Sam Bankman-Fried Denied Bail as SEC Charges Arrive

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  • Sam Bankman-Fried faces two months in one of the world’s most notorious prisons after he was denied bail following his arrest
  • The former FTX CEO will spend the time at Fox Hill prison until his extradition hearing
  • The news came on the same day that the SEC laid its own charges at his door

Embattled FTX head cockroach Sam Bankman-Fried has been denied bail following his arrest yesterday, on the same day that the Securities and Exchange Commission (SEC) added to his woes by charging him with orchestrating a scheme to defraud equity investors in FTX Trading Ltd. The news caps a woeful day for Bankman-Fried, whose stewardship of FTX was savaged by current CEO John Ray III yesterday in front of the U.S. House of Representatives Financial Services Committee.

SEC Charges Bankman-Fried with Multiple Counts of Fraud

The crypto world rejoiced yesterday when it awoke to news that Bankman-Fried had been arrested after multiple charges were unsealed against him, although some questioned the wisdom of the timing, given he was set to either admit his crimes of perjure himself in front of the Financial Services Committee.

This was soon forgotten however as the SEC formally charged Bankman-Fried with three counts of fraud, arguing that he “orchestrated a years-long fraud to” conceal multiple things from FTX’s investors, including:

  • The undisclosed diversion of FTX customers’ funds to Alameda Research
  • The undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited customer-funded line of credit and exempting Alameda from liquidation
  • Undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens

The SEC also alleges that Alameda and Bankman-Fried used commingled FTX customers’ funds to make undisclosed venture investments, lavish real estate purchases, and large political donations, at least some of which are now thought to have been illegal.

Gensler Under Pressure to Explain SBF Link

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, opined that, “FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”

He added that, “…today we are holding Mr. Bankman-Fried responsible for fraudulently raising billions of dollars from investors in FTX and misusing funds belonging to FTX’s trading customers.”

SEC chair Gary Gensler also opined that, “Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto”, and urged that its collapse was “a clarion call to crypto platforms that they need to come into compliance with our laws.”

However, Gensler is well aware of two things – firstly, there are totally inefficient guidelines for crypto companies to know how to work within the law, even if they wanted to; and second, Gensler is under scrutiny following his relationship with Bankman-Fried and will face a grilling by Congress after a previous 45-minute Zoom meeting with mop-haired commingler to discuss a new crypto trading platform.

Gensler will face questions over the SEC’s failure to foresee the FTX crisis after the ease with which Bankman-Fried was able to ingratiate himself with politicians and policy makers, with those proposed policies now coming under close scrutiny, as well as those who backed them, especially after the revelation from John Ray III during yesterday’s House hearing that some of Bankman-Fried’s political donations were illegal.

Bankman-Fried in for Unhappy Stay

To compound the day’s events, Bankman-Fried was yesterday denied a $250,000 bail by a magistrate judge in the Bahamas, and will now be sent to Fox Hill prison until his extradition hearing, which will be on February 8. This means that Bankman-Fried has gone from a luxury seafront Bahamas apartment to a prison notorious for its corruption and appalling conditions.