NASSAU, Bahamas/NEW YORK, Dec 13 (Reuters) – A Bahamian judge denied FTX founder Sam Bankman-Fried bail on Tuesday, hours after U.S. prosecutors accused the 30-year-old of misappropriating billions of dollars and violating campaign laws in the which has been described as one of America’s biggest financial scams.
The former CEO of the collapsed cryptocurrency exchange, dressed in a blue suit with no tie, bowed his head and hugged his parents after the judge said the risk of flight was too “great” and ordered him sent to a correctional facility in the Bahamas until . February 8.
Today’s events capped a stunning fall from grace in recent weeks for Bankman-Fried, who amassed a fortune worth over $20 billion as he rode a cryptocurrency boom to build FTX into one of the world’s largest exchanges before it abruptly collapsed this year.
In an indictment unsealed Tuesday morning, U.S. prosecutors said Bankman-Fried engaged in a scheme to defraud FTX’s customers by misusing 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 attempted to hide the money he had made by committing fraud, prosecutors said.
They accused Bankman-Fried of using the stolen money to make “tens of millions of dollars in campaign contributions.”
US Attorney Damian Williams in New York said the investigation was “ongoing” and “moving quickly”.
“While this is our first public announcement, it will not be our last,” he said.
Williams described the collapse as one of the “biggest financial frauds in American history.”
‘SHORTS AND T-SHIRTS’
Before his arrest, Bankman-Fried, who founded FTX in 2019, was an unconventional figure who sported wild hair, T-shirts and shorts at panel appearances with statesmen such as former US 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.
“You can commit fraud in shorts and T-shirts in the sun. It’s possible,” attorney Williams told reporters.
Bankman-Fried has previously apologized to customers and acknowledged supervisory failures at FTX, but said that he personally does not believe he has any criminal responsibility.
He faces up to 115 years in prison if convicted on all eight counts, prosecutors said, although any sentence will depend on a number of factors.
Williams declined to say whether prosecutors would file charges against other FTX executives and whether any FTX insiders were cooperating with the investigation.
Both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) also filed suit on Tuesday.
The CFTC sued Bankman-Fried, Alameda and FTX, alleging fraud involving digital commodity assets.
Since at least May 2019, FTX raised more than $1.8 billion from equity investors in a year-long “brazen, multi-year scheme” in which Bankman-Fried concealed that FTX diverted client funds to Alameda Research, the SEC alleged.
Tuesday’s court hearing in the Bahamas, where FTX is based and where Bankman-Fried was arrested at his gated compound in the capital, marked his first personal appearance since the cryptocurrency exchange’s collapse.
Bankman-Fried appeared relaxed when he arrived at the heavily guarded Bahamas court. He told the court he could fight extradition to the United States.
Bahamian prosecutors had asked that Bankman-Fried be denied bail if he fights extradition.
“Mr. Bankman-Fried is reviewing the allegations with his legal team and is considering all of his legal options,” his attorney, Mark S. Cohen, said in an earlier statement.
Bankman-Fried is expected to appear in court again in the Bahamas on February 8.
FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 million customers and other investors with billions of dollars in losses. The collapse reverberated across the crypto world, sending bitcoin and other digital assets into a slump.
Bankman-Fried resigned as FTX’s CEO on the same day as the bankruptcy filing. FTX’s liquidity crisis came after he secretly used $10 billion in client funds to prop up his proprietary trading company Alameda, Reuters has reported. At least $1 billion in customer funds had disappeared.
The collapse was one of a number of bankruptcies in the crypto industry this year as digital asset markets fell from their peaks in 2021. A crypto exchange is a platform where investors can trade digital tokens such as bitcoin.
FTX’s current CEO, John Ray, told lawmakers that FTX lost $8 billion in client money, saying the company showed “absolute concentration of control in the hands of a small group of grossly inexperienced, unsophisticated individuals.”
As legal challenges mount, the US Congress is looking to craft legislation to rein in the loosely regulated industry.
FTX has shared findings with the SEC and US prosecutors, and is investigating whether Bankman-Fried’s parents were involved in the operation.
Additional reporting by 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, Matthew Lewis and Sam Holmes
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