About an hour ago, the Securities and Exchange Commission officially released its complaint against Sam Bankman-Fried. The 28 page document outlines the charges, volations of the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. As it has been reported, SBF is accused of diverting FTX customer funds to his privately-held crypto hedge fund Alameda Research. By funneling these customer funds, he was able to make massive political donations, venture investments, and purchase expensive real estate properties.

In addition to the misappropriation of customer deposits to the FTX platform, SBF is charged with defrauding investors. He had raised a total of $1.8 billion. FTX had been promoted as a safe and responsible crypto trading platform. Under the hood, however, was not a strong motor but rather what SEC chairman Gary Gensler is calling "a house of cards on a foundation of deception."

Gensler went on in his statement to send a warning to all crypto trading playforms, saying "To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action." Other exchange, like Coinbase for example, are welcoming and even asking the SEC to step in for clearer guidance. What seems to be the issue to me is that cryptocurrencies are not legally defined as securities.

From Harvard Law:

The Securities and Exchange Commission’s primary theory on whether a cryptoasset is a security appears to be based upon whether the blockchain project associated with a cryptoasset is, at any point in time, “sufficiently decentralized.” If so, the cryptoasset is not a security. This theory was first proposed by the SEC staff in 2018 to address ICOs, which were then all the rage, and was followed by more detailed staff guidance in 2019. But the theory has not aged well. It is impractical—if not impossible—to apply to today’s real life blockchain projects.

Regardless, SBF now faces these charges brought on by the SEC and the State of New York. He will have to come up with a better defense than the "I'm sorry. I was stupid" refrain he has been spouting. I can't wait to hear what his defense attorneys will come up with.

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