Sam Bankman-Fried, the disgraced former cryptocurrency executive, was released from federal custody in a Manhattan courthouse on Thursday under highly restrictive bail conditions, including a $250 million bond secured by his parents’ participation in his California home and a demand that he remain under house arrest with them.
It was the latest twist in a rapidly unfolding saga that turned one of the cryptocurrency world’s best-known paper billionaires into its most prominent villain in weeks, drawing comparisons to Bernie Madoff, the notorious fraudster whose money management operation turned out to be the biggest Ponzi scheme in history.
Mr. Bankman-Fried, 30, appeared in federal court just hours after his extradition from the Bahamas, where he was arrested at a luxury apartment complex on Dec. 12. FTX, the exchange that Mr. Bankman-Fried founded, was headquartered in the Caribbean nation.
His release also follows an announcement by Damian Williams, attorney for the Southern District of New York, on Wednesday night that two former executives of the Bankman-Fried business, Caroline Ellison and Gary Wang, have pleaded guilty to charges federal fraudsters and were cooperating with prosecutors. The allegations against the executives are likely to further complicate Bankman-Fried’s defense.
The criminal investigation into FTX and its related entities has moved forward with surprising speed. In less than two months, FTX has gone from a thriving exchange to a bankrupt entity whose executives are facing criminal charges for some of the financial world’s most serious breaches. Prosecutors said Bankman-Fried’s crimes led to the implosion of his stock market and billions in losses from clients.
Just a few months ago, cryptocurrency enthusiasts hailed Mr. Bankman-Fried as the savior and mouthpiece of the chaotic industry, willing to rescue other companies and vouch for cryptocurrency’s legitimacy to lawmakers and regulators. Now, with his fortune gone and the accusations mounting, Mr. Bankman-Fried faces what is likely to be a colossal legal battle with few good results.
On Thursday, Judge Gabriel W. Gorenstein warned Mr. Bankman-Fried that if he failed to appear in court or violated any of the other bail conditions, a warrant would be issued for his arrest and he and his parents would be liable. for paying the hefty bail.
The $250 million personal acknowledgment bond — a written promise to appear in court when needed — will be secured by the parents’ Bay Area home, the judge said. Mr. Bankman-Fried was also required to surrender her passport and receive mental health evaluation and treatment. Any expenses over $1,000 will require prior government or court approval.
As part of the bail agreement, Mr. Bankman-Fried moves in with his parents, Stanford Law School professors Joe Bankman and Barbara Fried. He will be under strict electronic monitoring, including a bracelet that was supposed to be placed on him before leaving the courtroom.
Asked if he understood, Mr. Bankman-Fried responded, “Yes, I understand,” the only words he uttered at the hearing, which lasted less than an hour.
Discussions about a bail deal began even before Bankman-Fried was extradited. In court on Thursday, Nicolas Roos, an assistant US attorney, described the proposed package that had been worked out with defense attorneys.
Roos said Bankman-Fried committed crimes of “epic proportions” and that the case against him involved cooperating witnesses, encrypted text messages and tens of thousands of pages of financial records. But he noted that Mr. Bankman-Fried had family and community ties and that his wealth had “significantly diminished”.
What to know about the FTX collapse
What is FTX? FTX is a now bankrupt company that was one of the largest cryptocurrency exchanges in the world. Allowed customers to exchange digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The Bahamas-based company has built its business on risky business options that are not legal in the United States.
He also pointed out that Mr. Bankman-Fried had consented to extradition. If he had resisted the process, leading to a lengthy legal fight, it was “almost certain” that the government would have opposed any pre-trial release, Roos added.
Mr. Bankman-Fried was escorted to court by federal prosecutors. He was wearing a dark suit, his ankles were cuffed and he was sitting between his lawyers, Mark Cohen and Christian Everdell. He sat hunched over, head tilted slightly down.
Mr. Cohen argued that Mr. Bankman-Fried was not a flight risk and agreed to return to New York to face the charges. “He wants to approach them,” Cohen said.
Judge Gorenstein seemed to agree. “It would be very difficult for this defendant to hide without being recognized,” he said. “So I believe the risk of flight is properly mitigated.”
Mr. Bankman-Fried was charged with two counts of wire fraud and six counts of conspiracy related to securities and commodity fraud, money laundering and violations of campaign finance laws.
