The U.S. Commodity Futures Trading Commission (CFTC) today announced a lawsuit against crypto exchange FTX founder Sam Bankman-Fried over alleged violations of federal commodities laws.
Other defendants listed in the complaint are FTX and its affiliated company Alameda Research.
The U.S. derivatives regulator alleges Bankman-Fried and other FTX executives took hundreds of millions of dollars in loans from Alameda, using the funds to buy real estate and make donations to politicians.
“At Bankman-Fried’s direction, FTX executives created features in the underlying code for FTX that allowed Alameda to maintain an essentially unlimited line of credit on FTX,” reads the complaint filed Tuesday in Manhattan federal court.
The CFTC also alleges that FTX executives “created other exceptions to FTX’s standard processes that allowed Alameda to have an unfair advantage when transacting on the platform, including quicker execution times and an exemption from the platform’s distinctive auto-liquidation risk management process.”
More specifically, the CFTC alleges that by doing so, the defendants violated Section 6(c)(1) of the Commodity Exchange Act, which regulates futures trading and foreign transactions.
This section of the act states that it is “unlawful for any person to offer to enter into, enter into, or confirm the execution of a transaction” that is commonly known as a “wash sale” or “accommodation trade,” which involves the purchase or sale of any commodity for future delivery (or any option on such a transaction or commodity).
Per the filing, the CFTC seeks “civil monetary penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, disgorgement, restitution, pre- and post-judgment interest, and such other relief as the court may deem necessary and appropriate.”
The 30-year-old Bankman-Fried was arrested Monday at his home in the Bahamas, where FTX was headquartered, ahead of a possible legal fight over whether he would be extradited to the U.S.
The FTX 'House of Cards'
The CFTC isn’t the only one going after SBF.
On Monday, the Southern District of New York’s Attorney’s office indicted the FTX founder on multiple criminal charges, including conspiracy, wire fraud, and conspiracy to defraud the U.S. and violate campaign finance laws.
Earlier on Tuesday, the U.S. Securities and Exchange Commission (SEC) officially charged SBF “with orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX)."
"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. "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."
According to Gurbir Grewal, director of the SEC’s Division of Enforcement, FTX “operated behind a veneer of legitimacy” that “wasn’t just thin, it was fraudulent.”