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

NASSAU, Bahamas/NEW YORK, Dec 13 (Reuters) – U.S. prosecutors on Tuesday charged Sam Bankman-Fried, the founder of cryptocurrency exchange FTX, with fraud and violating campaign finance laws and a Bahamian judge denied him bail, sending him to a local correctional facility instead.

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 “high” flight risk.

He has been remanded to a correctional facility in the island nation until February 8, when he will initially be held in the medical ward, according to a local official.

The day’s events capped an astonishing fall from grace in recent weeks for the 30-year-old, who amassed a fortune valued at more than $20 billion as he rode a cryptocurrency boom to make of FTX one of the largest exchanges in the world before it crashed sharply this year. .

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

Earlier on Tuesday, U.S. Attorney Damian Williams in New York said Bankman-Fried made illegal campaign contributions to Democrats and Republicans with “stolen client money,” saying it was part of one of “biggest 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 any sentence depends on a range 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 public appearance in person since the cryptocurrency exchange collapsed, Bankman-Fried appeared in court on Tuesday in the Bahamas, where FTX is based and where he was arrested in his gated community in the capital. , Nassau.

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

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

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

‘BRAZE’ SCHEME

Current FTX CEO John Ray told congressional lawmakers on Tuesday that FTX had lost $8 billion in customer money, saying the company showed “absolute concentration of control in the hands of a small group. of grossly inexperienced and unsophisticated individuals”.

In the unsealed indictment Tuesday morning, U.S. prosecutors said Bankman-Fried engaged in a scheme to defraud FTX customers by misappropriating their deposits to pay expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.

He also defrauded Alameda lenders by providing false and misleading information about the state of the hedge fund and sought to conceal money he earned by committing wire fraud, prosecutors said.

The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have alleged Bankman-Fried committed fraud in lawsuits filed Tuesday.

The CFTC sued Bankman-Fried, Alameda and FTX on Tuesday, alleging fraud involving digital assets.

Since at least May 2019, FTX has raised more than $1.8 billion from equity investors under a year-long “brazen, multi-year plan” in which Bankman-Fried concealed that FTX was diverting client funds to Alameda Research, according to the SEC.

CRYPTO INVESTORS HAVE LOST BILLIONS

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

FTX filed for bankruptcy on Nov. 11, leaving around 1 million customers and other investors facing multi-billion dollar losses. The crash rippled through the crypto world and sent bitcoin and other digital assets plummeting.

The collapse is part of a series of bankruptcies in the crypto industry this year, as digital asset markets have fallen from 2021 highs. A crypto exchange is a platform where investors can exchange digital tokens such as bitcoin.

As legal challenges mount, the US Congress is also considering drafting legislation to rein in a poorly regulated industry.

FTX has shared its findings with the SEC and US prosecutors and is investigating whether Bankman-Fried’s parents were involved in the operation.

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

Bankman-Fried resigned as CEO of FTX the same day as the bankruptcy filing. FTX’s liquidity crunch came after it secretly used $10 billion in client funds to back its proprietary trading firm Alameda, Reuters reported. At least $1 billion in client funds were gone.

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.

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