Sam Bankman-Fried, FTX founder, charged with fraud

The SEC says former FTX founder and CEO Sam Bankman-Fried internally directed software code to be written in a way that allowed his crypto hedge fund, Alameda, to operate with a negative customer account balance at FTX.

This allegedly happened in August 2019, approximately four months after operations at FTX began.

That effectively gave sister trading firm Alameda an unlimited line of credit funded by customer funds, according to the Securities and Exchange Commission complaint filed in federal court Tuesday.

That meant there was no meaningful separation between FTX customer funds and Alameda̵[ads1]7;s funds that Bankman-Fried used as her “personal piggy bank,” the complaint said. He hid from investors and clients that he used the funds to buy luxury apartments, support political campaigns and make private investments, according to the SEC.

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 both a borrower in its individual capacity and a lender in its capacity as a CEO of Alameda, the SEC says. in his civil complaint.

Bankman-Fried used funds from Alameda to buy tens of millions of dollars in Bahamian real estate for herself, her parents and other FTX executives, according to the filing.

Alameda’s co-founders Nishad Singh and Gary Wang also borrowed $554 million and $224.7 million, respectively, by executing promissory notes with Alameda in 2021 and 2022, the filing said.

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

The loans to Bankman-Fried and others were “poorly documented, and at times not documented at all,” the lawsuit states.

When crypto asset prices fell in May 2022, Bankman-Fried repaid Alameda’s demanding third-party lenders from its FTX “line of credit,” further increasing the multibillion-dollar liability and hiding it on Alameda’s balance sheet to avoid alarming investors, the complaint alleges.

The FTX boss continued to exploit the companies for his personal benefit, lending himself $136 million in late July 2022 — a month after offering crypto finance company BlockFi a $250 million revolving line of credit to ease his own liquidity problems, according to the filing. . Meanwhile, over the summer, he presented a “false and misleadingly positive account” of the company to investors, despite its “weak financial condition,” the SEC alleges.

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