The stunning collapse of one of crypto’s most prominent firms has quickly morphed into a legal battle pitting former executives and ex-romantic partners against one another.
Last week, as FTX founder Sam Bankman-Fried was being extradited to the United States from the Bahamas, two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.
Caroline Ellison, the 28-year-old former CEO of the crypto hedge fund Alameda, apologized before a federal judge in New York, saying that she and her former associates knowingly stole billions of dollars from customers of Bankman-Fried’s FTX exchange and sought to cover it up, according to court transcripts.
“I am truly sorry for what I did,” Ellison told the court. “I knew that it was wrong.”
Ellison told the court that Alameda had a virtually unlimited borrowing facility in FTX, and that she knew the exchange would need to use customer funds to finance loans to the hedge fund. She also agreed to keep the two firms’ unusually close relationship hidden from investors and customers.
From July through October, she told the court, Ellison agreed with Bankman-Fried and others to provide “materially misleading financial statements to Alameda’s lenders,” and prepared balance sheets that concealed the extent of Alameda’s borrowing.
Ellison has been charged with seven criminal counts, including conspiracy to commit wire fraud and money laundering. She and Bankman-Fried were close business associates who briefly dated.
Another associate, Gary Wang, FTX’s former chief technology officer, pleaded guilty to four counts of similar charges.
Wang told the court that part of his role at FTX included making changes to the exchange’s code that would grant Alameda “special privileges” on FTX.
“I knew what I was doing was wrong,” he said.
Both Ellison and Wang are cooperating with federal prosecutors, making them potentially damning witnesses against Bankman-Fried, who has repeatedly denied intentionally defrauding customers and investors.
Bankman-Fried, 30, appeared Thursday in a US courtroom in New York, where a federal judge released him on a $250 million bond. He is required to surrender his passport and remain under house arrest at his parents’ home in Palo Alto, California.
Although $250 million is an extraordinary sum, Bankman-Fried won’t have to pay it unless he violates the terms of his bail agreement or fails to show up to court. The atypical bail plan was agreed to as part of his commitment to waive his extradition fight.
Following his court appearance, Bankman-Fried was spotted in a business class lounge at New York’s John F. Kennedy International Airport. Crypto reporter Tiffany Fong also tweeted a photo showing Bankman-Fried on an American Airlines flight.
Bankman-Fried’s legal team confirmed to CNN Business that he had arrived in Palo Alto and was home with his parents. His lawyer declined to comment on the guilty pleas by Ellison and Wang.
The federal judge Thursday said Bankman-Fried would be arraigned on eight criminal counts including fraud and conspiracy at an unspecified future date.
Prosecutors allege that Bankman-Fried orchestrated “one of the biggest financial frauds in American history,” stealing billions of dollars from FTX customers to cover losses at Alameda and to enrich himself. If convicted, he could face life in prison.
Bankman-Fried, prior to his arrest in the Bahamas earlier this month, had sought to portray himself as a hapless entrepreneur who got out over his skis. He repeatedly apologized to customers and to FTX staff, saying he “f—ed up,” while denying that he knowingly defrauded anyone.
— CNN’s Lauren del Valle and Kara Scannell contributed reporting.
Sam Bankman-Fried’s ex-girlfriend stunningly confessed during a secret court proceeding that she knew “it was wrong” to take part in his alleged fraud scheme, according to a transcript made public Friday.
“I am truly sorry for what I did,” Caroline Ellison said. “I knew that it was wrong.”
Ellison, 28, pleaded guilty Monday to federal fraud charges in connection with her role as the CEO of the Alameda Research hedge fund, which allegedly received billions of dollars from Bankman-Fried’s now-bankrupt FTX cryptocurrency exchange.
Ellison admitted in Manhattan federal court that she “understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion.”
FTX co-founder Gary Wang also pleaded guilty in the $8 billion collapse of FTX, and both he and Ellison are cooperating with the feds, Manhattan US Attorney Damian Williams revealed Wednesday.
Ellison pleaded guilty Monday to federal fraud charges. Twitter / @carolinecapital
FTX founder Sam Bankman-Fried was released on $250 million bond. AFP via Getty Images
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Gary Wang also pleaded guilty.
FTX was founded in 2019. Marta Lavandier/AP
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Bankman-Fried, 30, was extradited from the Bahamas Wednesday to face an eight-count indictment that carries a maximum 115 years in prison.
He was released on $250 million bond to house arrest at his parents’ $4 million home in Palo Alto, Calif., near Stanford University, where they’re both law professors.
Ellison’s plea agreement says that she faces up to 110 years in prison and that prosecutors “will not recommend any specific sentence” in exchange for her cooperation.
