February 4, 2023

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FTX founder Bankman-Fried in custody after fraud allegations, bail denied by Reuters

©Reuters. FILE PHOTO: FTX’s logo is seen at the entrance of FTX Arena in Miami, Florida, U.S. on November 12, 2022. REUTERS/Marco Bello/File Photo/File Photo/File Photo

By Jared Higgs, Luc Cohen and Chris Prentice

NASSAU, Bahamas/NEW YORK (Reuters) – A Bahamian judge on Tuesday denied bail to FTX founder Sam Bankman-Fried, hours after US prosecutors accused the 30-year-old of embezzling billions of dollars and violating campaign laws in one of the America’s Biggest Financial Scammers.

The former CEO of the collapsed cryptocurrency exchange, dressed in a blue suit with no tie, bowed his head and hugged his parents after the judge said his risk of absconding was too “great” and ordered he be taken to a correctional facility in the Bahamas until February 8th.

The day’s events capped a stunning fall from grace in recent weeks for Bankman-Fried, who amassed a fortune worth over $20 billion as he rode a cryptocurrency boom to make FTX one of the world’s largest exchanges , before abruptly collapsing that year.

In an indictment unsealed Tuesday morning, U.S. prosecutors said Bankman-Fried engaged in a scheme to defraud FTX’s clients by embezzling their deposits to pay for expenses, debt, and investments on behalf of his crypto hedge fund Alameda Research LLC.

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

They accused Bankman-Fried of having made “tens of millions of dollars in campaign donations” with the stolen money.

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

“Although this is our first public announcement, it will not be our last,” he said.

Williams called the collapse one of the “biggest financial scams in American history”.

‘SHORTS AND T-SHIRTS’

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

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

Bankman-Fried has previously apologized to clients and acknowledged oversight failures at FTX, but said he personally does not believe he is criminally responsible.

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

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

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

The CFTC sued Bankman-Fried, Alameda and FTX for fraud related to digital commodity investments.

As of at least May 2019, FTX has raised more than $1.8 billion from stock investors in a year-long “brazen, multi-year plan” in which Bankman-Fried hid FTX diverting customer funds to Alameda Research, the SEC claimed.

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

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

Bahamas prosecutors had requested that Bankman-Fried be denied bail if he fought 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 a previous statement.

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

“ALIEN” SCHEME

FTX filed for bankruptcy on November 11, costing an estimated 1 million customers and other investors billions of dollars in losses. The collapse resonated throughout the crypto world, sending Bitcoin and other digital assets crashing.

Bankman-Fried resigned as CEO 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 support its own trading firm, Alameda, Reuters reported. At least $1 billion in customer funds had disappeared.

The collapse was among a string of bankruptcies in the crypto industry this year as digital asset markets plummeted from 2021 highs. A crypto exchange is a platform where investors can trade digital tokens like bitcoin.

FTX’s current CEO, John Ray, told lawmakers that FTX lost $8 billion in customer funds, saying the company “shows an absolute concentration of control in the hands of a small group of grossly inexperienced, unexperienced individuals.” “.

Amid mounting legal challenges, the US Congress is considering drafting legislation to curb the loosely regulated industry.

FTX has shared findings with the SEC and U.S. Attorneys investigating whether Bankman-Fried’s parents were involved in the operation.