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Feds seized nearly $700 million from FTX founder Bankman-Fried

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Jan 20 (Reuters) – Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.

Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.

The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.

The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.

The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX’s subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.

The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.

DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.

Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

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US

Donald Trump’s company to be sentenced for 15-year tax fraud

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NEW YORK, Jan 13 (Reuters) – Donald Trump on Friday will learn how the company that bears the former U.S. president’s name will be punished after being found guilty of scheming to defraud tax authorities for 15 years.

A New York state judge will impose the sentence after jurors in Manhattan found two Trump Organization affiliates guilty of 17 criminal charges last month.

The sentencing comes three days after Justice Juan Merchan of the Manhattan criminal court ordered Allen Weisselberg, who worked for Trump’s family for a half-century and was the company’s former chief financial officer, to jail for five months after he testified as the prosecution’s star witness.

Trump’s company faces only a maximum $1.6 million penalty, but has said it plans to appeal. No one else was charged or faces jail time in the case.

Manhattan District Attorney Alvin Bragg’s office, which brought the case, is still conducting a criminal probe into Trump’s business practices.

Bill Black, a professor at the University of Missouri-Kansas City School of Law specializing in white-collar crime, called the expected penalty a “rounding error” that offers “zero deterrence” to others, including Trump.

“This is a farce,” he said. “No one will stop committing these kinds of crimes because of this sentence.”

The case has long been a thorn in the side of the Republican former president, who calls it part of a witch hunt by Democrats who dislike him and his politics.

Trump also faces a $250 million civil lawsuit by state Attorney General Letitia James accusing him and his adult children Donald Trump Jr., Ivanka Trump and Eric Trump of inflating his net worth and the value of his company’s assets to save money on loans and insurance.

Bragg and James are Democrats, as is Bragg’s predecessor Cyrus Vance, who brought the criminal case. Trump is seeking the presidency in 2024, after losing his re-election bid in 2020.

At a four-week trial, prosecutors offered evidence that Trump’s company covered personal expenses such as rent and car leases for executives without reporting them as income, and pretended that Christmas bonuses were non-employee compensation.

Trump himself signed bonus checks, prosecutors said, as well as the lease on Weisselberg’s luxury Manhattan apartment and private school tuition for the CFO’s grandchildren.

“The whole narrative that Donald Trump was blissfully ignorant is just not real,” Assistant District Attorney Joshua Steinglass told jurors in his closing argument.

Weisselberg’s testimony helped convict the company, though he said Trump was not part of the fraud scheme. He also refused to help Bragg in his broader investigation into Trump.

The Trump Organization had put Weisselberg on paid leave until they severed ties this week. His lawyer said the split, announced on Tuesday, was amicable.

Weisselberg, 75, is serving his sentence in New York City’s notorious Rikers Island jail.

State law limits the penalties that Justice Merchan can impose on Trump’s company. A corporation can be fined up to $250,000 for each tax-related count and $10,000 for each non-tax count.

Trump faces several other legal woes, including probes related to the Jan. 6, 2021, attack on the U.S. Capitol, his retention of classified documents after leaving the White House, and efforts to overturn his 2020 election loss in Georgia.

Reporting by Karen Freifeld and Jonathan Stempel; editing by Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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Business

Failed crypto exchange FTX has recovered over $5 bln, attorney says

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  • FTX valued a year ago at $32 bln
  • Over $8 billion in FTX customer funds missing
  • Plan to sell FTX affiliates presented in court

NEW YORK/WILMINGTON, Del., Jan 11 (Reuters) – Crypto exchange FTX has recovered more than $5 billion in liquid assets but the extent of customer losses in the collapse of the company founded by Sam Bankman-Fried is still unknown, an attorney for the company told a U.S. bankruptcy court on Wednesday.

The company, which was valued a year ago at $32 billion, filed for bankruptcy protection in November and U.S. prosecutors accused Bankman-Fried of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

“We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities,” Andy Dietderich, an attorney for FTX, told U.S. Bankruptcy Judge John Dorsey in Delaware at the start of Wednesday’s hearing.