But it also says that if she provides “substantial assistance,” they will submit a letter asking for a punishment that’s less harsh than called for by federal sentencing guidelines.
Former Brooklyn federal prosecutor Moira Penza said it was “too early” to say how much time Ellison would have to serve in prison but noted that “cooperating early was the best thing she could have done to seriously reduce her possible sentence.”
“Ms. Ellison was in the door as early as she could be and didn’t even need to be indicted. She is signaling at every opportunity that she is taking responsibility and is truly remorseful,” Penza said.
Penza also noted that it’s “not unheard of for testifying cooperators — even ones facing as long a sentence as Ms. Ellison — to receive probation rather than any prison term.”
Defense lawyer Ira Sorkin — whose former client, the late Bernie Madoff, got slapped with a 150-year sentence for his epic Ponzi scheme — declined to guess what would happen to Ellison.
“To predict what she will get at this stage is impossible,” he said.
apologized in court this week as she pleaded guilty to fraud and other offenses, telling a judge that she and others conspired to steal billions of dollars from customers of the doomed crypto exchange while misleading investors and lenders.
“I am truly sorry for what I did,” Ms. Ellison, the former chief executive of Mr. Bankman-Fried’s crypto-trading firm, Alameda Research, said in a New York federal court, according to a transcript of the hearing made available Friday. “I knew that it was wrong.”
Ms. Ellison, 28 years old, and former FTX chief technology officer
Gary Wang,
29, pleaded guilty Monday during separate hearings in sealed courtrooms. Both agreed to cooperate with the government’s investigation in exchange for the prospect of lighter sentences.
Ms. Ellison, a former romantic partner of Mr. Bankman-Fried, pleaded guilty to seven criminal counts, including fraud, conspiracy and money laundering. During her hearing, she admitted to conspiring to use billions of dollars from FTX customer accounts to repay loans Alameda had taken out to make risky investments.
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FTX executives had enacted special settings that granted Alameda access to an unlimited line of credit without having to post collateral, pay interest on negative balances or be subject to margin calls, she said.
“I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion,” she said.
Ms. Ellison also said she and Mr. Bankman-Fried worked with others to conceal the arrangement from lenders, including by hiding on quarterly balance sheets the extent of Alameda’s borrowing and the billions of dollars in loans that the firm had made to FTX executives and associates. Mr. Bankman-Fried was among the executives who received loans from Alameda, she said.
Under questioning from the judge, Ms. Ellison said she knew what she was doing was illegal.
She said that since FTX’s implosion, she has worked hard to assist in the recovery of customers’ assets and aid the government’s investigation.
At the hearing, U.S. District Judge
Ronnie Abrams
granted the request of federal prosecutors to temporarily seal all documents connected to Ms. Ellison’s plea agreement. At the time, Mr. Bankman-Fried was in a jail in the Bahamas after the Justice Department requested local police arrest him, and he had not yet formally consented to his transfer to U.S. custody.
“We’re still expecting extradition soon, but given that he has not yet entered his consent, we think it could potentially thwart our law enforcement objectives to extradite him if Ms. Ellison’s cooperation were disclosed at this time,” Assistant U.S. Attorney
Danielle Sassoon
told Judge Abrams.
A lawyer for Ms. Ellison declined to comment. Ms. Ellison was ordered released on $250,000 bond at her plea hearing. A spokesman for the U.S. attorney’s office in Manhattan declined to comment.
John J. Ray III, the new chief executive of FTX, testified in front of a House committee Tuesday on the collapse of the crypto exchange. His testimony came less than a day after the company founder, Sam Bankman-Fried, was arrested in the Bahamas. Photo: Al Drago/Bloomberg News
Mr. Wang pleaded guilty in front of the same judge. He told Judge Abrams he knew what he was doing was illegal and wrong. “As part of my employment at FTX, I was directed to and agreed to make certain changes to the platform’s code,” he said, adding that he executed the changes knowing they would give Alameda Research special privileges on the FTX platform.
A lawyer for Mr. Wang declined to comment. He has previously said that Mr. Wang takes his responsibilities as a cooperating witness seriously.
The Justice Department charged Mr. Bankman-Fried earlier this month with eight counts of fraud and conspiracy connected to the implosion of his company. He was released from custody on a $250 million bond on Thursday after making his first court appearance in New York following his extradition from the Bahamas. A federal magistrate judge set strict restrictions on Mr. Bankman-Fried, including ordering him to stay in his parents’ Palo Alto, Calif., home and be under electronic monitoring.
Mr. Bankman-Fried has said he made mistakes that contributed to FTX’s demise, but he has denied engaging in fraud.
