DOJ, SEC and CFTC Charge FTX and Alameda Executives with Fraud

The DOJ, the SEC and the CFTC charged the Alameda Research CEO and the FTX Chief Technology Officer in schemes to defraud FTX's customers and investors.

In the criminal action, filed in the Southern District of New York, the officers were charged with, and simultaneously plead guilty to, wire fraud and conspiracy to commit other crimes including (i) wire fraud, (ii) commodities and securities fraud and (iii) money laundering. According to the DOJ, both officers are cooperating with the investigation. The DOJ also announced the extradition of Samuel Bankman-Fried, the founder of FTX, to the United States from the Bahamas for related crimes (see previous coverage).

The SEC filed a civil Complaint in the Southern District of New York charging the officers with fraud, including by manipulating the price of FTX's token, FTT, by purchasing large quantities on the open market which were also used as collateral for FTX loans of customer assets to Alameda. According to the SEC, the manipulated price caused the value of collateral on Alameda's balance sheet to be overstated, misleading investors about FTX's risk exposure. Further, the SEC alleged that the officers created software code that allowed Alameda to divert unlimited FTX customer funds that were then used for Alameda's trading activity. The SEC charged both defendants with violating Securities Act Section 17(a) ("Fraudulent interstate transactions"), Exchange Act Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") and Exchange Act Rule 10b-5 ("Employment of manipulative and deceptive devices").

Separately, the CFTC filed an amended civil Complaint, also in the Southern District of New York, alleging false statements and misuse of customer assets. The CFTC charged the officers with violating CEA Section 6(c)(1) ("Prohibition regarding manipulation and false information") and CFTC Rules Part 180.1(a)(1)-(3) ("Prohibition on the employment, or attempted employment, of manipulative and deceptive devices").