The SEC says former FTX founder and CEO Sam Bankman-Fried internally directed software code must have been written in a way that allowed his crypto hedge fund, Alameda, to operate with a negative balance on its customer account in FTX.
This allegedly happened in August 2019, only about four months after operations at FTX began.
That effectively gave sister trading company Alameda an unlimited line of credit funded by customer assets, according to the Securities and Exchange Commission’s complaint filed in federal court Tuesday.
That meant there was no meaningful distinction between FTX’s client funds and Alameda’s funds that Bankman-Fried used as a “personal daycare,” the complaint says. According to the SEC, he concealed from investors and clients that he used the funds to buy luxury apartments, support political campaigns and make private investments.
Between March 2020 and September 2022, Bankman-Fried executed Alameda loans totaling more than $1.338 billion, including two instances where Bankman-Fried was both the individual borrower and the lender in the his capacity as CEO of Alameda, according to the SEC. in his civil complaint.
Bankman-Fried used Alameda funds to buy tens of millions of dollars in Bahamian real estate for himself, his parents and other FTX executives, according to the filing.
Alameda co-founders Nishad Singh and Gary Wang also borrowed $554 million and $224.7 million, respectively, by similarly executing promissory notes with Alameda in 2021 and 2022, the filing says.
Singh and Wang have not been charged with any crimes at this time.
The loans to Bankman-Fried and others were “poorly documented, and sometimes not documented at all,” the suit says.
When crypto asset prices plummeted in May 2022, Bankman-Fried paid off Alameda’s demanding third-party lenders for its FTX “line of credit,” further increasing the multibillion-dollar liability, then stashed it on the balance sheet of Alameda to avoid it. alarming investors, the complaint alleges.
FTX’s CEO continued to exploit companies for personal gain, lending himself $136 million by the end of July 2022, a month after offering crypto financial services firm BlockFi a revolving line of credit of $250 million to ease its own liquidity problems, according to the filing. . Meanwhile, throughout the summer, he presented a “false and misleading positive account” of the company to investors, despite its “tenuous financial condition,” the SEC alleges.