Write to Corinne Ramey at corinne.ramey@wsj.com and James Fanelli at james.fanelli@wsj.com
Lawyers for Sam Bankman-Fried are negotiating with federal prosecutors in New York on a bail arrangement that would enable him to avoid detention, people familiar with the matter told CNN.
FTX crypto exchange founder Bankman-Fried, who oversaw his now-bankrupt crypto empire from a luxury compound in the Bahamas, is expected to return as early as Wednesday to the United States.
In a hearing Wednesday morning, his lawyer in the Bahamas told the court that Bankman-Fried had agreed to extradition to the US, where federal prosecutors have charged him with orchestrating “one of the biggest financial frauds in American history.”
Once the 30-year-old is stateside, Bankman-Fried will appear before a judge in Manhattan for a bail hearing. The timing of that hearing will depend on when he arrives in New York and is processed.
In the week and a half since his arrest in the Bahamas, Bankman-Fried has been held in a prison that US officials have described overcrowded, dirty and lacking medical care. Its crowded cells often lack mattresses and are “infested with rats, maggots, and insects.”
Prosecutors and attorneys for Bankman-Fried are discussing an arrangement for his release, with conditions, that would enable the failed crypto entrepreneur to avoid spending time at the Metropolitan Detention Center. The MDC is a pre-trial holding facility that former inmates and rights advocates have described as inhumane, citing frequent lockdowns, overcrowding and power outages that have left it without heat in the middle of winter.
Federal prosecutors last week charged Bankman-Fried with defrauding investors and customers of FTX, which he founded in 2019. If convicted on all eight charges of fraud and conspiracy, he could face life in prison.
FTX and its sister trading house, Alameda, both filed for bankruptcy last month after investors rushed to pull their deposits from the exchange, sparking a liquidity crisis.
In the weeks since their bankruptcy, FTX’s new CEO has stated publicly that customer funds deposited on the FTX site were commingled with funds at Alameda, which made a number of speculative, high-risk bets. The CEO, John Ray III, described the situation at the two companies as “old-fashioned embezzlement” at the hands of a small group of “grossly inexperienced and unsophisticated individuals.”
FTX founder Sam Bankman-Fried was sent back to a Bahamas jail Monday after a reported plan for him to waive his extradition to the U.S. stalled.
Reports over the weekend indicated that Bankman-Fried would consent to extradition, but the former crypto billionaire told a different story Monday, demanding to see a copy of his federal indictment before agreeing to return to the U.S. He will return to Fox Hill jail rather than surrendering himself to U.S. custody.
Bankman-Fried’s legal team signaled that they would fight extradition last week. CNBC and several other outlets reported that Bankman-Fried had changed his mind and would instead submit himself for extradition on Monday.
FTX founder Sam Bankman-Fried (C) is led away handcuffed by officers of the Royal Bahamas Police Force at the Nassau, Bahamas, courthouse on December 19, 2022.
Kris Ingraham | Afp | Getty Images
In open court, chaos reigned. Bankman-Fried, 30, dressed in a blue suit and white button-down shirt, was visibly shaking. His Bahamiandefense attorney told the court that he was “shocked” that Bankman-Fried was in court.
“I did not request him to be here this morning,” the attorney said. Franklyn Williams KC, the Bahamian prosecutor, said that he “understood that [Bankman-Fried] intended to waive extradition,” according to an NBC News producer present in the courtroom.
The FTX founder arrived at Bahamian court in a convoy of police vehicles, heavily guarded, just after 10 a.m. ET.
The move comes just days after he was remanded to the medical unit of Bahamas’ notorious Fox Hill Prison.
The State Department in a 2020 report called the conditions at Fox Hill Prison “harsh,” citing “overcrowding, poor nutrition, inadequate sanitation, poor ventilation, and inadequate medical care.”
Sam Bankman-Fried, founder of FTX, is escorted inside of the Magistrate’s Court in Nassau, Bahamas, on Monday, Dec. 19, 2022.
Victor J. Blue | Bloomberg | Getty Images
Medical care in particular is spotty at the Bahamian prison, the report said. The former billionaire was transported from one of his several multimillion-dollar penthouse homes to the prison last week — though Bankman-Fried was entitled to his own room in the medical wing, Bloomberg reported.
Bankman-Fried faces life in federal prison, without the possibility of supervised release, if convicted on just one of eight offenses that prosecutors have charged him with.
His sentence could be reduced by mitigating factors. Trial lawyers and former prosecutors say that, in practice, many white-collar defendants are given lesser sentences than what the guidelines dictate. So, even in large fraud cases, you can see life sentences drastically reduced.
WATCH: Why Sam Bankman-Fried may decide to drop his fight against being extradited to the U.S.
