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US charges crypto tycoon Bankman-Fried with massive fraud

December 13, 2022

Sam Bankman-Fried has been denied bail in the Bahamas and is reviewing his legal options. The charges could send the cryptocurrency tycoon to prison for the rest of his life.

CEO of FTX Sam Bankman-Fried testifies during a hearing before the House Financial Services Committee
Bankman-Fried faces massive fraud charges which could keep him in prison for the rest of his lifeImage: Alex Wong/Getty Images

Cryptocurrency tycoon Sam Bankman-Fried faces massive fraud accusations as US prosecutors pressed criminal charges on Tuesday which could see the former billionaire imprisoned for the rest of his life.

Federal prosecutors in New York charged the founder of the FTX crypto trading platform with wire fraud, conspiracy to commit fraud, money laundering and violating campaign finance laws, among other charges.

The 30-year-old-cryptocurrency tycoon arrived at a Bahamas court on Tuesday, for his first-in-person public appearance. He was arrested a day before at the request of the US.

On Tuesday, a Bahamian judge denied his request for bail, citing a "great" risk that he may flee.

Bankman-Fried founded FTX in 2019, and was hailed as a rising star soon afterwards when the cryptocurrency exchange and hedge fund became one of the largest platforms of its kind worldwide.

His net worth last year was estimated to stand at $26.5 billion (€24.9 billion), according to Forbes. He also became a major donor to US political campaigns.

Most of his donations poured into left-leaning political causes and the US Democratic Party's campaigns, including Joe Biden's 2020 presidential campaign. However, he also made some donations to Republicans.

What did the indictment say?

The 13-page indictment accuses Bankman-Fried of devising a "scheme and artifice" to defraud FTX's customers since 2019, when the booming cryptocurrency trading platform was introduced.

The currency founder allegedly diverted customers' money without their consent to his crypto hedge fund, Alameda Research, to pay expenses and debts. The fund was his source of financing lavish real estate purchases and large political donations.

He is also accused of defrauding Alameda lenders by feeding them false and misleading information about the fund's condition, according to the prosecutors.

US Attorney Damian Williams speaks during a news conference about the criminal charges filed against FTX founder Sam Bankman-Fried
US Attorney Damian Williams alleged that Bankman-Fried defrauded both investors and lendersImage: Julia Nikhinson/AP Photo/picture alliance

"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 US Securities and Exchange Commission said in its filing.

US authorities are trying to retrieve the financial gains Bankman-Fried made from the alleged scheme.

The SEC alleges that FTX had raised over $1.8 billion (€1.69 billion) from equity investors since 2019, while concealing that the funds were being diverted to Alameda Research LLC.

"While this is our first public announcement, it will not be our last," US Attorney Damian Williams said from New York City.

What is Bankman-Fried's legal situation?

A request to extradite the US citizen from the Bahamas, where he was arrested earlier this week and where his company is based, is expected soon.

Experts say Tuesday's decision to deny Bankman-Fried bail could influence whether or not he fights potential extradition. 

"The extradition process can take a year or longer," David Haas, an American lawyer who has defended people facing extradition, told Reuters.

"Usually people don’t want to sit in a jail overseas. That tends to be a major factor in whether someone challenges extradition."

Nicholas Biase, a spokesman for the US prosecutors, said the maximum potential prison sentence for the charges Bankman-Fried faces is 115 years.

A lawyer for the FTX founder said in a Tuesday statement that Bankman-Fried was "reviewing the charges with his legal team and considering all of his legal options." The tycoon denied "knowingly" misusing customers' funds.

Biggest crypto bust

FTX, which had been among the world's largest cryptocurrency exchanges, filed for bankruptcy protection on November 11 in one of the highest-profile crypto blowups after traders pulled $6 billion (€5.7 billion) from the platform in three days.

Bankman-Fried resigned as FTX's chief executive officer the same day as the bankruptcy filing.

In a series of interviews and public appearances in late November and December, Bankman-Fried acknowledged risk management failures but said he did not commit fraud while running the company.

FTX's demise marked the latest turmoil for the cryptocurrency industry this year. The overall crypto market has slumped amid a string of meltdowns that have taken down other key players including Voyager Digital and Celsius Network.

'Plain, old-fashioned embezzlement'

At a separate hearing before a US House committee on Tuesday, FTX's current CEO John Ray III detailed a lack of oversight over the crypto giant's finances.

Ray is an American attorney who has guided dozens of companies through bankruptcy restructuring, including Enron.

"This is just plain, old-fashioned embezzlement, taking money from others and using it for your own purposes," he said.

Ray added that the collapse of FTX is a "paperless bankruptcy" fueled by an "unprecedented lack of documentation."

He said the company had no accountants, described expenses that had been approved by emoji, highlighted a loan where Bankman-Fried was both the issuer and the recipient, and said employees used consumer software QuickBooks to keep records.

"Nothing against QuickBooks," Ray said. "It's a very nice tool, just not for a multibillion-dollar company."

zc, rmt/msh (AFP, AP, Reuters)