Sam Bankman-Fried, FTX founder, accused of fraud

The SEC says former FTX founder and CEO Sam Bankman-Fried internally wrote software code so his crypto hedge fund Alameda could function with a negative balance on his client account with FTX.

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

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

That meant there was no meaningful distinction between FTX client funds and Alameda’s funds, which Bankman-Fried used as his “personal piggy bank,” the complaint said. He hid from investors and customers that he used the funds to buy luxury homes, support political campaigns and make private investments, the SEC said.

Between March 2020 and September 2022, Bankman-Fried led Alameda in loans totaling more than $1.338 billion in its civil lawsuit.

Bankman-Fried used Alameda funds to purchase tens of millions of dollars in Bahamas real estate for himself, his parents and other FTX executives, the filing said.

Alameda co-founders Nishad Singh and Gary Wang also borrowed $554 million and $224.7 million, respectively, by similarly issuing promissory notes with Alameda in 2021 and 2022, according to the the file.

Singh and Wang were not charged with any crimes at that time.

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

When crypto asset prices plummeted in May 2022, Bankman-Fried repaid Alamedas from its FTX “line of credit” to demanding third-party lenders, further increased the multi-billion dollar liability, and then hid it on Alameda’s balance sheet to avoid it alarming investors, the complaint claims.

The FTX chief continued to use the companies for personal gain, borrowing $136 million in late July 2022 — a month after he offered crypto-financial services firm BlockFi a $250 million revolving line of credit to fund his own solve liquidity problems, according to the filing. Meanwhile, he provided investors with a “false and misleading positive account” of the company throughout the summer, despite its “tenuous financial health,” the SEC alleges.

Leave a Reply

Your email address will not be published. Required fields are marked *