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Founder of failed cryptocurrency exchange FTX Sam Bankman-Fried has been indicted by the US Securities and Exchange Commission on a series of fraud charges.
Bankman-Fried resigned on November 11 as FTX filed for Chapter 11 bankruptcy in a Delaware court after a last-ditch effort to raise £8 billion in bailout funding failed and sent shockwaves through the crypto industry as customers rushed to collect money.
He faces criminal investigation and was arrested Monday at the request of the US government in the Bahamas and is expected to be extradited “immediately” once charges are unsealed and US authorities make a formal request.
In a document released Tuesday, the SEC revealed a series of allegations of securities law violations, which Bankman-Fried said he would “continue to deal with” if not “permanently detained and ordered.”
‘I f***ed up’: FTX founder and CEO Sam Bankman-Fried faces fraud allegations
The SEC said Bankman-Fried, who was expected to testify before Congress about FTX’s demise prior to his arrest, was “involved in a scheme to defraud both equity investors on the platform and his clients.”
It explained: ‘Bankman-Fried raised more than $1.8 billion from investors, including U.S. investors, who purchased an equity stake in FTX in the belief that FTX had appropriate controls and risk management measures in place.
“Clients around the world believed his lies and sent billions of dollars to FTX, believing their assets were safe on the FTX trading platform.” – the second
Unbeknownst to those investors (and to FTX’s trading clients), Bankman-Fried orchestrated a massive, year-long fraud, diverting billions of dollars from the trading platform’s client funds for his own personal gain and to grow his crypto empire. .’
Prior to FTX’s collapse, Bankman-Fried was touted as the prodigy of the crypto sector, sharing conference podiums with the likes of Tony Blair and Bill Clinton.
He has since taken a number of opportunities through televised media interviews to claim his innocence against fraud allegations, insisting instead that he had simply “messed up”.
The SEC said, “Bankman-Fried portrayed himself as a responsible leader of the crypto community.
He praised the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible.
“Clients around the world believed his lies and sent billions of dollars to FTX, believing their assets were safe on the FTX trading platform.”
However, according to the regulator, Bankman-Fried had “from the start…inappropriately diverted client assets to its private crypto hedge fund, Alameda Research.”
He also allegedly used that client money “to make covert venture investments, lavish real estate purchases, and large political donations.”
A bankruptcy court heard last month that FTX was being run as a “personal fiefdom” by CEO Bankman-Fried, after he spent £250 million on Bahamas real estate.
The SEC continued, “Bankman-Fried hid all of this from FTX’s equity investors…from whom he was trying to raise billions of dollars in additional funds.
He repeatedly touted FTX as an innovative and conservative pioneer in the crypto markets. He told investors and potential investors that FTX had first-class, advanced automated risk controls to protect client assets, that those assets were safe, and that Alameda was just another platform client with no special privileges.
These statements were false and misleading. In reality, Bankman-Fried had exempted Alameda from the mitigation measures and given Alameda significant special treatment on the FTX platform.”
The SEC also alleges that when crypto asset prices fell in May, Alameda lenders demanded repayment of “billions of dollars” in loans, and despite having “already taken billions of dollars in assets from FTX clients, it was not able to meet its loan obligations. ‘.
It added: ‘Bankman-Fried directed FTX to reroute billions more in customer funds to Alameda to ensure that Alameda maintained its credit relationships and that money from lenders and other investors could continue to flow.
But Bankman-Fried didn’t stop there. Even as it became increasingly clear that Alameda and FTX couldn’t make clients healthy, Bankman-Fried continued to embezzle money from FTX clients.
In the summer of 2022, he sent hundreds of millions more in FTX client funds to Alameda, which he then used for additional risk investments and “loans” to himself and other FTX managers.
All the while, he continued to make misleading statements to investors about FTX’s financial condition and risk management. Even in November 2022, faced with billions of dollars in customer demands that FTX could not meet, Bankman-Fried misled investors from whom he needed money to close a multi-billion dollar gap.”
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