US’ CFTC Charges Bankman-Fried, FTX.com and Alameda with Fraud

On Tuesday, the Commodity Futures Trading Commission (CFTC), the United States derivatives market regulator, charged Sam Bankman-Fried, the Founder and former CEO of bankrupt cryptocurrency exchange, FTX, with “fraud and material misrepresentations in connection with the sale of digital commodities in interstate commerce.”

ENFORCEMENT NEWS: Today, the CFTC charged Sam Bankman-Fried, FTX Trading and Alameda with fraud and material misrepresentations. Get the details: https://t.co/gxQ5hsNes1

Additionally, the derivatives watchdog included FTX Trading Limited, the operator of FTX.com, and Alameda Research LLC, FTX’s corporate sibling and quantitative trading firm, in the charges. The charges were filed before the US District Court for the Southern District of New York, the CFTC said in a statement published on Tuesday.

Also, the United States Attorney for the Southern District of New York unsealed an indictment charging Bankman-Fried with wire, commodities and securities fraud as well as money laundering.

The unsealing comes after Bankman-Fried was arrested on Monday evening (local time) by the Royal Bahamas Police upon the request of the Attorney who shared a sealed indictment with the Bahamian government and requested for the arrest of the once-celebrated cryptocurrency entrepreneur. The arrest came ahead of the embattled Founder’s expected appearance before the U.S. House Financial Services Committee on Tuesday to testify on the collapse of FTX.

The SEC complaint essentially says #SBF failed to disclose #FTX bad business practices and lack of controls. The SEC could have let this proceed through bankruptcy but chose to file this on behalf of 90 investors who could protect their own interests in the bankruptcy proceedings

‘Over $8 billion Loss’

Meanwhile, in the Tuesday statement, the CFTC noted that while FTX promoted itself as a custody-based cryptocurrency trading platform, “customer assets were routinely accepted and held by Alameda and commingled with Alameda’s funds.”

“Alameda, Bankman-Fried and others also appropriated customer funds for their own operations and activities, including luxury real estate purchases, political contributions, and high-risk, illiquid digital asset industry investment,” CFTC explained.

Additionally, the CFTC said the actions of Bankman-Fried, FTX.com and Alameda Research resulted in the loss of over $8 billion in FTX customers' deposits. This is even as Bankman-Fried and Caroline Ellison, the former CEO of Alameda Research, have previously been accused of tampering with FTX customer funds, causing a liquidity crisis that precipitated the exchange’s fall.

FTX Code Manipulation

Meanwhile, the CFTC said it charged Bankman-Fried for ordering FTX employees to introduce new features into FTX’s code that enabled Alameda access “to executive transactions even when it did not have sufficient funds available, including an ‘allow negative flag.’”

Furthermore, the derivatives regulator alleged that FTX tampered with its code, upon Bankman-Fired’s direction, to provide a limitless line of credit to Alameda and enable the trading firm “to withdraw billions of dollars in customer assets from FTX.” The public was not informed of these developments, the CFTC alleged.

Meanwhile, last week Bankman-Fried hired Mark Cohen, the Co-Founder and Managing Partner of New York-based Cohen & Gresser law firm, as his attorney. Moreover, Ellison engaged the services of the Washington-based firm, Wilmer Cutler Pickering Hale and Dorr.