Sam Bankman-Fried, FTX founder, charged with fraud

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

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

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

This meant there was no meaningful distinction between FTX client funds and Alameda funds that Bankman-Fried used as his “personal piggy bank,” the complaint says. He hid from investors and clients that he was using the funds to buy luxury condos, support political campaigns and make private investments, according to the SEC.

Between March 2020 and September 2022, Bankman-Fried executed Alameda loans totaling more than $1.338 billion, including two instances in which Bankman-Fried was both individual borrower and acting lender CEO of Alameda, according to the SEC. in his civil complaint.

Bankman-Fried used funds 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.

Alameda co-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, according to the filing.

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

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

When crypto asset prices crashed in May 2022, Bankman-Fried repaid Alameda’s demanding third-party lenders from its FTX “line of credit,” further increasing liability by billions of dollars, then hid it in Alameda’s balance sheet to avoid alarming investors, according to the complaint.

The FTX chief executive has continued to leverage businesses for his personal benefit, lending himself $136 million at the end of July 2022 – a month after offering crypto financial services firm BlockFi a $250 million revolving line of credit to alleviate its own liquidity problems, according to the filing. . Meanwhile, throughout the summer he presented a “false and misleading positive review” of the company to investors, despite its “precarious financial condition”, the SEC alleges.

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