Sam Bankman Freed, Founder of FTX, Accused of Fraud

The SEC says founder and former FTX CEO Sam Bankman-Fried internally directed the software code in a way that would allow his hedge fund, Alameda, to operate with a negative balance in its client account at FTX.

This allegedly happened in August of 2019, just about four months after FTX began operations.

This effectively gave its sister trading company, Alameda, an unlimited line of credit funded by clients’ assets, according to a Securities and Exchange Commission complaint filed in federal court on Tuesday.

The complaint says this meant there was no meaningful distinction between FTX clients’ funds and Alameda funds that Bankman-Fried used as its “personal piggy bank.” He hid from investors and clients that he used the money to buy luxury apartments, support political campaigns, and make private investments, according to the Securities and Exchange Commission.

Between March 2020 and September 2022, Bankman-Fried executed loans from Alameda totaling more than $1.338 billion, including two instances in which Bankman-Fried was the borrower in his sole capacity and the lender as Alameda’s CEO, the SEC says. . in her civil complaint.

Bankman-Fried used the money from Alameda to purchase tens of millions of dollars in Bahamian real estate for himself, his parents and other FTX executives, according to the filing.

The filing says Alameda founders Nishad Singh and Gary Wang also borrowed $554 million and $224.7 million, respectively, by similarly executing promissory notes with Alameda in 2021 and 2022.

Singh and Wang have not been charged with any crimes at this point.

Loans to Bankman Fried and others, the suit says, were “poorly documented, and sometimes not documented at all.”

When crypto-asset prices plummeted in May 2022, Bankman-Fried repaid Alameda’s money claiming third-party lenders from its “line of credit” from FTX, further committing billions of dollars and then stashing it on Alameda’s balance sheet to avoid, the complaint alleges. Investor concern.

The FTX CEO continued to tap companies for his personal benefit, lending himself $136 million in late July 2022 — one month after crypto-financial services firm BlockFi offered a $250 million revolving line of credit to ease its liquidity woes, according to the filing. . Meanwhile, throughout the summer, he provided a “false positive and misleading account” about the company to investors, despite its “shaky financial condition,” the SEC alleged.