FTX founder Sam Bankman-Fried, accused of 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 judge in the Bahamas denied him release on 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 a magistrate denied bail, citing a “high” flight risk.

He was ordered held at a correctional facility in the island nation until February 8, where he will initially be held in the medical ward, according to a local official.

The day’s events led to a stunning decline in recent weeks for the 30-year-old, who amassed a fortune estimated at more than $20 billion as he rode the cryptocurrency boom to list FTX on one of the world’s largest exchanges before suddenly crashed this year.

Bankman-Fried previously apologized to clients and acknowledged oversight lapses at FTX, but said he personally did not believe he was criminally responsible.

Earlier Tuesday, U.S. Attorney Damien 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 the “largest financial scams in American history’.

“Although this is our first public announcement, it will not 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 charges, prosecutors said, although any sentence will depend on a number of factors.

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

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

He appeared calm when he arrived at the heavily guarded Bahamian court and told the court he may fight extradition to the United States.

Bahamian prosecutors have asked that Bankman-Fried be denied bail if he fights 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 an earlier statement.

A “BRUTAL” SCHEME

FTX’s current CEO, John Ray, told lawmakers in Congress on Tuesday that FTX lost $8 billion of customer money, saying the company had shown an “absolute concentration of control in the hands of a small group of extremely inexperienced, unsophisticated individuals”.

In the indictment unsealed 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 make investments on behalf of his crypto hedge fund fund, Alameda Research LLC.

He also defrauded Alameda’s creditors by providing false and misleading information about the health of the hedge fund and tried to conceal money he made by committing bank fraud, prosecutors said.

Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) accused Bankman-Fried of committing 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 $1.8 billion from equity investors in a years-long “brazen, multi-year scheme” in which Bankman-Fried concealed that FTX was diverting client funds to Alameda Research, the SEC alleged.

CRYPTO INVESTORS LOST BILLIONS

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

FTX filed for bankruptcy on Nov. 11, leaving about 1 million customers and other investors facing losses in the billions of dollars. The collapse reverberated throughout the crypto world and caused Bitcoin and other digital assets to plummet.

The collapse was one of a series of bankruptcies in crypto industry this year as digital asset markets have collapsed from their 2021 highs. A crypto exchange is a platform where investors can trade digital tokens such as Bitcoin.

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

FTX shared its findings with the SEC and U.S. Attorneys and is 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 he secretly used $10 billion in customer funds in support of his own trading firm Alameda, Reuters reported. At least $1 billion in customer funds have disappeared.

Additional reporting by Luke Cohen and Jack Quinn in New York and Hannah Lang, Chris Prentice and Susan Heavey in Washington Writing by Nick Zieminski and Deepa Babington Editing by Noeline Walder, Megan Davis, Anna Driver and Matthew Lewis

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