The Commodity Futures Trading Commission (CFTC) filed a complaint in the U.S. District Court for the Southern District of New York against Samuel Bankman-Fried, FTX Trading Ltd. (d/b/a FTX.com), and Alameda Research LLC on December 13, 2022. The charges center around fraud and material misrepresentations related to the sale of digital commodities in interstate commerce.
The CFTC alleges the defendants caused losses exceeding $8 billion in FTX customer deposits. CFTC Chairman Rostin Behnam stated that digital commodity asset markets continue to pose risks to investors due to a lack of basic protections, and the CFTC is committed to using all available tools to protect investors and combat fraud.
According to the complaint, from at least May 2019 through November 11, 2022, Bankman-Fried exerted control over both FTX.com, a digital asset derivative platform, and Alameda, a digital asset trading firm acting as a primary market maker on FTX. FTX marketed itself as a safe and easy platform for buying and selling cryptocurrency, claiming customer assets – including fiat and digital assets like Bitcoin and Ether – were held in custody and segregated from FTX’s own funds. However, the CFTC contends these customer assets were routinely accepted and held by Alameda, commingled with its own funds.
The complaint further alleges that Bankman-Fried, along with others, misappropriated customer funds for personal use, including luxury real estate, political contributions, and risky digital asset investments. At Bankman-Fried’s direction, FTX employees allegedly implemented features within the platform’s code that favored Alameda, 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 is seeking restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations. The agency cautions that victims may not fully recover lost funds due to potential limitations in the defendants’ assets.
In a parallel action, the U.S. Attorney for the Southern District of New York unsealed an indictment on the same day, charging Bankman-Fried with wire fraud, commodities fraud, securities fraud, and money laundering. The Securities and Exchange Commission also filed charges against Bankman-Fried for securities fraud.
Source: CFTC.gov
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