FTX founder Sam Bankman-Fried charged with defrauding crypto investors

FTX (Marta Lavandier/AP)

The US Securities and Exchange Commission has charged the former chief executive of failed cryptocurrency firm FTX with orchestrating a scheme to defraud investors.

An SEC complaint filed on Tuesday alleges that Sam Bankman-Fried raised more than 1.8 billion  dollars (£1.4 billion) from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.

The complaint says Bankman-Fried diverted customer funds to Alameda Research LLC, his privately-held crypto fund, without telling them.

The complaint also says Bankman-Fried commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish property purchases, and large political donations.

A Statement from the Royal Bahamas Police Force on the arrest of Samual Benjamin Bankman-Fried.

Police wish to inform that 30-year-old SAMUEL BENJAMIN BANKMAN-FRIED of California, U.S.A, has been arrested. pic.twitter.com/Mr85S2fzcN

— Latrae L. Rahming (DOC)🇧🇸 (@latraelrahming) December 13, 2022

Bankman-Fried was arrested Monday in the Bahamas at the request of the US government, US and Bahamian authorities said.

The arrest was made after the US filed criminal charges that are expected to be unsealed on Tuesday, according to US lawyer Damian Williams.

Bankman-Fried had been under criminal investigation by US and Bahamian authorities following the collapse last month of FTX, which filed for bankruptcy on November 11, when it ran out of money after the cryptocurrency equivalent of a bank run.

The SEC charges are separate from the criminal charges expected to be unsealed later.

Bankman-Fried has a right to contest his extradition, which could delay but not likely stop his transfer to the US.

Bankman-Fried’s arrest came just a day before he was due to testify in front of the House Financial Services Committee in the US.

Bankman-Fried was one of the world’s wealthiest people on paper, with an estimated net worth of 32 billion dollars (£26 billion).

He was a prominent personality in Washington, donating millions of dollars toward mostly left-leaning political causes and Democratic political campaigns.

FTX grew to become the second-largest cryptocurrency exchange in the world.

That all unravelled quickly last month, when reports called into question the strength of FTX’s balance sheet.

Customers moved to withdraw billions of dollars, but FTX could not meet all the requests because it apparently used its customers deposits to cover bad bets at Bankman-Fried’s investment arm, Alameda Research.

Bankman-Fried said recently that he did not “knowingly” misuse customers’ funds, and said he believes his millions of angry customers will eventually be made whole.