DOJ seeks to stay CFTC action against former FTX CEO Samuel Bankman-Fried
The United States of America, by its attorney Damian Williams, United States Attorney for the Southern District of New York, has moved the Court to stay the CFTC action against former FTX CEO Samuel Bankman-Fried.
The motion was submitted on February 7, 2023 at the New York Southern District Court.
The DOJ seeks an order authorizing intervention by the United States and staying civil proceedings until the conclusion of the parallel criminal case, United States v. Samuel Bankman-Fried, 22 Cr. 673, and for such other relief as the Court deems just and proper.
The CFTC complaint charges Samuel Bankman-Fried, FTX Trading Ltd. d/b/a FTX.com, and Alameda Research LLC with fraud and material misrepresentations in connection with the sale of digital commodities in interstate commerce. Further, the complaint asserts that defendants’ actions caused the loss of over $8 billion in FTX customer deposits.
The CFTC complaint was filed about a month after FTX filed for Chapter 11 bankruptcy in Delaware. Samuel Bankman-Fried (also known as “SBF”) was arrested on December 12, 2022.
The CFTC complaint alleges that 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.
In its litigation against the defendants, the CFTC 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.