Last week, Williams, the US attorney, called FTX “one of the greatest financial frauds in American history.” The accusations against Mr. Bankman-Fried could result in a life sentence if he is convicted.
When Madoff’s Ponzi scheme fell apart after clients tried to retrieve their funds during the 2008 financial crisis, thousands of victims lost their savings, although much of the money was recovered. Madoff was serving a 150-year sentence when he died last year in federal prison.
The case against Bankman-Fried echoes another financial scandal from more than a decade ago – the fall of MF Global, a commodities brokerage that went bankrupt after revelations that it had misused client funds to support its business. Customers lost over $1 billion.
Mr. Bankman-Fried is accused of funneling billions of dollars in deposits from FTX clients to Alameda Research, a crypto hedge fund he also founded and owned. Regulators and prosecutors say he used client funds to finance luxury real estate purchases, investments in other companies, political contributions and a celebrity-led marketing campaign.
In the Bahamas, Mr. Bankman-Fried lived in a luxurious penthouse before his arrest landed him in the island’s notorious Fox Hill Prison. Now, he is set to live with his parents.
Bankman-Fried’s mother and father have served on the faculty at Stanford Law School since the 1980s. Bankman-Fried and her younger brother, Gabe, grew up on the Stanford campus, in a house next door to a student-run co-op, where college kids used to throw raucous parties.
When Mr. Bankman-Fried started FTX, his parents were enthusiastic supporters. Mr. Bankman was employed for 11 months, focusing on the company’s charitable work. Both parents were in court on Thursday, Ms. Fried all dressed in black and Mr. Bankman with an emotionless expression.
The consequences of the fall of the FTX
The sudden collapse of the cryptocurrency exchange has left the industry stunned.
Mr. Bankman and Mrs. Fried aren’t actually paying $250 million to free Mr. Bankman-Fried. But, in theory, they would be responsible for that amount if their son ran away and their home could be confiscated.
The legal risk of Mr. Bankman-Fried is growing every day. The agreement with the two former executives, Ms. Ellison and Mr. Wang, appears to significantly strengthen the case against him. Both were part of his inner circle in the Bahamas; they lived with Mr. Bankman-Fried in a luxury penthouse with seven other people, and Mrs. Ellison and Mr. Bankman-Fried have dated a few times.
Mrs. Ellison, 28, became Alameda’s chief executive after Mr. Bankman-Fried started FTX. Wang, 29, helped Bankman-Fried found Alameda and FTX before serving as the exchange’s chief technology officer. The charges against the two were “related to their roles in the frauds that contributed to the collapse of FTX,” said Williams, the US Attorney.
“Cooperative agreements make it significantly more difficult for Bankman-Fried to argue that he didn’t know what was going on at FTX,” said Rebecca Roiphe, a former assistant district attorney in Manhattan who is now a professor at the New York School of Law.
Mr. Wang and Mrs. Ellison also agreed to settle the civil claims filed by the Securities and Exchange Commission and the Commodity Futures Trading Commission. Both agencies are suing Mr. Bankman-Fried.
The SEC’s complaint against Ellison and Wang provides one of the most detailed accounts to date of the alleged fraud at FTX, alleging that the two cooperators were intimately involved in a scheme that dates back to the company’s founding in 2019.
In 2019 and 2020, the complaint said, Mr. Bankman-Fried instructed Mr. Wang and other FTX engineers to write software code that would effectively allow Alameda to borrow an unlimited amount of money from FTX. That software flaw was the technological basis for Alameda misusing billions of dollars in FTX client funds, the complaint states.
According to the SEC complaint, Mr. Bankman-Fried also worked closely with Ms. Ellison to manipulate the price of FTT, a cryptocurrency that FTX created and which Alameda used as collateral to borrow funds. In 2019, the complaint said, Mr. Bankman-Fried was concerned about “the psychological effect of the ITF price falling below a certain threshold”. So he instructed Ellison to have Alameda buy FTT to support the price — a directive he repeated two years later, in 2021.
In an interview on Thursday, Gary Gensler, chairman of the SEC, compared crypto tokens like FTT that exchanges create to micro-cap fraud schemes, saying they resemble thinly traded micro-cap stocks of dubious value. that insiders control and manipulate.
“It leads to skewed incentives and puts the public at risk,” Gensler said.
Efrat Livni🇧🇷 Lora Kelley and Liset Cruz contributed reports. Kitty Bennett contributed research.
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