Former FTX CEO Sam Bankman-Fried is expected to appear in a Bahamas court on Monday to reverse his decision to contest extradition to the US, a person familiar with the matter told CNN.
Bankman-Fried is expected to agree to extradition to the US, the person said. Reuters first reported thank Bankman-Fried would withdraw his extradition fight Monday.
It remains unclear what time Bankman-Fried will appear in court. If he waives his extradition, he would likely return to the United States quickly. Once in the states, he will appear before a US judge for an arraignment and bail hearing.
CNN has reached out to Bankman-Fried’s lawyers, and the Bahamas Attorney General.
Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.
On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of defrauding investors and customers, saying he “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”
Bankman-Fried remains in the Bahamas, where FTX was based, and was arrested last Monday night. He was arraigned Tuesday, and a Bahamian judge denied his request for bail, saying that he posed a flight risk. His extradition to the United States could take weeks.
Prosecutors allege Bankman-Fried conspired with others on numerous schemes, including misusing customer deposits held in FTX that were used to cover the expenses of Alameda, Bankman-Fried’s hedge fund..
Bankman-Fried also allegedly defrauded lenders to Alameda by providing them misleading information about the hedge fund’s financial condition.
The 14-page indictment also alleges that Bankman-Fried conspired with others to violate federal election laws by making political donations to candidates and fundraising committees between 2020 and November 2022, in excess of federal legal limits and in the names of other people.
Accused crypto crook Sam Bankman-Fried and his FTX associates pumped nearly $95,000 in donations to at least 11 members of the House Financial Services Committee ahead of the 2022 midterm elections, federal records show.
The string of individual campaign donations has raised eyebrows given the 11 lawmakers serve on the committee currently probing last month’s collapse of the FTX crypto exchange.
The majority of contributions were made to Democrats — with New York Rep. Ritchie Torres receiving a total of $35,000 from various FTX-linked donors, according to The Post’s analysis of Federal Election Commission campaign data.
The House Financial Services Committee – which has 53 members total – was set to grill Bankman-Fried at a Tuesday congressional hearing. Their plans were derailed when the shaggy-haired former billionaire was arrested in the Bahamas hours earlier and slapped with a slew of fraud charges.
While Torres has already vowed to donate his FTX-tied campaign coffers to charity, at least one member — Rep. Jake Auchincloss (D-MA) — was quick to say he wouldn’t follow suit. Many others, meanwhile, have remained mum.
Here’s a breakdown of the 11 committee members who accepted campaign donations from Bankman-Fried and his associates:
Rep. Richie Torres confirmed he would be donating the funds from Bankman-Fried to charity.James Keivom
Rep. Ritchie Torres (D-NY)
Bankman-Fried personally donated $2,900 directly to the New York Democrat’s campaign, according to the FEC data.
The FTX founder’s brother, Gabriel Bankman-Fried, separately contributed a total of $32,400 to Torres’ campaign and victory fund.
Torres addressed the campaign donation earlier this week, telling CoinDesk it was “unsolicited” and that he was donating the amount.
“My ties to him are minimal,” Torres insisted, adding that Bankman-Fried was a “pathological liar.”
In a statement to The Post, Sophie Pollock, Torres’ communications director, confirmed that the funds were donated to “a local charity.”
Rep. Josh Gottheimer received donations from both Bankman-Fried and exec Mark Wetjen.Bloomberg via Getty Images
Rep. Josh Gottheimer (D-NJ)
The New Jersey congressman received $5,800 in personal donations from Bankman-Fried, records show.
He also received two separate donations — $2,900 each — from FTX executive Mark Wetjen, who previously worked as commissioner of the Commodity Futures Trading Commission.
A spokesperson from Rep. Gottheimer’s office said he will donate the funds to charity.
Rep. Jake Auchincloss reportedly has no plans to return the tainted funds.Getty Images for America’s VetDo
Rep. Jake Auchincloss (D-MA)
Auchincloss, who is vice chair of the committee, was the recipient of a $5,800 personal donation from Bankman-Fried. He also received $5,800 from Wetjen.
The Massachusetts Rep. revealed this week he has no plans to return the donations — because the funds were given to other Democrats in more competitive midterm races.
“I’m not going to send money to a guy in a Bahaman jail, that’s for sure. That money is out the door, helping to elect Democrats,” he told Boston radio station WBUR.
Rep. Jesús “Chuy” García also got a campaign donation from the disgraced crypto mogul.Getty Images for SEIU
Rep. Jesús ‘Chuy’ García (D-IL)
Bankman-Fried pumped $2,900 into the Illinois Democrat’s re-election campaign.
García’s spokesperson revealed last month that his campaign had already donated the FTX-linked cash to the Northwest Center in Chicago, which focuses on financial literacy.
