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Musk expected to take stand as trial resumes over Tesla tweet

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SAN FRANCISCO Jan 20 (Reuters) – Elon Musk, Tesla Inc’s (TSLA.O) chief executive, is likely to be called to testify on Friday in a jury trial over his 2018 Twitter post that he had “funding secured” to take the electric carmaker private, which shareholders allege cost them millions in trading losses.

The class action trial in San Francisco federal court resumed with investor Timothy Fries telling the jury how he lost $5,000 buying Tesla stock after Musk sent the tweet at the center of the lawsuit.

Musk, known for combative testimony, is expected to address why he has insisted he had Saudi investor backing for the deal, which never came together, and whether he knowingly made a materially misleading statement with his tweet.

The case is a rare securities class action trial and the plaintiffs have already cleared high legal hurdles, with U.S. Judge Edward Chen ruling last year that Musk’s post was untruthful and reckless.

Shareholders alleged that Musk lied when he sent the tweet, costing investors.

Fries told the jury that funding secured meant to him that “there had been some vetting, some critical review of those funding sources.”

Musk’s attorney, Alex Spiro, told the jury in his opening statement Wednesday that Musk believed he had financing from Saudi backers and was taking steps to make the deal happen. Fearing leaks to the media, Musk tried to protect the “everyday shareholder” by sending the tweet, which contained “technical inaccuracies,” Spiro said.

Guhan Subramanian, a Harvard Law School professor, told the jury that Musk’s behavior in 2018 lacked the hallmarks of traditional corporate dealmaking by tweeting his interest in Tesla without proper financial or legal analysis.

“Compared to the standard template it’s an extreme outlier,” said Subramanian, who called Musk’s approach “unprecedented” and “incoherent.”

A jury of nine will decide whether the tweet artificially inflated Tesla’s share price by playing up the status of funding for the deal, and if so, by how much.

The defendants include current and former Tesla directors, whom Spiro said had “pure” motives in their response to Musk’s plan.

Reporting by Tom Hals in Wilmington, Del., and Jody Godoy in San Francisco; Editing by Noeleen Walder, Peter Henderson, Matthew Lewis and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

Jody Godoy

Thomson Reuters

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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Crypto lending unit of Genesis files for U.S. bankruptcy

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Jan 20 (Reuters) – The lending unit of crypto firm Genesis filed for U.S. bankruptcy protection on Thursday, owing creditors at least $3.4 billion, after being toppled by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov. 16 after the collapse of major exchange FTX sent shockwaves through the crypto asset industry, fuelling concern that other companies could implode.

Genesis is owned by venture capital firm Digital Currency Group (DCG).

Its bankruptcy filing is the latest in a string of crypto failures triggered by a market collapse that wiped about $1.3 trillion off the value of crypto tokens last year. While bitcoin has rallied so far in 2023, the impact of the market collapse has continued to hit companies in the highly interconnected sector.

The bankruptcy “doesn’t come as a shock to the markets,” said Ivan Kachkovski, currency and crypto strategist at UBS. “It remains to be seen if the chain effect would go on.”

“However, given that the funds have already been frozen for over two months and no other large crypto company reported an associated weakness, it’s likely that the contagion would be limited.”

Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing with the U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would contemplate a potential sale, or a stock-related transaction, to pay creditors, and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker dealer and custody businesses were not part of the bankruptcy process, and would continue their client trading operations.

CREDITORS’ CLAIMS

Genesis owes its 50 biggest creditors $3.4 billion, according to Reuters’ calculations from the bankruptcy filing. Its largest creditor is crypto exchange Gemini, which it owes $765.9 million. Gemini was founded by the identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.

Genesis was already locked in a dispute with Gemini over a crypto lending product called Earn that the two firms jointly offered to Gemini customers.

The Winklevoss twins have said Genesis owed more than $900 million to some 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for the removal of Barry Silbert as the chief executive of Digital Currency Group.

