Legal anatomy of the FTX fraud: SEC, CFTC and DOJ charges against Sam Bankman-Fried

Commingling customer assets with proprietary trading creates an unlimited, hidden line of credit.

Alameda Research was granted an 'allow negative' flag and exemption from auto-liquidation, letting it withdraw billions in customer funds without collateral or disclosure.

Why: Removing normal risk controls converts exchange deposits into an off-balance-sheet slush fund that regulators and investors cannot see.

"computer code written by FTX provided an effectively limitless line of credit that allowed Alameda to withdraw billions of dollars in customer assets from FTX"

Selling equity while touting risk management that you secretly disable is securities fraud.

SBF pitched FTX to VCs as having sophisticated risk controls, yet Alameda was explicitly exempted from those controls and backed by customer assets.

Why: Risk disclosures are material to equity valuation; hiding concentrated, related-party exposure deceives investors about the true risk profile.

"he solicited equity investors by touting FTX's controls and risk management, and that he misrepresented the risk profile of investing in FTX"

When every agency sees fraud, jurisdictional turf wars become irrelevant.

SEC (securities fraud), CFTC (commodities fraud) and DOJ (wire fraud & money laundering) all filed parallel actions, each citing the same underlying misuse of customer funds.

Why: Fraud is fraud; overlapping statutes ensure at least one regulator can reach the misconduct regardless of asset-class labels.

"All agencies, no matter what they are regulating, seem to be accusing Sam of some variety of fraud. It's all bad in truth."

Recording billion-dollar transactions on Slack and QuickBooks signals absence of internal controls.

FTX’s new CEO testified that staff used Slack for transaction logs and QuickBooks for accounting, with no board oversight.

Why: Robust financial infrastructure—ledgers, approvals, segregation of duties—is the first line of defense against misappropriation.

"FTX staff recorded transactions on Slack and did the accounts on QuickBooks. There was no board of directors"

Using customer money for political donations converts campaign-finance violations into money laundering.

DOJ alleges Alameda funneled stolen customer funds through straw donors to exceed federal contribution limits.

Why: Layering illicit proceeds through political donations obscures the source and scale of the theft while attempting to buy regulatory influence.

"their contributions were funded by Alameda Research using stolen customer money"

Public apologies that deny intent can be used as evidence of knowing control.

SBF’s media claims of being hands-off and unaware were directly contradicted by SEC evidence of daily chats, code directives and database edits.

Why: Inconsistent statements to the public versus internal communications demonstrate scienter—the mental state required for fraud.

"it looks like the SEC are going after him both for the offer of securities and the sale of securities as they focus in on the statements that he made"

Marking internal liabilities to a dummy account hides insolvency from auditors and users.

The $8 billion Alameda liability was moved to an account nicknamed 'our Korean friends' so it would not accrue interest or trigger alarms.

Why: Interest accrual and liquidation triggers are automated risk signals; suppressing them sustains the illusion of solvency.

"Sam directed that this liability be moved to an account where Alameda wouldn't be charged interest and this account was associated with an individual who had no apparent connection to Alameda"

Venture capitalists handed over $2 billion while relying on website terms-of-service and press interviews.

The SEC notes that VCs received so little formal disclosure they had to use public statements and FTX’s website as investment inputs.

Why: Weak diligence enables fraud; investors who skip verification become unwitting accomplices in inflating valuations.

"the VC investors did so little due diligence that in the SEC's search for false statements being made to investors, they had to use statements made by Sam in public forums"