United States prosecutors allege Sam Bankman-Fried committed fraud and violated campaign finance laws, with the founder and former CEO of FTX also facing charges by US regulators, while a judge in the Bahamas has 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 February 8.
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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”, and that 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.
The 30-year-old Bankman-Fried arrived at a heavily guarded Bahamas court on Tuesday for his first in-person public appearance since the cryptocurrency exchange’s collapse. He could be extradited to the US and he told the court he could fight the extradition.
Bahamian prosecutors have 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.
Scheme to defraud
In the indictment, 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 cryptocurrency hedge fund, Alameda Research LLC.
He also defrauded lenders to Alameda by providing them with 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.
“While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble,” the SEC filing said.
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 $1.8bn from equity investors in a years-long “brazen, multi-year scheme” in which Bankman-Fried concealed that FTX was diverting customer funds to its affiliated cryptocurrency hedge fund, Alameda Research LLC, the SEC alleged.
While the public believed Bankman-Fried’s “lies” and sent billions of dollars to FTX, he improperly diverted customer funds to his hedge fund, the SEC said in a court filing. He continued to divert FTX customer funds even as it was increasingly clear that Alameda and FTX could not make customers whole, the SEC said.
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 $26.5bn and he became a substantial donor to US political campaigns, media outlets and other causes.
A cryptocurrency 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 November 11, leaving an estimated one million customers and other investors facing losses in the billions of dollars. The collapse reverberated across the cryptocurrency world and sent Bitcoin and other digital assets plummeting.
A spokesperson for FTX Debtors declined to comment.
Known in financial circles by his initials, SBF, Bankman-Fried was a prominent and unconventional figure. He sported wild hair, T-shirts and shorts on panel appearances with statesmen like former US President Bill Clinton and former United Kingdom Prime Minister Tony Blair.
Bankman-Fried became one of the largest Democratic donors in the United States, contributing $5.2m to President Joe Biden’s 2020 campaign.
FTX’s liquidity crunch came after Bankman-Fried secretly used $10bn in customer funds to support his proprietary trading firm, Alameda Research, Reuters has reported. At least $1bn in customer funds had vanished.
Bankman-Fried resigned as FTX’s chief executive officer the same day as the bankruptcy filing.
Unlike other customers, Alameda was allowed to hold a negative account on FTX’s platform, the SEC said. Bankman-Fried directed code to be written that allowed this, the agency said.