Representations of cryptocurrencies are seen in front of displayed decreasing stock graph in this illustration taken November 10, 2022. REUTERS/Dado Ruvic/Illustration

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently,” Winklevoss said in his tweet thread.

DCG did not immediately respond to a Reuters request for comment on the tweets.

Amsterdam-based crypto exchange Bitvavo, said in December it was trying to recover 280 million euros ($302.93 million) which it had lent to Genesis.

Bitvavo said in a blog post on Friday that talks on the repayment “have not yet led to an overall agreement that works for all parties concerned” and that it would continue to negotiate.

The bankruptcy filing “brings the process of negotiations to calmer waters,” Bitvavo said.

LENDING BUSINESS

Genesis brokered digital assets for financial institutions such as hedge funds and asset managers and had almost $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to its website.

Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows debt to Genesis was assumed by its parent company Digital Currency Group (DCG), which then filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, which acted as the de facto banks, boomed during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a shortfall of collateral forced some lenders – and their customers – to shoulder large losses.

($1 = 0.9243 euros)

Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi, and Elizabeth Howcroft in London; Editing by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili and Sharon Singleton

Our Standards: The Thomson Reuters Trust Principles.

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Bed Bath & Beyond preparing to file bankruptcy within weeks -sources

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Jan 5 (Reuters) – Bed Bath & Beyond Inc (BBBY.O) is preparing to seek bankruptcy protection in coming weeks, people familiar with the matter said, following poor sales and an inability to compete with large online and big-box retailers.

The U.S. home goods retailer is considering skipping debt payments due Feb. 1, one of the sources said, a typical move distressed companies on the verge of bankruptcy take to conserve cash.

Shares of the retailer, once a category killer in products like small appliances and bed sheets, ended down 30% on Thursday at $1.69 after the company said it expected to report a significant third-quarter loss and that there was substantial doubt about its ability to continue as a going concern.

The company said it was exploring a range of options to address its plunging sales that included declaring bankruptcy. The retailer said it has not made any final decisions on which course to take.

Bed Bath & Beyond had no immediate comment on any bankruptcy preparations beyond its disclosure on Thursday.

The company has interest payments on roughly $1.5 billion of bonds due Feb. 1, according to securities filings. The company is considering skipping the payout to conserve cash, which would likely trigger a 30-day grace period before the company officially defaults, the people said.

Troubled retailers often seek bankruptcy protection following the holiday season to take advantage of the cash cushion provided by recent sales. Should the company seek bankruptcy protection, it would likely seek financing from existing creditors to help it navigate a court restructuring, one of the people said.

The retailer’s fortunes soured after it pursued a strategy focused on its own private label goods. Management has since reversed course to bring in national brands shoppers recognized.

But on Thursday, signs emerged that this strategy too has failed to take off with the company reporting that it expects to post a loss of $385.5 million after sales plunged 33% for the quarter ending Nov. 26, due to lower customer traffic and reduced levels of inventory availability among other factors.

The company is scheduled to report its full third quarter results on Tuesday.

“The turnaround plan put in place last year is not working. … Put bluntly, the business is moving at rapid speed in the wrong direction with bankruptcy the most likely destination,” GlobalData analyst Neil Saunders said.

Bed Bath & Beyond has enlisted turnaround and consulting firm AlixPartners LLP to help advise on options for addressing its financial woes, people familiar with the matter said.

In addition to AlixPartners, the company is being advised by restructuring lawyers at Kirkland & Ellis LLP and investment bankers at Lazard Ltd (LAZ.N), one of the people said.

AlixPartners and Lazard declined to comment. Kirkland did not immediately respond to a request for comment. In a statement to Reuters late on Thursday, Bed Bath & Beyond said it was “working with strategic advisors to evaluate all paths to regain market share and enhance liquidity” but could not comment further on specific relationships.

The company became a meme stock last year when its shares soared more than 400%. Activist investor Ryan Cohen, the chairman of GameStop Corp (GME.N), took a stake in Bed Bath & Beyond, which he later sold, sending shares crashing.

