The U.S. Securities and Exchange Commission (SEC) has charged former FTX CEO Sam Bankman-Fried with defrauding investors through opaque risk management and the diversion of customer funds to his quant trading firm Alameda Research.
The SEC alleges that Bankman-Fried inaccurately represented FTX’s risk management mechanisms to equity investors who invested $1.8 billion in the exchange and failed to be transparent about the diversion of customer funds to Alameda.
The SEC also claims that Bankman-Fried concealed Alameda’s exemption from FTX’s risk management policies, despite the trading firm holding large amounts of FTX’s illiquid FTT token.
As a result of the complaint, the SEC is seeking injunctions to prevent Bankman-Fried from buying or selling securities as part of a business endeavor and is asking that he pay back profits from his alleged fraudulent activities.
Additionally, they want the former FTX boss to be barred from senior corporate positions and be charged a civil penalty.
FTX filed for Chapter 11 bankruptcy on Nov. 11, 2022, following a liquidity crisis that saw it unable to meet customer demand for withdrawals.
Bankman-Fried was later arrested in the Bahamas and extradited to the U.S., where he faces eight criminal charges, including wire fraud and violation of political campaign funding laws.
A U.S. judge has set an Oct. 2023 trial date. He is currently out on a $250 million recognizance bond that sees him confined to his parents’ home in Palo Alto, California. He recently started a blog post to defend himself against the fraud allegations.