UPDATE - US watchdog charges former CEO of FTX with fraud

ADDS INDICTMENT IN GRAF 11, 12

By Ovunc Kutlu

ISTANBUL (AA) - The US Securities and Exchange Commission (SEC) charged former CEO of crypto trading platform, FTX, Samuel Bankman-Fried, with defrauding investors, it said Tuesday in a statement.

Authorities in the Bahamas arrested Bankman-Fried on Monday at the request of the US.

The regulator said FTX, based in The Bahamas, raised more than $1.8 billion from equity investors, including approximately $1.1 billion from 90 US-based investors, since at least May 2019.

​​​​​​​Bankman-Fried, however, concealed his diversion of FTX customers’ funds to crypto trading firm Alameda Research, the SEC argued, adding the former CEO, who is also co-founder, "promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets."

The ex-CEO also "orchestrated a years-long fraud to conceal from FTX’s investors," engaged in "undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund" and afforded "special treatment to Alameda on the FTX platform by providing a virtually unlimited "line of credit," the SEC alleged in its complaint.

"We allege 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," SEC Chair Gary Gensler said in the statement. "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."

Gensler, earlier this month, called facilitators that act as intermediaries as "crypto casinos" and argued that some are possibly trading against their customers.

FTX's new CEO, John J. Ray III, is expected to say Tuesday in testimony before the House of Representatives Financial Services Committee that the company had "unacceptable management practices" under its former CEO.

The collapse of FTX Group appears to be a result of "the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary," according to prepared remarks by Ray III released Monday.

The sudden collapse of FTX, once the world's third-largest cryptocurrency exchange by daily trading volume, left users and investors in the dark and caused a meltdown in the cryptocurrency market last month.

Federal prosecutors in the Southern District of New York charged Bankman-Fried on Tuesday with eight criminal counts -- conspiracy to commit wire fraud and securities fraud, standalone charges of conspiracy, securities fraud and wire fraud, money laundering, and conspiracy to defraud the US and campaign finance regulations, according to media reports.

The indictment alleges that the former CEO agreed with others to "defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research," according to unsealed charges.