García’s office did not respond to a request for a comment.
Rep. Joyce Beatty got $2,900 from Bankman-Fried.REUTERS
Rep. Joyce Beatty (D-OH)
The 72-year-old Democrat was given a $2,900 donation from Bankman-Fried, FEC data shows.
Beatty’s office did not respond to a request for a comment.
Bankman-Fried made two separate donations to Rep. Cindy Axne.AP
Rep. Cindy Axne (D-IA)
The disgraced FTX founder made two separate donations to the Iowa Democrat’s election campaign.
Axne received $2,900 for the Cindy Axne for Congress and a separate $5,000 donation for her AXNE PAC, according to campaign finance records.
Axne’s office did not respond to a request for a comment.
FTX executive Ryan Salame donated to Rep. Lee Zeldin ahead of midterms.Matthew McDermott
Rep. Lee Zeldin (R-NY)
FTX executive Ryan Salame made a $5,800 donation to Zeldin’s campaign ahead of the midterms, records show.
Zeldin’s office did not respond to The Post’s request for a comment.
Rep. Sean Casten’s office had no comment on donations it received from Gabriel Bankman-Fried.Getty Images
Rep. Sean Casten (D-IL)
Bankman-Friend’s brother, Gabriel, made two separate donations towards Casten’s campaign — totaling $1,000, according to FEC data.
When reached by Thursday, Casten’s DC office had “no comment at this time.”
Rep. Tom Emmer got handouts from at least two FTX executives.Getty Images
Rep. Tom Emmer (R-MN)
The Minnesota Republican received a handful of donations from at least two FTX executives ahead of the midterms.
His campaign was given a total of $8,700 from Salame and another $2,900 from FTX’s Zach Dexter.
Emmer’s office did not immediately respond to a request for a comment.
Rep. Budd was elected to the Senate in November.AP
Rep. Ted Budd (R-NC)
The North Carolina GOP Representative was the recipient of a $2,900 donation made by Salame, records show.
Budd’s office could not be reached for a comment. An outgoing committee member, he is set to succeed longtime Republican Senator Richard Burr in office on Jan. 3.
Rep. Jim Himes received funds from FTX employee Danielle Barrett.Bloomberg via Getty Images
Rep. Jim Himes (D-CT)
A $2,800 donation was made to the Connecticut representative’s campaign by FTX executive Danielle Barrett.
“The contribution we received … was unsolicited and is being donated,” Himes’ campaign manager Francesca Capodilupo said Thursday.
Bankman-Fried was arrested in The Bahamas on Monday.AFP via Getty Images
A waiting game
One congressional office that had received a donation from Bankman-Fried, and did not want to be identified, told The Post it was waiting to offload the funds until it was determined where the money legally belonged. It had previously been advised against donating the money to charity in case it was later reclaimed by victims.
Other questionable contributions
Members of the House Financial Services Committee are also not the only politicians with FTX funds in their coffers.
FEC records show that Bankman-Fried alone funneled thousands of dollars to various PACs, as well as campaigns for Reps. Jimmy Panetta (D-CA), Kim Schrier (D-WA), and Angie Craig (D-MA), among others.
oversaw one of the biggest financial frauds in American history, a top federal prosecutor said in charging that the former chief executive stole billions of dollars from the crypto exchange’s customers while misleading investors and lenders.
An indictment by the U.S. attorney’s office for the Southern District of New York, unsealed Tuesday, charges Mr. Bankman-Fried with eight counts of fraud. Prosecutors allege that he took FTX.com customers’ money to pay the expenses and debts of Alameda Research, an affiliated trading firm. Mr. Bankman-Fried is charged as well with conspiring to defraud the U.S. and violate campaign-finance rules by making illegal political contributions.
Damian Williams,
the U.S. attorney for the Southern District of New York, said he authorized the charges against Mr. Bankman-Fried last Wednesday and a grand jury voted on the indictment Friday.
“This investigation is very much ongoing, and it is moving very quickly,” Mr. Williams said at a press conference in Manhattan on Tuesday. “While this is our first public announcement, it will not be our last.”
John J. Ray III, the new chief executive of FTX, testified in front of a House committee Tuesday on the collapse of the crypto exchange. Photo: Nathan Howard/Getty Images
Separately, John J. Ray III, the new chief executive of FTX, said at a congressional hearing Tuesday that FTX incurred losses in excess of $7 billion. Mr. Ray, who oversaw the Enron Corp. bankruptcy early in the 2000s decade, said funds were taken from FTX and Alameda, an affiliated trading firm that incurred trading losses.
Mr. Ray described Enron as having been brought down by sophisticated people whose machinations aimed to keep transactions secret. FTX presents as “old-fashioned embezzlement,” Mr. Ray said. “It’s taking money from customers and using it for your own purpose.”