Bed Bath & Beyond in its prior financial update in the fall said it had liquidity of $850 million but had burned through $325 million in the second quarter.

The company had also been asking bondholders to swap out their holdings for new debt to give it more breathing room to turn around its business but canceled the deal on Thursday after not getting much interest from investors, according to filings made with the U.S. Securities and Exchange Commission.

Bed Bath & Beyond had earlier considered selling its valuable buybuy Baby stores that sell goods for infants and toddlers but held off in the hopes it could later fetch a higher price, Reuters reported.

buybuy Baby is the “crown jewel” asset of the company and would likely generate the most interest from buyers in case the parent company decides to sell it as part of its restructuring efforts, Michael Baker, senior research analyst at DA Davidson said, without providing a valuation on the business.

The value of the chain helped the retailer ink a $375 million loan last year, the maximum amount it could borrow.

Reporting by Aishwarya Venugopal in Bengaluru and Siddharth Cavale in New York ; Editing by Shounak Dasgupta, Subhranshu Sahu, Mark Porter and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

Jessica DiNapoli

Thomson Reuters

New York-based reporter covering U.S. consumer products spanning from paper towels to packaged food, the companies that make them and how they’re responding to the economy. Previously reported on corporate boards and distressed companies.

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Exclusive: FTX’s former top lawyer aided U.S. authorities in Bankman-Fried case

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Jan 5 (Reuters) – FTX’s former top lawyer Daniel Friedberg has cooperated with U.S. prosecutors as they investigate the crypto firm’s collapse, a source familiar with the matter said, adding pressure on founder Sam Bankman-Fried who was arrested on criminal fraud charges last month.

Friedberg gave details about FTX in a Nov. 22 meeting with two dozen investigators, the person said. The meeting, held at the U.S. Attorney for the Southern District of New York’s office included officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission, the source said. Emails between attendees scheduling the meeting with those agencies were seen by Reuters.

At the meeting, he told prosecutors what he knew of Bankman-Fried’s use of customer funds to finance his business empire, the source said. Friedberg recounted conversations he had with other top executives on the subject and provided details of how Bankman-Fried’s hedge fund Alameda Research functioned, the source said.

Friedberg’s cooperation has not been previously reported. He has not been charged and has not been told he is under criminal investigation, the source said. Instead, he expects to be called as a government witness in Bankman-Fried’s October trial, the person said.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX did not respond to requests for comment on his cooperation. The SEC, the Department of Justice and Bankman-Fried’s spokesman declined to comment.

Bankman-Fried is accused of diverting billions of dollars in FTX client funds to Alameda to bankroll venture investments, luxury real estate purchases, and political donations. On Tuesday, he pleaded not guilty in Manhattan federal court.

Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against now bankrupt FTX, said last month: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to fraud and agreed to cooperate. A lawyer for Ellison didn’t respond to a request for comment. Wang’s lawyer declined to comment.

MEETING WITH PROSECUTORS

FTX filed for bankruptcy protection on Nov. 11. A few days later, on Nov. 14, Friedberg received a call from two FBI agents based in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege, according to a person familiar with the matter and emails viewed by Reuters.

Friedberg wrote to FTX the next day asking the company to waive his privilege so he could cooperate with prosecutors, according to the email seen by Reuters. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.

Friedberg then wrote back to the two FBI agents, telling them in an email reviewed by Reuters: “I want to cooperate in all respects.”

The U.S. Attorney’s Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies, according to the source and an email exchanged by participants. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.

“THROUGH THICK AND THIN”

Prior to his work advising FTX, Friedberg advised a mix of banking, fintech, and online gaming companies.

One of his previous employers, a Canadian online gaming firm named Excapsa Software, where he was general counsel, also drew controversy due to a cheating scandal involving a poker site it operated called Ultimate Bet. A Canadian gaming commission in 2008 fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.

