Sam Bankman-Fried had secret VIP access to trading systems that gave him a speed advantage over rivals, the US regulator has said.
Alameda Research, a trading company founded by Mr Bankman-Fried, was allowed early access to trades and could borrow almost unlimited amounts against customer deposits, according to a legal filing from the US Commodity Futures Trading Commission
The filing said that Alameda had a “significant speed advantage” over rivals thanks to its close ties to FTX, a digital trading house where investors bought and sold cryptocurrencies.
Mr Bankman-Fried, 30, was arrested on Monday in the Bahamas and charged by US authorities with fraud for misusing customer funds and misleading investors.
The FTX founder had repeatedly insisted that there was a Chinese wall between his consumer exchange and its hedge fund trading house.
However, US authorities allege that customer funds were co-mingled between the two and Alameda used customer deposits to fund its high-risk, lossmaking trades.
The CFTC complaint also alleged that “Alameda was able to bypass certain portions of the system and gain faster access” to trades, gaining a crucial and unfair speed advantage over other traders.
After FTX was hit by a surge in withdrawals in November, the legal filings document the panicked final hours as Mr Bankman-Fried tried to stabilise the exchange.