Also Tuesday, the Securities and Exchange Commission alleged in a civil lawsuit that Mr. Bankman-Fried diverted customer funds from the start of FTX to support Alameda and to make venture investments, real-estate purchases and political donations. The Commodity Futures Trading Commission filed a lawsuit Tuesday linking his allegedly fraudulent conduct at Alameda and FTX to markets that the CFTC regulates.
“
Sam Bankman-Fried
built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair
Gary Gensler
said.
The charges are the latest twist in a saga that has rattled the world of cryptocurrencies, a largely unregulated market that boomed during the pandemic but has been hammered this year by rising interest rates and the failure of several significant industry players.
FTX, one of the largest crypto exchanges in the world, filed for bankruptcy last month after the firm ran out of cash and a merger with rival Binance collapsed. The firm’s failure marked a sudden fall from grace for Mr. Bankman-Fried, who portrayed FTX as a safer crypto exchange to use and cast himself as an ally of regulation.
In interviews since the filing, Mr. Bankman-Fried said he bore responsibility for FTX’s collapse but denied he committed any fraud.
Mark Cohen,
a lawyer for Mr. Bankman-Fried, said Tuesday that his client “is reviewing the charges with his legal team and considering all of his legal options.”
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Mr. Bankman-Fried, 30 years old, was arrested Monday in the Bahamas. He appeared in court Tuesday in Nassau. He was denied bail and has been remanded to jail until Feb. 8, according to a person familiar with the matter.
A U.S. court official said that while the case had been assigned to a federal judge in Manhattan, there was no timing yet for Mr. Bankman-Fried’s extradition.
The tales of Mr. Bankman-Fried’s alleged misdeeds resonated with crypto customers around the world, even those who haven’t suffered significant losses as various firms by turns suspended withdrawals and collapsed.
Vasco Tagachi, a 42-year-old Portuguese-Sri Lankan trader based in China, said he felt a sigh of relief after learning of Mr. Bankman-Fried’s arrest. He said he had $57,423 in an FTX account this fall but was able to withdraw almost all of it just before the firm stopped honoring withdrawal requests.
“I had a little bit of tears in my eyes hearing that,” he said.
Prosecutors allege that from 2019 through November 2022, Mr. Bankman-Fried conspired with unnamed individuals to defraud customers and lenders. He provided false and misleading information to lenders on the financial condition of Alameda, according to the indictment.
Sam Bankman-Fried was arrested in the Bahamas on Monday, a day before he was expected to testify on the sudden collapse of FTX before the House Committee on Financial Services. Illustration: Jacob Reynolds
While the 14-page indictment was light on detailed allegations, it says that on Sept. 18, 2022, Mr. Bankman-Fried caused an email to be sent to an FTX investor in New York that contained false information about FTX’s financial condition. In June 2022, the indictment says, Mr. Bankman-Fried and others misappropriated FTX.com customer deposits to satisfy the loan obligations of Alameda.
Mr. Bankman-Fried is also accused of defrauding the Federal Election Commission starting in 2020 by conspiring with others to make illegal contributions to candidates and political committees in the names of other people.
He and his associates contributed more than $70 million to election campaigns in recent years, The Wall Street Journal previously reported. He personally made $40 million in donations ahead of the 2022 midterm elections, most of which went to Democrats and liberal-leaning groups.
Mr. Ray, the FTX CEO, said FTX is investigating whether any loans taken by FTX executives were improperly used for campaign contributions.
Mr. Ray added that tracing fund flows from FTX to executives and third parties was difficult because of the lack of a paper trail for many corporate transactions at FTX.
“We’re dealing with a paperless bankruptcy,” he said. “It makes it very difficult to trace and track assets.”
The CFTC’s complaint contains a detailed discussion of events at Alameda and FTX and argues that the agency, generally less visible to the public than the SEC, also has jurisdiction over the case. While the CFTC regulates U.S. derivatives markets, it can go after fraud that affects some commodity markets.
Besides giving Alameda access to its customer deposits, FTX granted the crypto hedge fund controlled by Mr. Bankman-Fried a series of trading-execution privileges that provided it an edge against other traders on the platform, the CFTC lawsuit alleges.
The CFTC said that while institutional customers had their orders routed through the FTX system, Alameda was able “to bypass certain portions of the system and gain faster access.” It resulted in Alameda’s orders being received by FTX several milliseconds faster than those of other institutional clients.
The lawsuit also alleges that Alameda wasn’t subject to certain automated verification processes, including on whether it had available funds before executing a transaction, giving it further advantage on the speed of its trades.
