameda Research. Bankman-Fried then used those funds to make “undisclosed venture investments, lavish real estate purchases and large political donations,” according to an SEC press release summarizing the allegations.

Besides diverting money to Alameda Research, Bankman-Fried also gave Alameda Research special treatment on the FTX platform and failed to disclose Alameda Research’s significant holdings of FTX-affiliated tokens and other overvalued, illiquid assets, according to the press release.

The SEC alleges violations of anti-fraud provisions of securities laws. The complaint seeks disgorgement of wrongful gains, imposition of a civil penalty, a ban on future securities sales, and a ban on serving as an officer or director of a public company.

“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 in the press release. “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.”

The New York Times and Bloomberg Law are among the publications with coverage of the developments.

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