Samuel Bankman-Fried, founder of the cryptocurrency exchange FTX, has been charged with fraud by the Commodity Futures Trading Commission (CFTC) in a complaint filed with the U.S. District Court for the Southern District of New York on December 13, 2022. The CFTC alleges that Bankman-Fried, along with FTX Trading Ltd. and Alameda Research LLC, engaged in fraudulent practices and material misrepresentations related to the sale of digital commodities.
The complaint details how, from at least May 2019 through November 11, 2022, Bankman-Fried exerted control over both FTX.com and Alameda Research. FTX was marketed as a secure platform for buying and selling cryptocurrency, assuring customers that their assets were held in custody and segregated from company funds. However, the CFTC alleges that FTX routinely transferred customer assets to Alameda, commingling them with the firm’s own capital.
According to the complaint, Bankman-Fried, Alameda, and others allegedly misappropriated customer funds for personal expenses, including luxury real estate, political donations, and risky investments in the digital asset industry. Furthermore, FTX employees, at Bankman-Fried’s direction, reportedly implemented features within the FTX code that favored Alameda, granting it preferential treatment, such as an “allow negative flag” and an unlimited line of credit, enabling the firm to withdraw billions of dollars in customer assets without sufficient funds. These features were not disclosed to the public.
The CFTC estimates that the fraudulent actions resulted in losses exceeding $8 billion in FTX customer deposits. The agency is seeking restitution, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
In a parallel action, the United States Attorney for the Southern District of New York unsealed an indictment on December 13, 2022, charging Bankman-Fried with wire fraud, commodities fraud, securities fraud, and money laundering. The Securities and Exchange Commission also filed charges against Bankman-Fried on the same day, alleging securities fraud. The CFTC cautions that recovery of lost funds may not be fully realized, as wrongdoers may lack sufficient assets.
Source: CFTC.gov
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