Dietderich also said the company plans to sell nonstrategic investments that had a book value of $4.6 billion.

However, Dietderich said the legal team is still working to create accurate internal records and the actual customer shortfall remains unknown. The U.S. Commodities Futures Trading Commission has estimated missing customer funds at more than $8 billion.

Dietderich said the $5 billion recovered does not include assets seized by the Securities Commission of the Bahamas, where the company was headquartered and Bankman-Fried resided.

FTX’s attorney estimated the seized assets were worth as little as $170 million while Bahamian authorities put the figure as high as $3.5 billion. The seized assets are largely comprised of FTX’s proprietary and illiquid FTT token, which is highly volatile in price, Dietderich said.

ASSET SALES

FTX could raise additional funds in the coming months for the benefit of customers after Dorsey approved FTX’s request for procedures to explore sales of affiliates at Wednesday’s hearing.

The affiliates — LedgerX, Embed, FTX Japan and FTX Europe — are relatively independent from the broader FTX group, and each has its own segregated customer accounts and separate management teams, according to FTX court filings.

The crypto exchange has said it is not committed to selling any of the companies, but that it received dozens of unsolicited offers and plans to hold auctions beginning next month.

The U.S. Trustee, a government bankruptcy watchdog, opposed selling the affiliates before the extent of the alleged FTX fraud is fully investigated.

In part to preserve the value of its businesses, FTX also sought Dorsey’s approval to keep secret 9 million FTX customer names. The company has said that privacy is needed to prevent rivals from poaching users but also to prevent identity theft and to comply with privacy laws.

Dorsey allowed the names to remain under wraps for only three months, not six months as FTX wanted.

“The difficulty here is that I don’t know who’s a customer and who’s not,” Dorsey said. He set a hearing for Jan. 20 to discuss how FTX will distinguish between customers and said he wants FTX to return in three months to give more explanation on the risk of identity theft if customer names are made public.

Media companies and the U.S. Trustee had argued that U.S. bankruptcy law requires disclosure of creditor details to ensure transparency and fairness.

In addition to selling affiliates, a company lawyer on Wednesday said FTX will end its 19-year $135 million sponsorship deal with the NBA’s Miami Heat and a 7-year about $89 million deal with the League of Legends video game.

FTX’s founder, Bankman-Fried, 30, was indicted on two counts of wire fraud and six conspiracy counts last month in Manhattan federal court for allegedly stealing customer deposits to pay debts from his hedge fund, Alameda Research, and lying to equity investors about FTX’s financial condition. He has pleaded not guilty.

Bankman-Fried has acknowledged shortcomings in FTX’s risk management practices, but the one-time billionaire has said he does not believe he is criminally liable.

In addition to customer funds lost, the collapse of the company has also likely wiped out equity investors.

Some of those investors were disclosed in a Monday court filing, including American football star Tom Brady, Brady’s former wife supermodel Gisele Bündchen and New England Patriots owner Robert Kraft.

Reporting by Dietrich Knauth in New York and Tom Hals in Wilmington, Del.; Editing by Alexia Garamfalvi, Mark Porter, Matthew Lewis and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

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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US

Trump executive Weisselberg prepares for jail on Rikers Island

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NEW YORK, Jan 10 (Reuters) – A longtime executive for Donald Trump is expected to be sent to New York’s notorious Rikers Island jail after being sentenced on Tuesday for helping engineer a 15-year tax fraud scheme at the former president’s real estate company.

Allen Weisselberg, the Trump Organization’s former chief financial officer, pleaded guilty in August, admitting that from 2005 to 2017 he and other executives received bonuses and perks that saved the company and themselves money.

Weisselberg is expected to be sentenced to five months behind bars, after paying nearly $2 million in taxes, penalties and interest and testifying at the criminal trial of the Trump Organization, which was convicted on all counts it faced.

The sentence will be imposed by Justice Juan Merchan, who oversaw the trial in a New York state court in Manhattan. Weisselberg would likely serve 100 days with time off for good behavior.

