Sam Bankman-Fried, the embattled co-founder and former CEO of collapsed crypto exchange, FTX, has been charged by the US Securities and Exchange Commission (SEC) for fraud.
The SEC filed the charges on Tuesday following the arrest of Bankman-Fried in Bahamas where he was expected to appear before a magistrate court. The charges said Bankman-Fried defrauded regulators in “a house of cards” style, raising more than $1.8 billion from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets.
In addition, the civil complaint says that Bankman-Fried diverted customer funds to Alameda Research LLC, his privately-held crypto fund, without telling them. The complaint also says Bankman-Fried commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.
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“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 in a statement.
Bankman-Fried has been under investigation by the US authorities following the collapse of FTX last month. The multibillion dollar exchange filed for bankruptcy on November 11 after it failed to raise a bailout fund as traders rushed to withdraw $6 billion fund in 72 hours.
The former CEO has blamed the company’s implosion on ignorance and oversight, maintaining that he committed no fraud even as more information emerged – pointing to potential fraudulent transactions.
The SEC said separate charges would be announced by the U.S. Attorney’s Office for the Southern District for New York and the Commodity Futures Trading Commission later on Tuesday.
In a statement, the SEC said it would seek a director and officer bar and a penalty against Bankman-Fried, and to prevent Bankman-Fried from participating in future securities purchases, offers and sales except for his personal account and a civil penalty, among other actions.
Police in the Bahamas, where FTX was based, said the 30-year-old was arrested after 6 p.m. on Monday (2300 GMT) at his luxury gated community called the Albany in the capital, Nassau.
Damian Williams, the U.S. Attorney for the Southern District of New York, said in a statement on Monday evening that the arrest came at the request of the U.S. government, a day he’s expected to testify before Congress.
Though he claimed not to have enough information on what really led to FTX’s collapse, Bankman-Fried had agreed to testify before the House Financial Services Committee at the request of the chairwoman Rep. Maxine Waters.
The Committee is expected to proceed with the hearing despite his arrest. But Rep. Waters said she was “disappointed” that the American public, and FTX’s customers, would not get to see Bankman-Fried testify under oath.
The Bahamas’ attorney general’s office said it expects him to be extradited to the United States.
FTX’s implosion has once ignited calls for the regulation of the crypto industry. Gensler said “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.”