FTX founder Sam Bankman-Fried charged with fraud, denied bail

NASSAU, Bahamas/NEW YORK, December 13 (Reuters) – US prosecutors on Tuesday charged Sam Bankman-Fried, founder of cryptocurrency exchange FTX, with fraud and violating campaign finance laws, a charge denied by a judge in the Bahamas Released on bail and instead sent him to a local correctional facility.

The former FTX CEO, who was arrested in the Bahamas on Monday, bowed his head and hugged his parents after the magistrate denied bail citing a “great” risk of absconding.

According to a local official, he was taken to a correctional facility in the island nation until February 8, where he is initially being held in the medical unit.

The day’s events over the past few weeks capped a stunning fall from grace for the 30-year-old, who amassed a fortune worth over $20 billion as he rode a cryptocurrency boom to propel FTX into one of the world’s largest exchanges make before abruptly collapsing that year.

Bankman-Fried has previously apologized to clients and acknowledged oversight failures at FTX, but said he personally does not believe he is criminally responsible.

US Attorney Damian Williams said in New York earlier Tuesday that Bankman-Fried made illegal campaign contributions to Democrats and Republicans using “stolen customer money,” saying it was part of one of the “largest financial frauds in American history.”

“While this is our first public announcement, it won’t be our last,” he said, adding that Bankman-Fried “has made tens of millions of dollars in campaign contributions.”

Bankman-Fried faces a maximum sentence of 115 years in prison if convicted on all eight counts, prosecutors said, although each sentence would depend on a number of factors.

Williams declined to say whether prosecutors would bring charges against other FTX executives and whether any FTX insiders were cooperating with the investigation.

In his first personal public appearance since the cryptocurrency exchange collapse, Bankman-Fried appeared in court Tuesday in the Bahamas, where FTX is based, and where he was arrested at his gated community in the capital, Nassau.

He appeared relaxed when he arrived at the heavily guarded Bahamas courthouse and told the court he could fight extradition to the United States.

Bahamas prosecutors had requested that Bankman-Fried be denied bail if he fought extradition.

“Mr. Bankman-Fried is reviewing the allegations with his legal team and is considering all of his legal options,” his attorney, Mark S. Cohen, said in a previous statement.

“ALIEN” SCHEME

FTX’s current CEO, John Ray, told the congressman on Tuesday that FTX had lost $8 billion in customer funds, saying the company showed “absolute concentration of control in the hands of a small group of grossly inexperienced, not experienced people”.

In the indictment, unsealed Tuesday morning, U.S. prosecutors said Bankman-Fried engaged in a scheme to defraud FTX’s clients by embezzling their deposits to pay for expenses, debt, and investments on behalf of his crypto hedge fund Alameda Research LLC.

He also defrauded Alameda’s lenders by providing false and misleading information about the condition of the hedge fund and tried to disguise the money he made from wire fraud, prosecutors said.

Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) accused Bankman-Fried of fraud in lawsuits filed Tuesday.

The CFTC on Tuesday sued Bankman-Fried, Alameda and FTX for fraud related to digital commodity investments.

As of at least May 2019, FTX has raised more than $1.8 billion from stock investors in a year-long “brazen, multi-year plan” in which Bankman-Fried hid FTX diverting customer funds to Alameda Research, the SEC claimed.

CRYPTO INVESTORS LOST BILLIONS

Bankman-Fried, who founded FTX in 2019, was an unconventional figure who wore wild hair, t-shirts and shorts to panel appearances with statesmen like former US President Bill Clinton. He became one of the top Democrat donors, contributing $5.2 million to President Joe Biden’s 2020 campaign. Forbes put his net worth at $26.5 billion a year ago.

FTX filed for bankruptcy on November 11, costing an estimated 1 million customers and other investors billions of dollars in losses. The collapse resonated throughout the crypto world, sending Bitcoin and other digital assets crashing.

The collapse was among a string of bankruptcies in the crypto industry this year as digital asset markets plummeted from 2021 highs. A crypto exchange is a platform where investors can trade digital tokens like bitcoin.

As legal challenges mount, the US Congress is also considering drafting legislation to curb a loosely regulated industry.

FTX has shared findings with the SEC and U.S. Attorneys investigating whether Bankman-Fried’s parents were involved in the operation.

The Bahamas attorney general’s office said it expects Bankman-Fried to be extradited to the United States.

Bankman-Fried resigned as CEO of FTX on the same day as the bankruptcy filing. FTX’s liquidity crisis came after it secretly used $10 billion in client funds to support its own trading firm, Alameda, Reuters reported. At least $1 billion in customer funds had disappeared.

Additional reporting by Luc Cohen and Jack Queen in New York and Hannah Lang, Chris Prentice and Susan Heavey in Washington Writing by Nick Zieminski and Deepa Babington Editing by Noeleen Walder, Megan Davies, Anna Driver and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

Luca Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

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