US Financial Regulators Sue FTX Founder for Investor Fraud Allegations

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Sam Bankman-Fried, the founder of FTX, one of the world's top three cryptocurrency exchanges that has entered bankruptcy protection proceedings, has been sued by financial authorities following criminal charges by U.S. prosecutors. Bankman-Fried, who was previously arrested by Bahamian prosecutors, is expected to be extradited to the United States soon.

According to the Washington Post (WP) and others, the U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Bankman-Fried on the 13th (local time) at the U.S. District Court for the Southern District of New York. He is accused of committing years-long fraud against investors.

According to the complaint, Bankman-Fried raised $1.8 billion (approximately 2.3364 trillion KRW) from FTX equity investors starting in May 2019, diverted the funds to his affiliate Alameda Research, and used them for undisclosed venture investments, luxury real estate purchases, and large political donations.

The SEC stated in the complaint, "Bankman-Fried reassured investors that FTX had a top-level, sophisticated, and automated risk management system and that their assets were safe," while pointing out that "he used billions of dollars of customer investments as if there were no credit limits for his personal gain and the growth of his cryptocurrency empire."

The SEC judged that Bankman-Fried's deception of investors was a planned fraudulent conspiracy spanning several years. SEC Chairman Gary Gensler criticized in a statement, "While Bankman-Fried was sinking billions of dollars of customer funds into speculative venture investments, his 'house of cards' (a plan with little chance of success) began to collapse."

On the same day, the U.S. Commodity Futures Trading Commission (CFTC) also filed a lawsuit against Bankman-Fried, FTX, and Alameda Research at the U.S. District Court for the Southern District of New York. The CFTC, which oversees derivatives, alleged that Bankman-Fried violated federal commodity laws by borrowing hundreds of millions of dollars from Alameda to purchase real estate and make political contributions.

These lawsuits were filed the day after Bankman-Fried was arrested in the Bahamas. The U.S. Attorney’s Office for the Southern District of New York revealed in an additional indictment that Bankman-Fried faces eight charges including wire fraud, securities fraud conspiracy, and money laundering. Bankman-Fried is expected to undergo a plea hearing in the Bahamas on the 13th and then be subject to extradition to the United States.

Since the FTX bankruptcy crisis, Bankman-Fried, who appeared in public for the first time, has emphasized that he did not fully understand how the situation unfolded and that it was a mistake rather than an intentional fraud. He has also denied criminal responsibility.

Bankman-Fried’s legal team stated in a press release that day, "We are considering all legal options with our legal team."

Meanwhile, according to documents submitted by Bahamian regulators to the Delaware bankruptcy court, FTX purchased 35 properties in the Bahamas, with a total value estimated at $256.3 million (approximately 330 billion KRW). The Bahamas, where FTX’s headquarters are located, has been investigating the FTX bankruptcy separately from U.S. prosecutors and financial authorities.

This content was produced with the assistance of AI translation services.