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FTX founder Bankman-Fried, charged with fraud, may fight extradition to U.S.

2022-12-13T18:34:05Z

Sam Bankman-Fried indicated in a Bahamas courtroom on Tuesday that he would fight extradition to the United States, hours after U.S. prosecutors accused the founder and former CEO of FTX of fraud and violating campaign finance laws.

The 30-year-old, appearing relaxed and wearing a blue shirt, arrived at a heavily guarded Bahamas court on Tuesday for his first in-person public appearance since the cryptocurrency exchange’s collapse. He told the court he will not waive his right to an extradition hearing.

“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 a statement.

The Bahamas judge adjourned the hearing until 2:15 p.m. EST (1915 GMT) to consider whether the court has jurisdiction over bail. The U.S. attorney’s office in Manhattan separately said it will hold a news conference at 2 p.m. EST on its charges.

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.”

Bankman-Fried would face long odds fighting extradition to the United States, according to experts, but he has legal options available under the Bahamas’ extradition treaty with the United States.

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.

“While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble,” the SEC filing said.

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.

While the public believed Bankman-Fried’s “lies” and sent billions of dollars to FTX, he improperly diverted customer funds to the hedge fund, the SEC said, even as it was increasingly clear that Alameda and FTX could not make customers whole.

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

Bankman-Fried founded FTX in 2019 and rode a cryptocurrency boom to build it into one of the world’s largest exchanges of the digital tokens. Forbes pegged his net worth a year ago at $26.5 billion, and he became a substantial donor to U.S. political campaigns, media outlets and other causes.

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.

John Ray, named CEO of FTX just last month, told lawmakers on Tuesday the implosion stemmed from the concentration of control in a small group of grossly-inexperienced individuals, and it will take weeks or months to secure company assets.

“We’ve lost 8 billion dollars of customer money,” Ray said. “I don’t trust a single piece of paper in this organization.”

FTX will turn over any relevant information to authorities, Ray added. It has shared findings with the SEC and U.S. prosecutors, and is investigating whether Bankman-Fried’s parents were involved in the operation.

FTX’s collapse was one of a series of bankruptcies in the crypto industry this year as digital asset markets tumbled from 2021 peaks.

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 crypto sector must see the demise of FTX as a wake-up call,” said Viktor Prokopenya, founder of crypto platform Currency.com.

Bankman-Fried 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.

Police in the Bahamas said he was arrested on Monday at his gated community in the capital, Nassau. Damian Williams, the U.S. Attorney for the Southern District of New York, said the arrest came at the request of the U.S. government.

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.

Related Galleries:

FTX CEO Sam Bankman-Fried poses for a picture, in an unspecified location, in this undated handout picture, obtained by Reuters on July 5, 2022. FTX/Handout via REUTERS/File Photo

An exterior view shows the Magistrate Court building where Sam Bankman-Fried will appear before the Chief Magistrate today. Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy last month, was arrested after being criminally charged by U.S. prosecutors, in Nassau, Bahamas December 13, 2022. REUTERS/Dante Carrer

Police are stand near the rear entrance of the Magistrate Court building where Sam Bankman-Fried will appear before the Chief Magistrate today. Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy last month, was arrested after being criminally charged by U.S. prosecutors, in Nassau, Bahamas December 13, 2022. REUTERS/Dante Carrer

Police block the road in front of the Magistrate Court building where Sam Bankman-Fried will appear before the Chief Magistrate today. Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy last month, was arrested after being criminally charged by U.S. prosecutors, in Nassau, Bahamas December 13, 2022. REUTERS/Dante Carrer

The logo of FTX is seen at the entrance of the FTX Arena in Miami, Florida, U.S., November 12, 2022. REUTERS/Marco Bello/File Photo/File Photo/File Photo

FTX founder Sam Bankman-Fried poses for a picture, in an unspecified location, in this undated handout picture, obtained by Reuters on July 5, 2022. FTX/Handout via REUTERS/File Photo/File Photo
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