Dec 13, 2022 - Economy

Sam Bankman-Fried accused of fraud by SEC

Illustration of a crypto block sitting in the dark, with a red and blue light rotating over it.

Illustration: Brendan Lynch/Axios

The U.S. Securities and Exchange Commission on Tuesday filed a civil complaint accusing Sam Bankman-Fried of "orchestrating a scheme to defraud equity investors in FTX" and seeking to ban him from the cryptocurrency industry.

What to watch: This comes ahead of criminal charges that will be announced later this morning by prosecutors for the Southern District of New York.

  • The SEC — which filed the complaint in a New York federal court — also noted that SBF is expected to face criminal charges.

Why it matters: A growing number of media reports and statements from FTX's new CEO and Bankman-Fried himself have suggested that customer funds have been improperly accessed by the company's top brass.

Catch up quick: On Monday night, before he was set to testify remotely at a House Financial Services Committee hearing, Bahamian authorities arrested Bankman-Fried at the request of U.S. prosecutors. The two countries have an extradition treaty.

Details: The SEC alleged that Bankman-Fried engaged in a "years-long" scheme to defraud investors.

  • "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," SEC Chair Gary Gensler said in a statement. "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."
  • The SEC wants a federal judge to force SBF to pay disgorgement penalties and to prevent him from participating in the crypto industry, though he could make personal crypto investments.

Flashback: In early November, after facing a sudden spike in customer withdrawal, Bahamas-based crypto exchange FTX found itself with insufficient funds to cover the requests.

  • While Bankman-Fried attempted to secure emergency financing over the next couple of days, the company filed for bankruptcy by the end of the week and he stepped down from his role.
  • Bankman-Fried has since given numerous public interviews, in which he largely blames poor risk management and internal controls.

The big question: Who else are prosecutors preparing to charge (if anyone) with regard to FTX?

Editor's note: This is a developing story. Please check back for updates.

Read the SEC's complaint:

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