The securities and exchange commission (SEC) has indicted the former CEO of FTX, Sam Bankman Fried, for fraudulent acts which involved tricking customers and hiding the details about the exchange’s diversion of customers’ assets to Alameda Research LLC.
Earlier this week, the news of Sam Bankman-Fried’s arrest made the airwaves, and to the displeasure of some crypto investors and enthusiasts, the details of the charges that were levelled on him were not revealed.
Though many suspected that would happen soon, the situation was beyond the limited scope of hasty assumptions.
Damian Williams— the US attorney, said they expected to unseal the indictment in the morning of Tuesday and will have more to say at that time. Afterwards, there was nothing concrete except the dilly-dallying commentaries of SBF’s replacement, Binance CEO and FTX’s legal representatives.
SEC reveals details of SBF charges
The charges levelled on Sam Bankman-Fried on Tuesday indicate that he generated over $1.8 billion from equity investors since 2019 by pitching FTX ceaselessly as the best, most secured and appropriate interface for storing, trading and purchasing crypto tokens.
The charge included that Bankman-Fried spent years planning to keep the investors and customers unaware as he transferred their funds to Alameda Research LLC, his privately-held crypto hedge fund.
He did that continuously without releasing an official statement to inform customers about his operations. With a resilient attempt to inflict innocent customers with losses, Sam Bankman-Fried also merged FTX customers’ funds that were transferred to Alameda to make undisclosed venture investments, real estate purchases, and considerable political donations.
The charge also explained that Sam Bankman-Fried did not disclose the special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers, exempting Alameda from specific key FTX risk mitigation measures.
Also, he concealed the risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens from investors and customers. According to SEC Chair Gary Gensler:
“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,” Gary Gensler concluded.
“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,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, in a statement. “But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”
In the past few weeks, SBF has made numerous media interviews, boldly denying suspicions of his activities as FTX CEO being fraudulent. In response to the then-unfounded allegations, he said that he never had the plan to dupe anyone and was not briefed about the movement of customer funds to solidify Alameda operations.
“SBF’s repeated public claims give the S.E.C. 90 percent of what they need,” said Erik Gordon, a law and business professor at the University of Michigan. “No secret smoking gun needed.”
Federal authorities will probably seek to extradite Mr Bankman-Fried, 30, from the Bahamas, and that could take time, especially if he chooses to fight it. The revelation of Sam Bankman-Fried’s fraud would further dampen the enthusiasm of crypto consumers towards crypto exchanges. A good case is Binance’s recent USDC withdrawal splurge.
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