A Closer Look at What Sam Bankman-Fried is Accused of Exactly

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FTX and Alameda Research founder Sam Bankman-Fried (SBF) is the city’s hottest megadonor. Over the past two years, he has given tens of millions to federal candidates and groups that have made him the poster child of crypto in the eyes of regulators.

The success story turned into a quick train wreck after his crypto empire collapsed in November. FTX is now being billed as one of the largest financial frauds in US history, dragging its band and many other companies into bankruptcy. It is not relegated to the Bankmann-Fried low. In fact, he’s been on an aggressive media tour, jumping into some less formal Twitter spaces for impromptu conversations.

But very little was revealed on camera beyond what the reporters had already exposed, and executives asked questions tactfully. Although apologetic, he insists on not being negligent and fraudulent. However, the controllers were not sold.

All political and philanthropic influences failed to protect the disgraced executive. Bankman-Fried was Arrest December 12 in the Bahamas on criminal charges. Officials said the former executive could formally request extradition to the United States if he faces charges brought by three separate government agencies: the Department of Justice (DOJ), the Securities and Exchange Commission (SEC) and Commodity Futures Trading. Commission (CFTC).

Let’s dive deeper into the allegations.

Source: Sky News

SEC: 2 counts of securities fraud

The US Securities and Exchange Commission (SEC) was the first announce Proceedings against Bankmann-Fried. and charged him with two counts of forgery of civil bonds. The former FTX president was charged with violating anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

The complaint alleges that Bankman-Fried orchestrated a “profound multi-year” fraud to hide from FTX’s investors:

  1. diverting client funds to its sister business, Alameda Research LLC;
  2. special treatment granted to Alameda on the FTX platform, including exempting Alameda from an unlimited “debt tax” funded by clients of the insolvent exchange and certain key risk mitigation measures;
  3. Risk due to FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets, including FTX-linked tokens.

In many cases, Bankman-Fried said FTX is a safe place to invest because an automated “risk engine” can dispose of users’ assets and ensure their collateral remains at the required levels. However, according to the SEC, the regulator did not disclose to investors or customers that Alameda had special access to funds on the exchange, and could easily bypass any of the “auto-liquidation” backstops. A hedge fund can maintain an unlimited negative balance with FTX so that it can use user deposited funds for trading.

The unlimited negative balance had no material impact until the shocking declines in crypto prices, which prompted creditors to demand repayment from Alameda. SBF allegedly instructed the company to pay them with FTX’s funds, giving Alameda access to a “virtually unlimited line of credit” unwittingly funded by the exchange’s customers.

Alameda-based Bankman-Fried focused on using “pooled” user funds to make undisclosed venture investments, lavish real estate purchases and political donations in American politics. The regulatory watchdog, in its complaint, has sought an injunction against violation of the Securities Futures Act, which bars the executive from participating in issuing, buying, offering or selling any securities other than his own account.

In a statement, SEC Chairman Gary Gensler said.

“Mr. Bankman-Fried’s alleged fraud is a clarion call to crypto platforms to comply with our laws. Compliance protects investors and those who invest in crypto platforms with time-tested safeguards such as properly safeguarding client funds and separating conflicting business lines.”

CFTC: 2 counts of fraud

The United States Commodity Futures Trading Commission (CFTC) charged Bankman-Fried, FTX and Alameda with fraud and material misrepresentation in connection with the sale of digital commodities in interstate commerce. The former billionaire was charged with two counts of breaching anti-fraud provisions of the Commodity Exchange Act – one of fraud and “fraudulent misrepresentations” to clients.

Filing Said The trio’s actions resulted in the loss of more than $8 billion in FTX customer deposits.

Although Bankman-Fried distanced himself from Alameda’s work, the CFTC argued that he was in control of the trading firm. According to the complaint, the executive was a signatory to Alameda’s bank accounts and an “authorized trader” for the hedge fund’s accounts with CFTC futures commission traders. Bankman-Fried allegedly had direct control over all of its major businesses, investment and financial decisions.

The company alleges that FTX customer deposits, including fiat currency and crypto-assets, were “and/or appropriated” by Alameda for its own use from May 2019 to November 11, 2022.

The CFTC is now seeking revocation, divestment, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against any further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

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Department of Justice (DOJ): 8 criminal charges

U.S. Attorney Damian Williams, the lead prosecutor for the Southern District of New York, hit Bankman-Fried on December 13 with a total of eight felony charges. The judiciary has also sought confiscation of his assets.

According to the official Document, federal prosecutors allege that FTX has a long history of criminal activity dating back to 2019 for operating a scheme to defraud FTX’s customers by misappropriating billions of dollars in user funds. He was also accused of making illegal political campaign contributions under aliases, using client funds stolen from FTX.

The 30-year-old has been charged with two counts of conspiracy to commit wire fraud, two counts of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering. Each of them faces a maximum sentence of 20 years in prison. The founder was charged with conspiracy to counterfeit goods, conspiracy to counterfeit securities and conspiracy to defraud the United States and campaign finance violations, each carrying a maximum sentence of five years in prison.

  • Conspiracy to commit wire fraud on customers
  • Wire fraud on customers
  • Conspiracy to commit wire fraud on creditors
  • Wire fraud on lenders
  • Conspiracy to defraud goods
  • Conspiracy to commit securities fraud
  • Conspiracy to commit money laundering
  • Conspiracy to defraud the United States and violate campaign finance laws

If convicted, the executive faces decades in prison.

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