According to an audio recording available on the website PokerNews, Friedberg and some other Ultimate Bet associates privately discussed that year how to handle the scandal and minimize the amount of refunds owed to players. Friedberg previously told NBC News that the audio was illegally recorded but NBC’s article did not say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as outside counsel while at U.S. law firm Fenwick & West, where he chaired its payment systems group, the source familiar with the matter said. At the time, the source said Friedberg advised Bankman-Fried on running Alameda, which he founded that year.

In 2020, when Bankman-Fried launched a separate exchange for U.S. customers called FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted blog post published that year on FTX’s website, Bankman-Fried wrote that Friedberg was FTX’s legal advisor “from the very beginning,” noting he had been “with us through thick and thin.”

Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money, according to the source and three other people briefed on the talks, along with text messages his legal team exchanged at the time.

Additional reporting by Hannah Lang; editing by Megan Davies and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

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Bankman-Fried, FTX execs received billions in hidden loans, ex-Alameda CEO says

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NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from the crypto mogul’s Alameda Research, the hedge fund’s former chief told a judge when she pleaded guilty to her role in the exchange’s collapse.

Caroline Ellison, former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX’s investors, lenders and customers that the hedge fund could borrow unlimited sums from the exchange, according a transcript of her Dec. 19 plea hearing that was unsealed on Friday.

“We prepared certain quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties,” Ellison told U.S. District Judge Ronnie Abrams in Manhattan federal court, according to the transcript.

Ellison and FTX co-founder Gary Wang both pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their sworn statements offer a preview of how two of Bankman-Fried’s former associates might testify at trial against him as prosecution witnesses.

In a separate plea hearing, also on Dec. 19, Wang said he was directed to make changes to FTX’s code to give Alameda special privileges on the trading platform, while being aware that others were telling investors and customers that Alameda had no such privileges.

Wang did not specify who gave him those directions.

Nicolas Roos, a prosecutor, said in court on Thursday that Bankman-Fried’s trial would include evidence from “multiple cooperating witnesses.” Roos said Bankman-Fried carried out a “fraud of epic proportions” that led to the loss of billions of dollars of customer and investor funds.

Bankman-Fried has acknowledged risk-management failures at FTX but said he does not believe he has criminal liability. He has not yet entered a plea.

Bankman-Fried founded FTX in 2019 and rode a boom in the values of bitcoin and other digital assets to become a billionaire several times over as well as an influential donor to U.S. political campaigns.

A flurry of customer withdrawals in early November amid concerns about commingling of FTX funds with Alameda prompted FTX to declare bankruptcy on Nov. 11.

Bankman-Fried, 30, was released on Thursday on $250 million bond. His spokesperson declined to comment on Ellison and Wang’s statements.

Lawyers for Wang and Ellison declined to comment.

Ellison told the court that when investors in June 2022 recalled loans they had made to Alameda, she agreed with others to borrow billions of dollars in FTX customer funds to repay them, understanding that customers were not aware of the arrangement.

“I am truly sorry for what I did,” Ellison said, adding that she is helping to recover customer assets.

Wang also said he knew what he was doing was wrong.

The transcript of Ellison’s hearing was initially sealed out of concern that the disclosure of her cooperation could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was based, court records showed.

Bankman-Fried was arrested in the capital Nassau on Dec. 12 and arrived in the United States on Wednesday after consenting to extradition.

A magistrate judge ordered him confined to his parents’ California home until trial.

On Friday evening, Abrams recused herself from the case, saying in a court order that the law firm Davis Polk & Wardwell LLP, where her husband is a partner, advised FTX in 2021.

The firm also represented parties that could be adverse to FTX and Bankman-Fried in other proceedings, the judge said, and while her husband had no involvement in these matters, which “were confidential and their substance is unknown to the Court,” she was recusing herself to avoid a possible conflict.

