The Commodity Futures Trading Commission (CFTC) has filed a complaint in the US District Court for the Southern District of New York against Sam Bankman-Fried, FTX, and Alameda Research. The CFTC complaint charges the defendants with fraud and material misrepresentations in connection with the sale of digital commodities in interstate commerce. The complaint also claims that the defendant’s actions caused the loss of over $8 billion in FTX customer deposits. Customer funds were appropriated by Alameda Research for its own use, according to the CFTC
The CFTC action, previously announced, has joined the enforcement action by the SEC as well as the criminal indictment by the US Department of Justice.
CFTC Chairman Rostin Behnam issued the following statement on the action:
“Digital commodity asset markets continue to present risks for investors due to the lack and of basic protections. The CFTC continues to be fully committed to using all available enforcement tools and authorities to protect investors and root out those who seek to profit through fraud and misappropriation.”
CFTC Acting Director of Enforcement Gretchen Lowe said that FTX marketed itself as a “model digital commodity asset platform” while committing fraud.
“We will work tirelessly to use the full scope of our enforcement authority to hold such fraudsters accountable.”
According to the CFTC complaint:
“… from at least May 2019 through November 11, 2022, Bankman-Fried controlled both FTX.com, a centralized digital asset derivative platform, and Alameda, a digital asset trading firm that operated as a primary market maker on FTX. As charged, FTX held itself out as “the safest and easiest way to buy and sell crypto” and represented that customers’ assets, including both fiat and digital assets including bitcoin and ether, were held in “custody” by FTX and segregated from FTX’s own assets. To the contrary, FTX customer assets were routinely accepted and held by Alameda and commingled with Alameda’s funds. Alameda, Bankman-Fried, and others also appropriated customer funds for their own operations and activities, including luxury real estate purchases, political contributions, and high-risk, illiquid digital asset industry investments. The complaint further alleges that, at Bankman-Fried’s direction, FTX employees created features in the FTX code that favored Alameda and allowed it to execute transactions even when it did not have sufficient funds available, including an “allow negative flag” and effectively limitless line of credit that allowed Alameda to withdraw billions of dollars in customer assets from FTX. These features were not disclosed to the public.”
The continuing litigation against the Defendants seeks 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, as charged.
CFTC v. Sam Bankman-Fried FTX Alameda Research 12.13.22