A Bahamian judge denied FTX founder Sam Bankman-Fried bail on Tuesday, hours after US prosecutors accused the 30-year-old of misappropriating billions of dollars and violating campaign laws in what has been described as one of America’s biggest financial frauds.
The former CEO of the collapsed cryptocurrency exchange, dressed in a blue suit without a tie, lowered his head and hugged his parents after the judge said his risk of flight was too “great” and ordered that he be sent to a Bahamas correctional facility until 8 February.
The day’s events capped a stunning fall from grace in recent weeks for Bankman-Fried, who amassed a fortune valued over US$20-billion as he rode a cryptocurrency boom to build FTX into one of the world’s largest exchanges before it abruptly collapsed this year.
In an 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.
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.
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 that the investigation was “ongoing” and “moving quickly”.
“While this is our first public announcement, it will not be our last,” he said. Williams described the collapse as one of the “biggest financial frauds in American history”.
Prior to his arrest, Bankman-Fried, who founded FTX in 2019, was an unconventional figure who sported wild hair, t-shirts and shorts on panel appearances with statesmen like former US President Bill Clinton. He became one of the largest Democratic donors, contributing US$5.2-million to President Joe Biden’s 2020 campaign. Forbes pegged his net worth a year ago at $26.5-billion.
Bankman-Fried has previously apologised to customers and acknowledged oversight failings at FTX, but said he does not personally think he has any criminal liability.
He faces up to 115 years in prison if convicted on all eight counts, prosecutors said, though any sentence would depend on a range of factors.
Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) also filed suit on Tuesday. The CFTC sued Bankman-Fried, Alameda and FTX, alleging fraud involving digital commodity assets.
Tuesday’s court hearing in the Bahamas, where FTX is based and where Bankman-Fried was arrested at his gated community in the capital, marked his first in-person public appearance since the cryptocurrency exchange’s collapse.
Bankman-Fried appeared relaxed when he arrived at the heavily guarded Bahamas court. He told the court he could fight extradition to the US. Bahamian prosecutors had asked that Bankman-Fried be denied bail if he fights extradition.
FTX filed for bankruptcy on 11 November, leaving an estimated 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 resigned as FTX’s CEO the same day as the bankruptcy filing. FTX’s liquidity crunch came after he secretly used $10-billion in customer funds to support his proprietary trading firm Alameda. At least $1-billion in customer funds had vanished.
FTX’s current CEO, John Ray, told lawmakers that FTX lost $8-billion of client money, saying the company showed “absolute concentration of control in the hands of a small group of grossly inexperienced, non-sophisticated individuals”. — Jared Higgs, Luc Cohen and Chris Prentice, with Jack Queen, Hannah Lang, Chris Prentice and Susan Heavey, (c) 2022 Reuters