Reporting by Luc Cohen in New York; Writing by Tom Hals in Wilmington, Del.; Editing by Noeleen Walder, Matthew Lewis and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Insurers shun FTX-linked crypto firms as contagion risk mounts

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Dec 19 (Reuters) – Insurers are denying or limiting coverage to clients with exposure to bankrupt crypto exchange FTX, leaving digital currency traders and exchanges uninsured for any losses from hacks, theft or lawsuits, several market participants said.

Insurers were already reluctant to underwrite asset and directors and officers (D&O) protection policies for crypto companies because of scant market regulation and the volatile prices of Bitcoin and other cryptocurrencies.

Now, the collapse of FTX last month has amplified concerns.

Specialists in the Lloyd’s of London (SOLYD.UL) and Bermuda insurance markets are requiring more transparency from crypto companies about their exposure to FTX. The insurers are also proposing broad policy exclusions for any claims arising from the company’s collapse.

Kyle Nichols, president of broker Hugh Wood Canada Ltd, said insurers were requiring clients to fill out a questionnaire asking whether they invested in FTX, or had assets on the exchange.

Lloyd’s of London broker Superscript is giving clients that dealt with FTX a mandatory questionnaire to outline the percentage of their exposure, said Ben Davis, lead for digital assets at Superscript.

“Let’s say the client has 40% of their total assets at FTX that they can’t access, that is either going to be a decline or we’re going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX,” he said.

The exclusions denying payout for any claims arising out of the FTX bankruptcy are found in insurance policies that cover the protection of digital assets and for personal liabilities of directors and officers of companies that deal in crypto, five insurance sources told Reuters. A couple of insurers have been pushing for a broad exclusion to policies for anything related to FTX, a broker said.

Exclusions may act as a failsafe for insurers, and will make it even more difficult for companies that are seeking coverage, insurers and brokers said.

Bermuda-based crypto insurer Relm, which previously has provided coverage to entities linked to FTX, takes an even stricter approach.

“If we have to include a crypto exclusion or a regulatory exclusion, we’re just not going to offer the coverage,” said Relm co-founder Joe Ziolkowski.

D&O QUESTION

Now, one of the most pressing questions is whether insurers will cover D&O policies at other companies that had dealings with FTX, given the problems facing exchange’s leadership, Ziolkowski said.

U.S. prosecutors say former FTX Chief Executive Officer Sam Bankman-Fried 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 LLC.

A lawyer for Bankman-Fried said on Tuesday his client is considering all of his legal options.

D&O policies, which are used to pay legal costs, do not always pay out in cases of fraud.

Insurance sources would not name their clients or potential clients that could be affected by policy changes, citing confidentiality. Crypto firms with financial exposure to FTX include Binance, a crypto exchange, and Genesis, a crypto lender, neither of which responded to e-mails seeking comment.

While the least risky parts of the crypto market, such as companies that own cold wallets storing assets on platforms not connected to the internet, may get cover for up to $1 billion, a D&O insurance policyholder’s cover may now be limited to tens of millions of dollars for the rest of the market, Ziolkowski said.

The FTX collapse will also likely lead to a rise in insurance rates, especially in the U.S. D&O market, insurers said. The rates are already high because of the perceived risks and lack of historical data on cryptocurrency insurance losses.

A typical crime bond — used to protect against losses resulting from a criminal act — would cost $30,000 to $40,000 per $1 million of coverage for a digital assets trader. That compares with a cost of about $5,000 per $1 million for a traditional securities trader, Hugh Wood Canada’s Nichols said.

Reporting by Noor Zainab Hussain in Bengaluru and Carolyn Cohn in London; Editing by Lananh Nguyen and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

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In sweltering Bahamas courtroom, Bankman-Fried fights incarceration

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NASSAU, Dec 13 (Reuters) – Cordoned-off roads, a sweltering courtroom and numerous delays marked Sam Bankman-Fried’s first in-person public appearance since his crypto company collapsed.

