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US reveals first charges against Sam Bankman-Fried

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US securities regulators have charged Sam Bankman-Fried with defrauding investors in his recently bankrupt cryptocurrency exchange FTX, the first move in an expected onslaught of criminal and civil charges following his arrest in the Bahamas late on Monday.

The Securities and Exchange Commission said on Tuesday it had charged Bankman-Fried with defrauding venture capitalists and other equity investors who pumped $1.8bn into Nassau-based FTX, the majority of whom are based in the US, since May 2019.

The regulator accused Bankman-Fried of orchestrating a multibillion-dollar fraud that began the day he launched his FTX crypto exchange and continued at his personal direction until its collapse last month.

“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.

Bankman-Fried was arrested at his luxury penthouse in the Bahamas after US prosecutors filed criminal charges. Federal prosecutors in the Southern District of New York said the case against the 30-year-old would be unsealed later on Tuesday morning.

While the SEC can only issue civil charges, the criminal charges against Bankman-Fried could lead to years of prison time if he is convicted.

The failure of the Bahamas-based exchange, once valued at $32bn, has resulted in potential losses for millions of creditors, including retail investors, and sent shockwaves through the crypto industry.

In its lawsuit, the SEC alleged that Bankman-Fried promoted his company to potential equity investors as a safe and reliable participant in the wild west of digital assets, focusing on touting the company’s sophisticated risk management. The agency alleged Bankman-Fried hid the fact that his private trading firm Alameda Research was exempt from risk controls and benefited from in effect limitless loans from FTX backed by customer assets.

“From the start, Bankman-Fried improperly diverted customer assets to his privately held crypto hedge fund, Alameda Research, and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations,” the SEC alleged.

Bankman-Fried has in recent weeks insisted he was unaware of the details of what Alameda was doing. He has also denied intentional wrongdoing and apologised for what he has characterised as oversights and errors.

However, the SEC alleged that he had full control and access to information at both FTX and Alameda, and that he “directed investment and operational decisions” at the trading firm. The regulator claimed Bankman-Fried had taken active steps this year to hide the billions of dollars of FTX customer balances that were held at Alameda.

“Bankman-Fried placed billions of dollars of FTX customer funds into Alameda. He then used Alameda as his personal piggy bank,” the lawsuit alleges.

Before its collapse into bankruptcy last month, FTX had won the backing of several of the world’s best-known investors including BlackRock, Sequoia Capital and the Ontario Teachers’ Pension Plan.

“The alleged fraud committed by Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws,” Gensler said. The SEC said its investigation into FTX was ongoing.

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