NASSAU, Bahamas: US prosecutors on Tuesday (Dec 13) accused Sam Bankman-Fried, the founder of crypto currency exchange FTX, of fraud and violating campaign finance laws by misappropriating his customers’ funds and a judge in the Bahamas denied his petition for bail.
Bahamas Chief Magistrate JoyAnn Ferguson-Pratt denied the petition for Bankman-Fried to be released on bail, citing a “great” risk of flight and ordered the former CEO of FTX sent to the country’s department of corrections until Feb 8.
He had been arrested in the Bahamas on Monday.
US Attorney Damian Williams in New York said Bankman-Fried made illegal campaign contributions to Democrats and Republicans with “stolen customer money”, saying it was part of one of the “biggest financial frauds in American history”.
“While this is our first public announcement, it will not be our last,” he said, adding Bankman-Fried “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, though any sentence would depend on a range of factors.
Williams declined to say whether prosecutors would bring any charges against other FTX executives and whether any FTX insiders were cooperating with the investigation.
Bankman-Fried made a court appearance on Tuesday in the Bahamas, where FTX is based and where he was arrested at his gated community in the capital, Nassau.
The 30-year-old seemed relaxed when he arrived at the heavily guarded Bahamas court. It was his first in-person public appearance since the cryptocurrency exchange’s collapse. He told the court he could fight extradition to the United States.
Bahamian prosecutors had asked that Bankman-Fried be denied bail if he fights extradition.
“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” his lawyer, Mark S. Cohen, said in an earlier statement.
FTX’s current CEO, John Ray, told congressional lawmakers on Tuesday that FTX lost US$8 billion of client money, saying the company showed “absolute concentration of control in the hands of a small group of grossly inexperienced, nonsophisticated individuals”.
In the indictment unsealed on Tuesday morning, US prosecutors said Bankman-Fried had engaged in a scheme to defraud FTX’s customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.
He also defrauded lenders to Alameda by providing false and misleading information about the hedge fund’s condition, and sought to disguise the money he had earned from committing wire fraud, prosecutors said.
“We allege that the defendant conspired to defraud customers by misappropriating their deposits; to defraud lenders; to commit securities fraud and money laundering; and to violate campaign finance laws,” US Attorney General Merrick Garland said in a statement.
Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) alleged Bankman-Fried committed fraud in lawsuits filed on Tuesday.
The CFTC sued Bankman-Fried, Alameda and FTX on Tuesday, alleging fraud involving digital commodity assets.
Since at least May 2019, FTX raised more than US$1.8 billion from equity investors in a years-long “brazen, multi-year scheme” in which Bankman-Fried concealed FTX was diverting customer funds to Alameda Research, the SEC alleged.
Bankman-Fried has apologised to customers and acknowledged oversight failings at FTX, but said he does not personally think he has any criminal liability.
CRYPTO INVESTORS LOST BILLIONS
Bankman-Fried founded FTX in 2019 and rode a cryptocurrency boom to build it into one of the world’s largest exchanges of the digital tokens. Forbes pegged his net worth a year ago at US$26.5 billion, and he became a substantial donor to US political campaigns, media outlets and other causes.
A crypto exchange is a platform on which investors can trade digital tokens such as bitcoin.
As legal challenges mount, the US Congress is also looking at crafting legislation to rein in a loosely-regulated industry.
FTX has shared findings with the SEC and US prosecutors, and is investigating whether Bankman-Fried’s parents were involved in the operation.
FTX’s collapse was one of a series of bankruptcies in the crypto industry this year as digital asset markets tumbled from 2021 peaks.
FTX filed for bankruptcy on Nov 11, leaving an estimated 1 million customers and other investors facing losses in the billions of dollars. The collapse reverberated across the crypto world and sent bitcoin and other digital assets plummeting.
Bankman-Fried was an unconventional figure who sported wild hair, t-shirts and shorts on panel appearances with statesmen like former U.S. President Bill Clinton. He became one of the largest Democratic donors, contributing US$5.2 million to President Joe Biden’s 2020 campaign.
The attorney general’s office of the Bahamas said it expected Bankman-Fried to be extradited to the United States.
Bankman-Fried resigned as FTX’s CEO the same day as the bankruptcy filing. FTX’s liquidity crunch came after he secretly used US$10 billion in customer funds to support his proprietary trading firm Alameda, Reuters has reported. At least US$1 billion in customer funds had vanished.