The Bahamas courtroom hearing, conducted over the course of six hours, saw Bankman-Fried, dressed in a suit rather than his typical t-shirt attire, seeking bail to dispute his extradition to the U.S. He was ultimately refused and faces possible extradition to the United States.

It was a stunning fall from grace for the crypto boss, once estimated by Forbes as worth as much as $26.5 billion.

“I’m not waiving,” Bankman-Fried said when asked if he would seek to waive his right to an extradition hearing.

It was a rare comment in a hearing that was largely taken up with lawyers discussing process. In another comment, Bankman-Fried referred to the night of his arrest as “hectic.”

There was high anticipation ahead of the appearance by Bankman-Fried, who has done numerous media interviews since his firm collapsed but not been widely seen in public.

The day started with Bankman-Fried ushered into court away from the main entrance and photographers and reporters who crowded to get a shot.

Bahamas Chief Magistrate JoyAnn Ferguson-Pratt contributed witty asides that often left the courtroom chuckling, once quipping “I wasn’t born yesterday” at the defense counsel’s interpretation of the law.

Ferguson-Pratt’s repeatedly forgetting the defendant’s last name led to laughter.

“Samuel,” she said before trailing off, with the once-billionaire crypto magnate reminding her of his name: “Bankman-Fried.”

People in the courtroom fanned themselves to keep cool in the tropical heat as sun shone through the windows.

The hearing was adjourned twice, once to consult about the court’s jurisdiction to grant bail, and again in the afternoon.

It also included an extensive discussion of Bankman-Fried’s medication, which his lawyer said was for conditions including depression, insomnia and attention deficit disorder.

At the start of the proceedings, Bankman-Fried asked to change an Emsam patch, a medical strip applied to the skin that is used to treat adult depression. He asked to briefly leave the court room to take the medication.

Bankman-Fried acknowledged that he had not taken his medications with him when he was arrested, which he attributed to having had a “hectic night”.

His parents, Joseph Bankman and Barbara Fried, at times seemed frustrated with the arguments made by the prosecution, which described him as a flight risk.

Bankman-Fried’s defense counsel pointed out that Bankman-Fried had spent weeks in The Bahamas after his business collapsed without attempting to leave the country.

At the end of the hearing, his head lowered, he hugged his parents. A van outside the court waited to take him away.

Reporting by Jared Higgs in Nassau and Brian Ellsworth in Miami; editing by Megan Davies, Noeleen Walder and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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FTX founder Sam Bankman-Fried charged with fraud, denied bail

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NASSAU, Bahamas/NEW YORK, Dec 13 (Reuters) – U.S. prosecutors on Tuesday accused Sam Bankman-Fried, the founder of crypto currency exchange FTX, of fraud and violating campaign finance laws and a judge in the Bahamas denied him bail, sending him to a local correctional facility instead.

The former FTX CEO, who was arrested in the Bahamas on Monday, lowered his head and hugged his parents after the magistrate judge refused bail citing a “great” risk of flight.

He was ordered remanded to a correctional facility in the island nation until Feb. 8, where he will initially held in the medical department, according to a local official.

The day’s events capped a stunning fall from grace in recent weeks for the 30-year-old, who amassed a fortune valued over $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.

Bankman-Fried has previously apologized to customers and acknowledged oversight failings at FTX, but said he does not personally think he has any criminal liability.

Earlier on Tuesday, U.S. Attorney Damian Williams in New York said Bankman-Fried made illegal campaign contributions to Democrats and Republicans with “stolen customer money,” saying it was part of one of the “biggest financial frauds in American history.”

“While this is our first public announcement, it will not be our last,” he said, adding Bankman-Fried “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 counts, prosecutors said, though any sentence would depend on a range 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.

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

He appeared relaxed when he arrived at the heavily guarded Bahamas court and told the court he could fight extradition to the United States.

