Accused of fraud, FTX founder Sam Bankman Freed has refused 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 Bahamas judge denied him bail, sending him out. to a local correctional facility instead.

The former FTX CEO, who was arrested in the Bahamas on Monday, lowered his head and hugged his parents after a coroner denied bail citing a “significant” flight risk.

He has been ordered to be held in 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.

Today’s events capped a stunning fall from grace in recent weeks for the 30-year-old, who amassed a fortune worth more than $20 billion as he rode a cryptocurrency boom to build FTX on one of the world’s largest exchanges before it suddenly collapsed this year.

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

Earlier on Tuesday, US Attorney Damien Williams said in New York that Bankman-Fried made illegal campaign contributions to Democrats and Republicans with “stolen customer money,” saying it was part of “the largest financial fraud 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.”

Prosecutors said Bankman-Fried faces a maximum sentence of 115 years in prison if convicted on all eight counts, though any sentencing will depend on a range of factors.

Williams declined to say whether prosecutors will press charges against the other FTX executives and whether any FTX insiders are cooperating with the investigation.

In his first public appearance in person since the cryptocurrency exchange crash, Bankman-Fried appeared in court on Tuesday in the Bahamas, where FTX is headquartered and where he was arrested in his gated community in the capital, Nassau.

He appeared relieved when he arrived at the heavily guarded Bahamas court and told the court he could resist extradition to the United States.

Bahamas prosecutors had asked that Bankman-Fred be denied bail if he resisted 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.

“Brazin” scheme

FTX’s current CEO, John Ray, told lawmakers in Congress on Tuesday that FTX lost $8 billion in client funds, saying the company demonstrated “an absolute concentration of control in the hands of a small group of inexperienced and inexperienced individuals.”

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

Prosecutors said he also defrauded Alameda’s lenders by providing false and misleading information about the hedge fund’s status, and sought to hide money he obtained from committing an Internet fraud.

Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) alleged that Bankman-Fried committed fraud in lawsuits filed on Tuesday.

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

Since at least May 2019, FTX has amassed more than $1.8 billion from equity investors in a two-year “brazen and multi-year scheme” in which Bankman-Fried concealed FTX was funneling client funds to Alameda Research, the SEC alleged.

CRYPTO investors have lost billions

Bankman-Fried, who founded FTX in 2019, was an unconventional figure who wore wild hair, T-shirts and shorts to a panel 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 estimated his net worth a year ago at $26.5 billion.

FTX filed for bankruptcy on November 11, causing an estimated one million customers and other investors to face billions of dollars in losses. The crash reverberated throughout the crypto world and sent Bitcoin and other digital assets plummeting.

The crash was one of a series of bankruptcies in the cryptocurrency industry this year as digital asset markets have retreated from the peaks of 2021. A cryptocurrency exchange is a platform where investors can trade digital tokens such as bitcoin.

As legal challenges mount, the US Congress is also looking into crafting legislation to rein in a loosely regulated industry.

FTX shared the findings with the US Securities and Exchange Commission and US attorneys general, and is investigating whether Bankman-Fred’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 the same day he filed for bankruptcy. Reuters reports that FTX’s liquidity crunch came after it secretly used $10 billion in client funds to prop up its Alameda-owned trading firm. At least $1 billion of customer funds disappeared.

Additional reporting by Luke Cohen and Jack Quinn in New York and Hannah Lange, Chris Prentice and Susan Heavy in Washington Writing by Nick Zieminski and Debbie Babbington Editing by Nolene Walder, Megan Davies, Anna Driver and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.