Those days will probably not be easy for Weisselberg, 75, at a jail known for violence, drugs and corruption. Nineteen inmates there died last year.

“You’re going into a byzantine black hole,” said Craig Rothfeld, a prison consultant helping Weisselberg prepare for lockup.

50-YEAR RELATIONSHIP

Many convicts in New York City facing one year or less behind bars head to Rikers Island, which lies between the New York City boroughs of Queens and the Bronx and houses more than 5,900 inmates.

Rothfeld spent more than five weeks at Rikers in 2015 and 2016 as part of an 18-month sentence for defrauding investors and tax authorities when he was chief executive of the now-defunct WJB Capital Group Inc.

He now runs Inside Outside Ltd, which advises people facing incarceration. Another client is Harvey Weinstein, the former Hollywood movie producer convicted twice of rape.

After being sentenced, Weisselberg will likely be driven to Rikers and trade his street clothes for a uniform and sneakers with velcro straps.

Rothfeld said he hopes Weisselberg will be segregated from the general population, and not placed in a dorm with inmates who may not know him but will know his boss, who is seeking the presidency in 2024.

“Certainly Mr. Weisselberg’s 50-year relationship with the former president is on all our minds,” Rothfeld said.

A spokesman for the city’s Department of Correction said the agency’s mission is “to create a safe and supportive environment for everyone who enters our custody.”

Rikers is scheduled to close in 2027.

STAR WITNESS

Weisselberg was the star government witness against his employer.

He told jurors that Trump signed bonus and tuition checks, and other documents at the heart of prosecutors’ case, but was not in on the tax fraud scheme.

Though no longer CFO, Weisselberg remains on paid leave from the Trump Organization. He testified in November that he hoped to get a $500,000 bonus this month.

Weisselberg testified that the company is paying his lawyers. It is paying Rothfeld as well, a person familiar with the matter said. Rothfeld declined to comment.

Trump was not charged and has denied wrongdoing. The Manhattan District Attorney’s office is still investigating his business practices.

Merchan will also sentence the Trump Organization on Friday. Penalties are limited to $1.6 million.

Weisselberg remains a defendant in New York Attorney General Letitia James’ $250 million civil lawsuit alleging that Trump and his company inflated asset values and Trump’s net worth.

Rothfeld said he advised Weisselberg not to go outside at Rikers because of the risk of violence in courtyards, and not to interject himself into conversations between other inmates.

“The goal is to keep to yourself,” Rothfeld said.

Reporting by Karen Freifeld; Editing by Richard Chang

Our Standards: The Thomson Reuters Trust Principles.

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Business

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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Sam Bankman-Fried to enter plea in FTX fraud case

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NEW YORK, Dec 28 (Reuters) – Sam Bankman-Fried is expected to enter a plea next week to criminal charges he defrauded investors and looted billions of dollars in customer funds at his failed FTX cryptocurrency exchange.

The 30-year-old is expected to be arraigned on the afternoon of Jan. 3, 2023, before U.S. District Judge Lewis Kaplan in Manhattan federal court, court records on Wednesday showed.

Kaplan was assigned to the case on Tuesday, after the original judge recused herself because her husband’s law firm had advised FTX before its collapse.

Prosecutors have accused Bankman-Fried of engaging in a years-long “fraud of epic proportions,” by using customer deposits to support his Alameda Research hedge fund firm, buy real estate and make political contributions.

Bankman-Fried is charged with two counts of wire fraud and six counts of conspiracy, including to launder money and commit campaign finance violations, and if convicted could spend decades in prison.

Before his Dec. 12 arrest, Bankman-Fried acknowledged risk-management failures at FTX, but said he did not believe he was criminally liable.

Two of his associates, former Alameda chief executive Caroline Ellison and former FTX chief technology officer Gary Wang, have pleaded guilty over their roles in FTX’s collapse and agreed to cooperate with prosecutors.

A lawyer for Bankman-Fried did not immediately respond to requests for comment.

Bankman-Fried was released on Dec. 22 on a $250 million bond and ordered to stay with his parents in Palo Alto, California, where they teach at Stanford Law School. He is subject to electronic monitoring.