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

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

‘BRAZEN’ SCHEME

[1/12] Sam Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy, is escorted out of the Magistrate Court building, last month he was arrested after being criminally charged by U.S. prosecutors, in Nassau, Bahamas December 13, 2022. REUTERS/Dante Carrer

FTX’s current CEO, John Ray, told congressional lawmakers on Tuesday 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, nonsophisticated individuals.”

In the indictment unsealed on Tuesday morning, U.S. 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 LLC.

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.

Both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) alleged Bankman-Fried committed 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 FTX was diverting customer funds to Alameda Research, the SEC alleged.

CRYPTO INVESTORS LOST BILLIONS

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 U.S. President Bill Clinton. He became one of the largest Democratic donors, contributing $5.2 million to President Joe Biden’s 2020 campaign. Forbes pegged his net worth a year ago at $26.5 billion.

FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 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.

The collapse was one of a series of bankruptcies in the crypto industry this year as digital asset markets tumbled from 2021 peaks. A crypto exchange is a platform on which investors can trade digital tokens such as bitcoin.

As legal challenges mount, the U.S. Congress is also looking at crafting legislation to rein in a loosely-regulated industry.

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

The attorney general’s office of the Bahamas said it expected Bankman-Fried to be extradited to the United States.

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, Reuters has reported. At least $1 billion in customer funds had vanished.

Additional reporting by Luc Cohen and Jack Queen in New York and Hannah Lang, Chris Prentice and Susan Heavey in Washington
Writing by Nick Zieminski and Deepa Babington
Editing by Noeleen Walder, Megan Davies, Anna Driver and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

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Former FTX CEO Bankman-Fried arrested in Bahamas after U.S. files charges

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Dec 12 (Reuters) – (Editor’s note: This story contains language in paragraph 18 that some readers may find offensive)

FTX founder Sam Bankman-Fried was arrested in the Bahamas at the behest of U.S. prosecutors on Monday, the day before he was due to testify before Congress about the abrupt failure last month of one of the world’s largest cryptocurrency exchanges.

The arrest marks a stunning fall from grace for the 30-year-old entrepreneur widely known by his initials SBF, who rode a boom in bitcoin and other digital assets to become a billionaire many times over until FTX’s rapid demise.

The exchange, launched in 2019 and based in the Bahamas, filed for bankruptcy Nov. 11 after it struggled to raise money to stave off collapse as traders rushed to withdraw $6 billion from the platform in just 72 hours. Since then it emerged Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business.

The arrest came as Bankman-Fried prepared to lash out at his former lawyers at Sullivan and Cromwell, new FTX CEO John Ray and rival exchange operator Binance at a Congressional hearing.

In the testimony, a draft copy of which was seen by Reuters, Bankman-Fried planned to say he was pressured by Sullivan and Cromwell lawyers to nominate Ray as CEO following the sudden exodus of customer funds. And when within minutes he changed his mind, following an offer of billions of dollars of fresh funding, he was told it was too late.

Bankman-Fried will now be unable to testify, according to Congresswoman Maxine Waters, who said in a statement she was surprised to hear of his arrest. Ray’s testimony will go ahead.

Bankman-Fried was arrested shortly after 6:00 pm Monday (2300 GMT) at his apartment complex, a luxury gated community called the Albany, and will appear in a magistrate court on Tuesday, Bahamian police said. The Bahamas attorney general’s office said it expects he will be extradited to the United States.

A spokesman for the U.S. Attorney’s office in Manhattan confirmed Bankman-Fried had been arrested in the Bahamas but declined to comment on the charges.

U.S. prosecutors said they had a sealed indictment against Bankman-Fried and charges would be revealed on Tuesday. The New York Times reported he faces fraud and money laundering charges. The U.S. Securities and Exchange Commission separately authorized charges relating to Bankman-Fried’s violations of securities laws, the regulator said on Monday.

Bankman-Fried and his lawyer Mark Cohen did not immediately respond to requests for comment, nor did Sullivan and Cromwell, FTX, Ray and Binance.

