US’ CFTC Charges Bankman-Fried, FTX.com and Alameda with Fraud

The Commodity Futures
Trading Commission (CFTC), the United States derivatives market regulator, on
Tuesday charged Sam Bankman-Fried, the Founder and former CEO of bankrupt cryptocurrency
exchange, FTX, with “fraud and material misrepresentations in connection with
the sale of digital commodities in interstate commerce.”

ENFORCEMENT NEWS: Today, the CFTC charged Sam Bankman-Fried, FTX Trading and Alameda with fraud and material misrepresentations. Get the details: https://t.co/gxQ5hsNes1

— CFTC (@CFTC) December 13, 2022

The derivatives watchdog
also included FTX Trading Limited, operator of FTX.com, and Alameda Research
LLC, FTX’s corporate sibling and quantitative trading firm, in the charges. The
charges were filed before the US District Court for the Southern District of
New York, CFTC said in a
statement published on Tuesday.

On Tuesday, the United
States Attorney for the Southern District of New York also unsealed an
indictment charging Bankman-Fried with wire, commodities and securities fraud
as well as money laundering.

The unsealing comes
after Bankman-Fried was
arrested on Monday evening
(local time) by the Royal Bahamas Police upon the request of the Attorney
who shared a sealed indictment with the Bahamian government and requested for
the arrest of the once-celebrated cryptocurrency entrepreneur. The arrest came
ahead of the embattled Founder’s expected
appearance before the U.S. House
Financial Services Committee on Tuesday to testify on the
collapse of FTX.

The SEC complaint essentially says #SBF failed to disclose #FTX bad business practices and lack of controls. The SEC could have let this proceed through bankruptcy but chose to file this on behalf of 90 investors who could protect their own interests in the bankruptcy proceedings

— Former SEC Branch Chief Lisa Braganca (@LisaBraganca) December 13, 2022

‘Over $8 billion Loss’

Meanwhile, in the Tuesday statement, CFTC
noted that while FTX promoted itself as a custody-based cryptocurrency trading
platform, “customer assets were routinely accepted and held by Alameda and
commingled with Alameda’s funds.”

“Alameda, Bankman-Fried
and others also appropriated customer funds for their own operations and
activities, including luxury real estate purchases, political contributions,
and high-risk, illiquid digital asset industry investment,” CFTC explained.

CFTC further said the actions of
Bankman-Fried, FTX.com, and Alameda Research resulted in the loss of over $8
billion in FTX customers’ deposits. This is even as Bankman-Fried and Caroline Ellison, the former CEO of Alameda Research, have previously been accused of
tampering with FTX customer funds, causing a
liquidity crisis that precipitated the
exchange’s fall.

FTX Code Manipulation

Meanwhile, CFTC said it
charged Bankman-Fried for ordering FTX employees to introduce new features into
FTX’s code that enabled Alameda “to executive transactions even when it did not
have sufficient funds available, including an ‘allow negative flag.’”

Furthermore, the
derivatives regulator alleged that FTX tampered with its code, upon
Bankman-Fired’s direction, to provide a limitless line of credit to
Alameda and enable the trading firm “to withdraw billions of dollars in
customer assets from FTX.” The public was not informed of these developments,
CFTC also alleged.

Meanwhile, last week Bankman-Fried hired Mark Cohen, Co-Founder and Managing Partner of New York-based Cohen & Gresser law firm, as his attorney. Ellison also engaged the services of the Washington-based firm, Wilmer Cutler Pickering
Hale and Dorr.

This article was written by Solomon Oladipupo at www.financemagnates.com.