The edge wasn’t enough to keep Mr. Bankman-Fried from thinking about shutting down Alameda in September, according to the CFTC complaint.
In a document titled “We came, we saw, we researched,” Mr. Bankman-Fried laid out reasons for shutting down Alameda, according to the CFTC lawsuit. Chief among them: Alameda wasn’t making enough money to justify its existence, he wrote.
The CFTC said the statements contradicted what Mr. Bankman-Fried and Alameda were saying publicly at the time.
Tuesday’s congressional hearing was the first public appearance for Mr. Ray on FTX’s bankruptcy. Mr. Bankman-Fried had been scheduled to appear virtually at the same hearing, before he was arrested in the Bahamas at the request of the U.S. government. Bahamian police have said that they would keep him in custody and that they are awaiting an extradition order from U.S. authorities.
“The operation of Alameda really depended, based on the way it was operated, on the use of customer funds,” Mr. Ray said, responding to questions from members of Congress at the hearing. “There were virtually no internal controls…whatsoever.”
He described numerous loans totaling billions of dollars taken out by Mr. Bankman-Fried from Alameda.
“We have no information at this time as to what purpose or use of those funds were,” Mr. Ray added. He said Mr. Bankman-Fried had signed as the issuer and recipient for some of the loans.
Mr. Ray pushed back against recent statements made by Mr. Bankman-Fried that he had little to no involvement in the management of Alameda after passing control of the company to
Caroline Ellison
and
Sam Trabucco,
as well as Mr. Bankman-Fried’s statements that customer funds were passed to Alameda because of an accounting error.
“I don’t find those statements to be credible,” Mr. Ray said.
The Justice Department’s indictment of Mr. Bankman-Fried includes an array of charges with few supporting details, a tactic that could give federal prosecutors flexibility in navigating the rules involving extradition.
The charges against Mr. Bankman-Fried run the gamut from wire fraud to securities fraud conspiracy to conspiring to launder money and conspiring to break campaign-finance laws.
The statutes charged, with the exception of the campaign-finance offense, are enormously broad, said Rebecca Mermelstein, a former federal prosecutor who is now at O’Melveny & Myers LLP.
“By not being superspecific, you protect yourself later against an argument that charges relating to different criminal conduct are being added,” she said.
The arrest of Mr. Bankman-Fried is the latest case to highlight prosecutors’ push to bring white-collar cases to justice faster.
Deputy U.S. Attorney General Lisa Monaco said in a September speech that making prosecutors and companies feel that they were “on the clock” in these cases was a key priority for the department.
FTX founder Sam Bankman-Fried sat down with The Wall Street Journal to discuss what happened to the billions of dollars deposited by the exchange’s customers. Photo: Kenny Wassus/The Wall Street Journal
“We need to do more and move faster,” she said. “In individual prosecutions, speed is of the essence.”
Former federal prosecutors say that high-profile financial cases with lots of victims can increase the pressure on authorities to bring cases more quickly.
“Appearances matter when it comes to criminal justice,” said Mark Chutkow, a former federal prosecutor who is currently head of government investigations and corporate compliance at Dykema Gossett PLLC.
If Mr. Bankman-Fried remains in the Bahamas while the details of his potential extradition to the U.S. are worked out, there is only one prison there: the Bahamas Department of Correctional Services, commonly known as Fox Hill Prison.
Prison inmates reported removing human waste by buckets and developing bed sores from lying on the bare ground, according to a 2021 human-rights report on the Bahamas by the U.S. State Department. Cells were infested with rats, maggots and insects, the report said.
Inmates are supposed to get an hour every day outside for exercise. Because of staff shortages and overcrowding, there are times when inmates will only get 30 minutes a week, said Romona Farquharson, an attorney in the Bahamas.
The prison has different sections that separate those serving terms for violent crimes, for instance, from those who aren’t. Because of overcrowding, there have been instances in which inmates awaiting trial for minor crimes have been sent to the maximum-security facility, said Ms. Farquharson.
“I think they’ve got to be careful not to have him in really rough areas in the prison,” she said.
—Angel Au-Yeung, Ben Foldy and Hannah Miaocontributed to this article.
Write to Corinne Ramey at corinne.ramey@wsj.com, James Fanelli at james.fanelli@wsj.com, Dave Michaels at dave.michaels@wsj.com, Alexander Saeedy at alexander.saeedy@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com
FTX founder Sam Bankman-Fried was arrested by Bahamian authorities Monday evening after the United States Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government, setting the stage for extradition and U.S. trial for the onetime crypto billionaire at the heart of the crypto exchange’s collapse.
Before his arrest was announced, Bankman-Fried had been expected to testify virtually before the House Financial Services Committee on Tuesday, but his attorneys told CNBC that he will not testify.
