FTX founder and CEO Sam Bankman-Fried was arrested in the Bahamas on Monday, one day before he was scheduled to testify in front of the House Financial Services Committee.
The Securities and Exchange Commission (SEC) announced it had filed charges against Bankman-Fried for allegedly violating the Securities Act and the Securities Exchange Act, according to Fox Business.
Bankman-Fried is accused of carrying out a scheme to defraud equity investors in FTX Trading Ltd., his cryptocurrency trading exchange.
At its height, FTX was the second-largest crypto exchange in the world, according to LiveMint.
The court filing described the alleged operation as “a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” reported Fox Business.
The U.S. extradition treaty with the Bahamas allows federal prosecutors to return defendants to the United States if the charges call for a sentence of at least one year in both jurisdictions, according to CNN.
The SEC complaint included allegations that Bankman-Fried funneled FTX customers’ funds to his crypto hedge fund, Alameda Research LLC.
The FTX founder is also accused of using customer funds for his personal benefit, buying real estate, and making political contributions, according to Fox News.
He was the second-biggest donor to Joe Biden’s presidential campaign, according to Fortune.
Prosecutors also claimed he made illegal campaign contributions worth “tens of millions of dollars,” a figure Elon Musk suggested was closer to $1 billion, according to The Daily Mail.
The complaint also said Bankman-Fried made public statements assuring that FTX and Alameda were separate companies.
“Throughout this period, Bankman-Fried portrayed himself as a responsible leader of the crypto community,” the complaint stated. “He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform.”
SEC Chair Gary Gensler alleged that Bankman-Fried built FTX on a foundation of deception and warned other crypto companies to comply with SEC laws.
“The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business,” said Gensler.
“It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action,” he stated.
Bankman-Fried told BBC last week that he did not knowingly commit fraud. However, critics claim he has committed to portraying himself as an incompetent CEO.
The disgraced tech entrepreneur was denied bail by a judge in the Bahamas on Tuesday, according to CoinDesk.
“I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was,” Bankman-Fried claimed.