Bankman-Fried has said he doesn’t think he has any criminal liability. “I didn’t ever try to commit fraud,” Bankman-Fried said in a Nov. 30 interview at the New York Times’ Dealbook Summit.

CRYPTO INDUSTRY REELING

FTX’s demise sent shockwaves through an already-battered cryptocurrency industry, which has seen a string of meltdowns this year that have taken down other key players including Voyager Digital and Celsius Network.

More trouble might be on the horizon for the industry. Reuters reported Monday that some Justice Department prosecutors believe they have gathered sufficient evidence in their long-running investigation of Binance to charge the world’s largest cryptocurrency exchange and some top executives.

A Binance spokesperson told Reuters for the article: “We don’t have any insight into the inner workings of the U.S. Justice Department, nor would it be appropriate for us to comment if we did.”

Bitcoin was steady at $17,150. It is down more than 60% this year.

MEA CULPA

Since the collapse of FTX, Bankman-Fried has given numerous media interviews apologizing for his mistakes and explaining what happened at the company, something that legal experts said could allow prosecutors to point to inconsistencies to undermine his credibility with a jury.

“The defense is going to be completely boxed in by the prior statements SBF has made and the very incisive questions he has answered in the press and on social media,” said criminal defense attorney and former federal prosecutor Renato Mariotti.

In his written testimony, Bankman-Fried repeated his mea culpa: “I would like to start by formally stating, under oath: I fucked up,” he wrote.

Then, he launched into an explanation of how things went badly at FTX and his hedge fund Alameda Research, while criticizing Sullivan and Cromwell and Ray as well as arch rival Binance for their actions as his firm imploded.

UNDER PRESSURE

Describing his decision to give up his role as CEO of FTX and appoint Ray, Bankman-Fried said he was pressured to do so by Sullivan and Cromwell and the general counsel of FTX’s U.S. unit, who he said was a former lawyer at the law firm.

Bankman-Fried said less than 10 minutes after he had signed a document at 4.30 am on Nov. 10 to make Ray the CEO of FTX, he received “a potential funding offer for billions of dollars.” Bankman-Fried said he told his counsel to rescind the CEO appointment a few minutes later but was told it was already too late to do so.

Bankman-Fried said he had since been cut off from FTX’s systems and Ray had not responded to his emails offering help or other information.

Bankman-Fried, who had become a prominent and unconventional figure known for his wild hair, t-shirts and shorts during crypto’s boom, said the fortunes of FTX and his trading firm Alameda declined rapidly this year as crypto currencies crashed amid rising interest rates.

In late 2021, he said Alameda had net asset value of more than $50 billion and manageable levels of debt. That became unsustainable as digital assets declined.

“Last year, my net worth was valued at $20b,” Bankman-Fried wrote. “Last I saw, I believe my bank account had about $100k in it.”

Reporting by Jasper Ward in Washington, Luc Cohen and Jack Queen in New York, Brian Ellsworth in Miami and Angus Berwick in London; Editing by Megan Davies, Paritosh Bansal and Lincoln Feast

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

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Business

Exclusive: Goldman Sachs on hunt for bargain crypto firms after FTX fiasco

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LONDON, Dec 6 (Reuters) – Goldman Sachs (GS.N) plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.

FTX’s implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on Nov. 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO David Solomon told CNBC on Nov. 10, as the FTX drama was unfolding, that while he views cryptocurrencies as “highly speculative”, he sees much potential in the underlying technology as its infrastructure becomes more formalized.

Rivals are more sceptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley (MS.N) CEO James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC (HSBA.L) CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘TRUSTED’ PLAYERS

The global cryptocurrency market peaked at $2.9 trillion in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion on Dec. 5.

The ripple effects from FTX’s collapse have boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well capitalized counterparties.

“What’s increased is the number of financial institutions wanting to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with cast iron certainty.”

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Others also see the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said

“We have seen more client interest since the demise of FTX,” he said. “Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties.”

Reporting by Iain Withers and Lawrence White, Editing by Lananh Nguyen and Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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