US reveals first charges against Sam Bankman-Fried

US securities regulators have charged Sam Bankman-Fried with defrauding investors in his recently bankrupt cryptocurrency exchange FTX, the first move in an expected onslaught of criminal and civil charges following his arrest in the Bahamas late on Monday.

The Securities and Exchange Commission said on Tuesday it had charged Bankman-Fried with defrauding venture capitalists and other equity investors who pumped $1.8bn into Nassau-based FTX, the majority of whom are based in the US, since May 2019.

“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,” said SEC chair Gary Gensler.

Bankman-Fried was arrested at his luxury penthouse in the Bahamas after US prosecutors filed criminal charges. Federal prosecutors in the Southern District of New York said the case against the 30-year-old would be unsealed later on Tuesday morning.

While the SEC can only issue civil charges, the criminal charges against Bankman-Fried could lead to years of prison time if he is convicted.

His arrest and the criminal charges mean that US authorities intend to pursue Bankman-Fried personally after the catastrophic collapse of FTX last month. The failure of the Bahamas-based exchange, once valued at $32bn, has resulted in potential losses for millions of creditors, including retail investors, and sent shockwaves through the crypto industry.

In its own lawsuit, the SEC alleged that Bankman-Fried promoted his company to potential equity investors as a safe and reliable player in the wild west of digital assets, focusing on touting the company’s sophisticated risk management. In reality, regulators said, Bankman-Fried “orchestrated a years-long fraud” to conceal “diversion of FTX customers’ funds to Alameda Research”, his private trading firm.

Before its collapse into bankruptcy last month, FTX had won the backing of several of the world’s best-known investors including BlackRock, Temasek and the Ontario Teachers’ Pension Plan.

“The alleged fraud committed by Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws,” Gensler said. The SEC said its investigation into FTX was ongoing.