FTX filed for bankruptcy protection on Nov. 11. Its new chief executive, John Ray, told Congress on Dec. 13 that the exchange lost $8 billion of customer money while being run by “grossly inexperienced, non-sophisticated individuals.”

Reporting by Jonathan Stempel in New York
Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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Business

Exclusive: Sam Bankman-Fried to reverse decision on contesting extradition

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Dec 17 (Reuters) – Former FTX Chief Executive Sam Bankman-Fried is expected to appear in court in the Bahamas on Monday to reverse his decision to contest extradition to the United States, where he faces fraud charges, a person familiar with the matter said on Saturday.

The 30-year-old cryptocurrency mogul was indicted in federal court in Manhattan on Tuesday and accused of engaging in a scheme to defraud FTX customers by using billions of dollars in stolen deposits to pay for expenses and debts and to make investments for his crypto hedge fund, Alameda Research LLC.

His decision to consent to extradition would pave the way for him to appear in U.S. court to face wire fraud, money laundering and campaign finance charges.

Upon arrival in the United States, Bankman-Fried would likely be held at the Metropolitan Detention Center in Brooklyn, though some federal defendants are being held at jails just outside New York City due to overcrowding at the facility, said defense lawyer Zachary Margulis-Ohnuma.

At his initial court hearing in Manhattan, Bankman-Fried would be asked to enter a plea and a judge would make a determination on bail, Margulis-Ohnuma said. The attorney added that such a hearing must take place within 48 hours of Bankman-Fried’s arrival in the United States, though it would likely be sooner.

Prosecutors will likely argue that Bankman-Fried is a flight risk and should remain in custody because of the large sums of money involved in the case and the unclear location of those funds.

“The missing money gives prosecutors strong arguments that he is a flight risk,” said former federal prosecutor and white-collar defense attorney Michael Weinstein. “I expect that if a judge grants pretrial release, they would impose very restrictive and onerous conditions.”

Any trial is likely more than a year away, legal experts told Reuters.

Neither a spokesman nor a U.S.-based lawyer for Bankman-Fried immediately responded to requests for comment. Bankman-Fried has acknowledged risk management failings at FTX but has said he does not believe he has criminal liability.

A spokesman for the U.S. Attorney’s Office in Manhattan declined to comment.

‘BIGGEST FINANCIAL FRAUDS IN AMERICAN HISTORY’

It was not immediately clear what prompted Bankman-Fried to change his mind and decide not to contest extradition.

He was remanded on Tuesday to the Bahamas’ Fox Hill prison after Chief Magistrate JoyAnn Ferguson-Pratt rejected his request to remain at home while awaiting a hearing on his extradition.

The U.S. State Department in a 2021 report said conditions at Fox Hill were “harsh,” citing overcrowding, rodent infestation and prisoners relying on buckets as toilets. Authorities there say conditions have since improved.

Bankman-Fried amassed a fortune valued at over $20 billion as he rode a cryptocurrency boom to build FTX into one of the world’s largest exchanges. His arrest last Monday in the Bahamas, where he lives and where FTX is based, came just a month after the exchange collapsed amid a flurry of customer withdrawals.

Damian Williams, the top federal prosecutor in Manhattan, described the collapse of FTX as one of the “biggest financial frauds in American history.” He has described the office’s investigation as ongoing, and urged people with knowledge of wrongdoing at FTX or Alameda to cooperate.

One top executive at FTX, Ryan Salame, told securities regulators in the Bahamas on Nov. 9 that assets belonging to the exchange’s customers were transferred to Alameda to cover the hedge fund’s losses, according to a document made public as part of FTX’s bankruptcy proceedings in Delaware.

FTX filed for bankruptcy on Nov. 11, the same day Bankman-Fried stepped down as CEO.

A lawyer for Salame did not immediately respond to a request for comment.

Reporting by Jasper Ward; Additional reporting by Luc Cohen and Jack Queen; Writing by Luc Cohen; Editing by Chizu Nomiyama, Chris Reese, Amy Stevens and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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Business

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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Business

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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Business

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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