FTX founder Bankman-Fried in custody after fraud charges, bail denied

By Jared Higgs, Luc Cohen and Chris Prentice

NASSAU, Bahamas/NEW YORK (Reuters) – A Bahamian judge denied bail to FTX founder Sam Bankman-Fried on Tuesday, hours after U.S. prosecutors charged the 30-year-old with embezzlement of billions of dollars and violation of campaign laws in what has been described as one of America’s largest financial frauds.

The ex-CEO of the collapsed cryptocurrency exchange, clad in a blue suit with no tie, bowed his head and hugged his parents after the judge ruled his flight risk was too “great” and ordered that was sent to a correctional facility in the Bahamas until 8 February.

The day’s events capped a stunning fall from grace in recent weeks for Bankman-Fried, who amassed a fortune worth more than $20 billion as he rode a cryptocurrency boom to transform FTX into one of the largest exchanges in the world before collapsed sharply this year.

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

He also defrauded Alameda lenders by providing false and misleading information about the hedge fund’s condition and tried to hide money he had made by committing wire fraud, prosecutors said.

They accused Bankman-Fried of using the stolen money to make “tens of millions of dollars in campaign contributions.”

US Attorney Damian Williams in New York said the investigation was “ongoing” and “moving quickly”.

“While this is our first public announcement, it won’t be our last,” he said.

Williams described the crash as one of the “largest financial frauds in American history”.

‘PANTS AND T-SHIRTS’

Before his arrest, Bankman-Fried, who founded FTX in 2019, was an unconventional figure who sported wild hair, T-shirts and shorts in appearances with statesmen like former US President Bill Clinton. He has become a top Democratic donor, contributing $5.2 million to President Joe Biden’s 2020 campaign. Forbes pegged his net worth a year ago at $26.5 billion.

“You can commit fraud in shorts and T-shirts in the sun. It’s possible,” attorney Williams told reporters.

Bankman-Fried has previously apologized to clients and acknowledged FTX’s oversight deficiencies, but said he doesn’t personally believe he bears any criminal liability.

He faces up to 115 years in prison if convicted of all eight counts, prosecutors said, though any conviction would depend on a number of factors.

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

The US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) also filed lawsuits on Tuesday.

The CFTC is suing Bankman-Fried, Alameda and FTX, over alleged fraud involving digital commodity assets.

Since at least May 2019, FTX has raised more than $1.8 billion from equity investors in a years-long “brazen, multi-year scheme” in which Bankman-Fried covered up that FTX was diverting client funds to Alameda Research, it said the SEC.

Tuesday’s court hearing in the Bahamas, where FTX is based and where Bankman-Fried was arrested in his gated community in the capital, marked his first in-person public appearance since the cryptocurrency exchange’s collapse.

Bankman-Fried appeared relaxed as he arrived at the heavily guarded Bahamian courthouse. He told the court that he could fight extradition to the United States.

Bahamian prosecutors had asked that Bankman-Fried be denied bail if he opposes extradition.

“Mr. Bankman-Fried is reviewing the allegations with his legal team and considering all of his legal options,” his attorney, Mark S. Cohen, said in an earlier statement.

Bankman-Fried is expected to appear again in court in the Bahamas on February 8.

‘BRAZEN’ SCHEME

FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 million customers and other investors facing billions of dollars in losses. The crash reverberated throughout the cryptocurrency world and sent bitcoin and other digital assets crashing.

Bankman-Fried resigned as chief executive officer of FTX on the same day as the bankruptcy filing. FTX’s liquidity crisis came after it secretly used $10 billion in client funds to prop up its proprietary trading firm Alameda, Reuters reported. At least $1 billion in client funds had vanished.

The crash was one in a string of failures in the cryptocurrency industry this year as digital asset markets tumbled from their 2021 peaks. A cryptocurrency exchange is a platform where investors can trade digital tokens such as bitcoin.

Current FTX CEO John Ray has told lawmakers that FTX has lost $8 billion in customer money, saying the company has shown “an absolute concentration of control in the hands of a small group of grossly inexperienced individuals and unsophisticated”.

As legal challenges mount, the US Congress is looking into creating legislation to curb the poorly regulated industry.

FTX has shared the findings with the SEC and US prosecutors and is investigating whether Bankman-Fried’s parents were involved in the operation.

(Additional reporting by Jack Queen in New York and Hannah Lang, Chris Prentice and Susan Heavey in WashingtonWriting by Nick Zieminski and Deepa BabingtonEditing by Noeleen Walder, Megan Davies, Anna Driver, Matthew Lewis and Sam Holmes)

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