The SEC is bringing charges against Sam Bankman-Fried – here are the key takeaways from the filing

• The SEC has filed charges against FTX founder Sam Bankman-Fried.
• It alleges that he was "orchestrating a massive, years-long fraud" by misusing customer funds.

Following Sam Bankman-Fried's arrest on Monday evening, the SEC filed charges against him in a New York court on Tuesday.

It alleges that the FTX founder violated the Securities Act by misusing customer funds for his own benefit, and hiding debts from investors.

In summary, the SEC says Bankman-Fried was "orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform's customer funds for his own personal benefit and to help grow his crypto empire."

These are the top 5 takeaways from the SEC's court filing.

Funds were mixed between FTX and Alameda thanks to a bank account under a different name

In an interview at the New York Times' DealBook Summit on November 30, Bankman-Fried said that he "didn't knowingly commingle funds." But the SEC refutes that, alleging that he purposefully diverted customers' money to Alameda Research, the high-risk trading firm linked to FTX.

Bankman-Fried previously admitted that FTX customers made deposits directly to Alameda's bank account, but the SEC says the hedge fund also had a "virtually limitless" line of credit with the crypto exchange which meant it could draw on customers' assets.

And when customers were told to send their money to Alameda, they didn't know where it was actually going, according to the filing. That's because the bank accounts were in the name of North Dimension, an Alameda subsidiary. Its website doesn't disclose any links between the two.

"Bankman-Fried directed FTX to have customers send funds to North Dimension in an effort to hide the fact that the funds were being sent to an account controlled by Alameda," the SEC says.

Sam Bankman-Fried used customer funds for luxury purchases and political donations

Bankman-Fried's penchant for luxury isn't new, with bankruptcy filings showing that FTX spent $256 million on real estate – including 15 condos in the same ocean side building.

He was also one of the top political donors, giving $40 million to Democrats, and using "dark money" to become the Republicans' third-biggest donor.

The SEC now says that that was all thanks to those close ties between FTX and Alameda. It alleges Bankman-Fried "used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses."

Bankman-Fried is accused of using the commingled funds to purchase property for himself, other FTX executives, and his parents – who were listed as signatories on a $16.4 million vacation home.

Alameda's debt was hidden and its FTX account had special treatment

The commingling of funds all happened thanks to special treatment given to Alameda's funds behind the scenes. The SEC lays out how the "multi-billion-dollar liability" was kept under an account with no ties to Alameda, but instead named "fiat@ftx.com"

This means that the customer funds sent to Alameda looked like an internal FTX account, hiding the debt. Alameda then told third-party lenders that this was a loan, but didn't reveal it was actually from FTX. Bankman-Fried later had the funds moved to another account which didn't charge any interest on the loan.

Beyond that, Alameda's account with the crypto exchange had special treatment, because it was the only one allowed to have a negative balance and was exempted from automatic liquidation.

The SEC says that "Bankman-Fried directed software code to be written in or around August 2019, and updated in or around May 2020" which allowed this to happen.

Bankman-Fried misled investors by saying "assets are fine"

On November 7 – just four days before FTX filed for bankruptcy – Bankman-Fried tweeted "FTX is fine. Assets are fine … FTX has enough to cover all client holdings. We don't invest client assets (even in treasuries)."

He later deleted that post, but the SEC says that this was a "false and misleading" attempt to maintain public confidence.

The court filing adds: "Bankman-Fried knew that FTX, at his direction, allowed Alameda to invest 'client assets' and that Alameda had in fact done so, using FTX customer funds to make investments far riskier than 'treasuries.'"

It alleges that Bankman-Fried continued to mislead investors because he needed to money "to plug a multi-billion-dollar hole."

Caroline Ellison knew customer funds were used for Alameda, and other execs borrowed millions

Caroline Ellison was the CEO of Alameda, who previously dated Bankman-Fried and lived in his $30 million penthouse, according to CoinDesk.

In a meeting with employees on November 9, she admitted that she knew FTX customer funds were being used to prop up the trading firm, the SEC says. It adds that Gary Wang and Nishad Singh – who co-founded FTX with Bankman-Fried – were also aware of this.

Wang and Singh are also alleged by the SEC to have borrowed $224.7 million and $554 million, respectively, from Alameda in 2021 and 2022.