SEC Says Bankman-Fried Defrauded Investors of $1.8 Billion (1)

FTX co-founder Sam Bankman-Fried was accused by US regulators of carrying out a multi-year scheme to defraud investors.

The Securities and Exchange Commission said on Tuesday that Bankman-Fried, who was arrested on Monday in the Bahamas and is facing criminal charges in the US, raised more than $1.8 billion from investors. The SEC also said he concealed risks and FTX’s relationship with his trading firm Alameda Research, and used commingled customer funds.

“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,” SEC Chair Gary Gensler said in a statement.

Read the SEC complaint against Bankman-Fried

Bankman-Fried diverted billions of dollars of customer funds to help grow his other entities, the SEC said in its complaint filed Tuesday in New York’s Southern District court. The SEC complaint alleges that FTX raised more than $1.8 billion, including $1.1 billion from about 90 US-based investors, in an “orchestrated scheme to defraud equity investors” who bought in based on the belief that FTX had appropriate controls.

WATCH: A US Securities and Exchange Commission complaint alleges Sam Bankman-Fried raised more than $1.8 billion in an “orchestrated scheme to defraud equity investors.”

Source: Bloomberg

Alameda Research was allowed to carry a negative balance on FTX and was exempt from the exchange’s risk protocols, according to the complaint. The SEC said that Bankman-Fried personally directed that FTX’s “risk engine” not apply to Alameda and hid the extent of the ties between the two entities from investors.

Gary Gensler

Photographer: Al Drago/Bloomberg

The SEC claimed that as late as last month, Bankman-Fried was continuing to mislead investors while trying to fill a multi-billion-dollar hole while FTX was unable to make good on billions in withdrawal demands from customers. It only stopped when FTX and Alameda filed for bankruptcy protection on Nov. 11, the regulator said.

The SEC is seeking to bar Bankman-Fried as an officer or director of a public company or from offering crypto or other securities. The agency is seeking to force him to turn over his ill-gotten assets.

Read more on FTX:

• Sam Bankman-Fried Arrested in Bahamas After US Files Charges
• Bahamas Told Bankman-Fried to Mint New Coins as FTX Crumbled
• Bankman-Fried Jolts Hearings, Upsets Senators With No-Show Plan
• FTX Bankruptcy Team Said to Meet With Federal Prosecutors in NY

(Updates with details on complaint starting in fourth paragraph)

To contact the reporter on this story:
Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editors responsible for this story:
Ben Bain at bbain2@bloomberg.net

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