His arrest is the first concrete move by regulators to hold individuals accountable for the multi-billion dollar implosion of FTX last month.
Damian Williams, the U.S. Attorney for the Southern District of New York, said on Twitter that the federal government anticipated moving to “unseal the indictment in the morning.” The New York times reported that the charges include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering, according to the New York Times, citing a person familiar with the matter.
Bahamas Attorney General Ryan Pinder said that the United States was “likely to request his extradition.” The Royal Bahamas police force confirmed his arrest and said he would appear in magistrate court in Nassau on Tuesday.
In a statement, Bahamian Prime Minister Philip Davis said, “The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law.”
“While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere,” continued the statement.
Bahamian regulators and FTX’s attorneys had been engaged in a bruising battle in chambers and in the court of public opinion. Earlier Monday, FTX attorneys accused the Bahamian government of allegedly working with Bankman-Fried to spirit away FTX assets from company control and into into crypto wallets controlled by Bahamian regulators.
Bankman-Fried’s arrest by Bahamas law enforcement, as well as his expected extradition, suggest that close cooperation between the Bahamas and the U.S. will continue to evolve throughout the bankruptcy proceedings. The Bahamas and the United States have had an extradition treaty in place since the early 20th century, when the Bahamas was still under British control. The current treaty was signed in 1990 and requires that the requesting party provide an arrest warrant issued by a judge or “other competent authority.”
In November, FTX and its affiliates filed for bankruptcy and Bankman-Fried stepped down from his role as CEO. The crypto trading firm imploded in spectacular fashion following a run on assets similar to a bank run.
FTX’s collapse was precipitated when reporting from CoinDesk revealed a highly concentrated position in self-issued FTT coins, which Bankman-Fried’s hedge fund Alameda Research used as collateral for billions in crypto loans. Binance, a rival exchange, announced it would sell its stake in FTT, spurring a massive withdrawal in funds. The company froze assets and declared bankruptcy days later. Reports later claimed that FTX had commingled customer funds with Bankman-Fried’s crypto hedge fund, Alameda Research, and that billions in customer deposits had been lost along the way.
Bankman-Fried was replaced by John J. Ray III, who had overseen Enron’s bankruptcy. Ray is also scheduled to testify before Congress this week. In prepared remarks released Monday, Ray said that FTX went on a “spending binge” from late 2021 through 2022, when approximately “$5 billion was spent buying a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them,” and that the firm made more than $1 billion in “loans and other payments…to insiders.”
Ray also confirmed media reports that FTX customer funds were commingled with assets from Alameda Research. Alameda used client funds to do margin trading, which exposed them to massive losses, Ray said.
Legal experts told CNBC that if the federal government pursues wire or bank fraud charges, Bankman-Fried could face life in prison without the possibility of supervised release. Such a severe punishment would be unusual but not extraordinary. Ponzi scheme mastermind Bernie Madoff was sentenced to 150 years in prison, an effective life sentence, for his massive ponzi scheme. FTX’s collapse has already triggered the demise of BlockFi Lending, and has thrown the entire space into disarray.
John Ray, chief executive officer of FTX Cryptocurrency Derivatives Exchange, arrives at bankruptcy court in Wilmington, Delaware, US, on Tuesday, Nov. 22, 2022.
Eric Lee | Bloomberg | Getty Images
Attorneys in the Bahamas filed an emergency motion on Friday asking a Delaware bankruptcy judge to compel U.S. leaders of failed crypto firm FTX to give them access to databases as part of the proceedings.
The emergency motion claims that despite “many attempts to obtain access,” FTX employees and counsel have stymied Bahamian regulators in their effort to get critical financial information located in Amazon Web Services and Google Cloud Portal databases.
The lawyers, working on behalf of the Securities Commission of the Bahamas, said the U.S. bankruptcy proceedings will “suffer no harm or hardship if this relief is granted.” They’re seeking data on FTX international customers that is stored on AWS servers, including “wallet addresses, customer balances, deposit and withdrawal records, trades, and accounting data.” Google’s technology served as an analytics platform for FTX International’s data.
“While the Joint Provisional Liquidators are happy to engage in dialogue with the U.S. Debtors, their refusal to promptly restore access has frustrated the ability of the Joint Provisional Liquidators to carry out their duties under Bahamian law and placed FTX Digital’s assets at risk of dissipation,” the filing read.
FTX filed for bankruptcy protection last month after a liquidity crunch at the crypto exchange, which was intermingling assets with sister hedge fund Alameda Research. FTX founder Sam Bankman-Fried, who had an estimated net worth of $16 billion before the collapse, will appear before U.S. lawmakers next week.
