This is absolutely fraud.
FTX was not a bank, it was an exchange. People were not giving FTX money to lend out to others in exchange for interest (as they would a bank). People were buying products (cryptocurrencies) from FTX that FTX agreed to hold on their behalf. FTX doing anything with these assets other than holding them on behalf of customers is fraud.
FTX's own Terms of Service explicitly said it was not permitted to lend out customer funds.
SBF himself repeatedly stated that FTX did not lend out customer funds.