FTX logo on mobile screen with crypto coins are displayed for illustration.
Jonathan Raa | Nurphoto | Getty Images
Charges continued to mount Tuesday for disgraced FTX founder Sam Bankman-Fried. The Commodity Futures Trading Commission announced new charges against Bankman-Fried, FTX and Alameda Research, alleging that FTX commingled customer funds and that the onetime crypto billionaire violated the Commodities Exchange Act.
Follow CNBC’s live blog covering Tuesday’s hearing on the collapse of cryptocurrency exchange FTX before the House Financial Services Committee.
The charges came moments before prosecutors in the Southern District of New York unveiled criminal charges against Bankman-Fried, who is being held in jail in the Bahamas after being arrested Monday evening by law enforcement there.
The CFTC filing alleged that Alameda Research, Bankman-Fried’s hedge fund, enjoyed access to as much as “$8 billion in customer funds” in an account nominally on FTX books but controlled and in the name of Alameda.
From the founding of FTX in 2019, the CFTC alleged, Alameda “accessed and used FTX customer funds for Alameda’s own operations and activities, including to fund its trading, investment, and borrowing/lending activities.”
The CFTC filing echoed charges that the SEC unveiled earlier Tuesday, which said Bankman-Fried operated his empire as a fraud “from the start.”
FTX allowed Alameda access to massive amounts of liquidity, backstopping risky bets on crypto assets and derivatives, the CFTC alleged. Alameda was given favored status and an exemption from Alameda’s automatic risk management protocols, which acted similarly to an automatic margin call and would liquidate a normal client position algorithmically.
Alameda had no such limitation on its trades, by design, the CFTC alleged.
“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,” the CFTC alleged.
The financial discovery process unearthed this “back door” in FTX’s books that was created with bespoke software, according to sources speaking to Reuters. They described it as a way that ex-CEO Bankman-Fried could make changes to the company’s financial record without flagging the transaction either internally or externally. That mechanism theoretically could have, for example, prevented multibillion-dollar transfers to Alameda from being flagged to either his internal compliance team or to external auditors.
Reuters said Bankman-Fried issued an outright denial that he implemented a so-called back door.
“FTX Trading executives also 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,” the CFTC statement said.