FTX founder Sam Bankman-Fried charged with fraud

Sam Bankman-Fried, the founder and former CEO of FTX and Alameda Research, could face up to 115 years in prison if convicted on all eight counts against him in a federal indictment unsealed Tuesday morning, according to congressional statutory maximum sentencing guidelines. 

The charges against him including wire fraud, wire fraud conspiracy, and conspiracy to commit money laundering, each carry a maximum prison sentence of 20 years, according to a press release from the US Attorney's Office for the Southern District of New York. 

The crypto-trading platform founder could also see up to five years in prison for each count of conspiracy to commit commodities fraud and securities fraud, and conspiracy to defraud the United States and commit campaign finance violations, if convicted. 

Even if convicted on all counts, Bankman-Fried would likely not be sentenced to the maximum, and his sentences for each crime may run concurrently instead of consecutively, as is common and up to a judge's discretion. 

Chief Magistrate of the Commonwealth of The Bahamas Joyann Ferguson-Pratt has denied bail for Sam Bankman-Fried.

Ferguson-Pratt said Bankman-Fried posed a flight risk considering his access to “substantial finances”.

Bankman-Fried’s next court hearing is the morning of February 8th. 

Ferguson-Pratt said Bankman-Fried would get an opportunity to spend a few minutes with his family and attorneys before being taken into custody.

Chief Magistrate of the Commonwealth of The Bahamas Joyann Ferguson-Pratt has ruled the court has jurisdiction to consider bail.  

Samuel Bankman-Fried’s attorney said he’s willing to pay $250,000 cash bail and will not object to conditions including wearing an ankle monitor or reporting to authorities daily. 

Bankman-Fried’s passport was turned over to police upon arrest last night, his attorney said.

The former FTX CEO has long suffered from depression, insomnia, and attention deficit disorder (ADD), he added.

Bankman-Fried told the court he is currently taking medication.

The chief magistrate asked if there was family in court. SBF’s parents and a woman stood up. The judge asked if one of them could get Bankman-Fried’s prescription drugs at home. 

US Attorney Damian Williams ended the Tuesday afternoon news conference assuring reporters that there would be more to come in the Southern District of New York's prosecution of Sam Bankman-Fried.

"It's so hard to compare these things but...this is one of the biggest financial frauds in American history," he said.

In a moment of levity in an otherwise straight-laced, sober press conference, US Attorney Damian Williams was asked about Sam Bankman-Fried, the 30-year-old accused of orchestrating a massive fraud, not fitting the profile of a typical white-collar criminal. 

“You can commit fraud in shorts and T-shirts in the sun,” Williams quipped.

Williams declined to say whether future indictments are coming but noted the investigation is ongoing.

“We are not done,” he said. “Extradition is ongoing in the Bahamas.”

Damian Williams, the US Attorney for the Southern District of New York, told reporters Tuesday that his team’s investigation into fraudulent schemes around FTX and Alameda Research is moving quickly, reiterating charges laid out in the indictment against the crypto exchange's founder, Sam Bankman-Fried.

The charges include wire fraud, conspiracy and campaign finance violations.

"From 2019 until earlier this year, Bankman-Fried and his co-conspirators stole billions of dollars from FTX customers," Williams said. "He used that money for his personal benefit, including to make personal investments and to cover expenses and debts of his hedge fund, Alameda Research."

SBF is also charged with violating campaign finance laws "by causing tens of millions of dollars in illegal campaign contributions to be made to candidates and committees associated with both Democrats and Republicans," Williams added.

"And all of this dirty money was used in service of Bankman-Fried's desire to buy bipartisan influence and impact the direction of public policy in Washington."

Williams implored the public to come forward if they believe they were affected by the years-long schemes.

Gurbir Grewal, Director of Enforcement at the Securities and Exchange Commission, said that Sam Bankman-Fried put up a veneer of respectability and safety, but “that veneer wasn't only thin, it was fraudulent.” He said FTX’s assertions of reliability “were simply bogus.”

Grewal said SBF “frequently claimed Alameda was a customer with no special privileges,” but FTX used it for an “unlimited line of credit.” 

Bankman-Fried also “diverted billions more in customer assets to Alameda, even as it became increasingly clear FTX and Alameda could not make those customers whole,” and all the while made “misleading statements” about the company’s relationship with Alameda and its financial position.

Grewal sent a warning to investors looking to trade crypto on platforms that are not compliant with SEC regulatons. 

“One immediate takeaway: Noncompliant trading platforms pose dramatic risks to customers,” Grewal said. “It's imperative that noncompliant platforms come into compliance. … For those who do not, the enforcement division stands ready to take action.”

Video from outside the court showed heavily armed police officers and court security.

Bankman-Fried was arrested at his home in the Bahamas on Monday night. He has been indicted on eight criminal charges including wire fraud and conspiracy by misusing customer funds, according to an indictment from the US Attorney of the Southern District of New York.  

The SEC says former Founder and CEO of FTX Sam Bankman-Fried internally directed software code to be written in a way that allowed his crypto hedge fund, Alameda, to function with a negative balance in its the customer account at FTX. 

This allegedly happened in August of 2019, just about four months after operations at FTX began. 

This effectively gave the sister trading firm, Alameda, a limitless line of credit funded by customer assets, according to the Securities and Exchange Commission complaint filed in federal court Tuesday. 

That meant there was no meaningful distinction between FTX customer funds and Alameda’s funds that Bankman-Fried used as his “personal piggy bank,” the complaint says.  He hid from investors and customers that he used the funds to buy luxury condos, support political campaigns, and make private investments, according to the SEC.

Between March 2020 and September 2022, Bankman-Fried executed loans from Alameda totaling more than $1.338 billion, including two instances in which Bankman-Fried was both the borrower in his individual capacity and the lender in his capacity as CEO of Alameda, the SEC says in its civil complaint. 

Bankman-Fried used funds from Alameda to purchase tens of millions of dollars in Bahamian real estate for himself, his parents, and other FTX executives, according to the filing. 

Alameda co-founders Nishad Singh and Gary Wang also borrowed $554 million and $224.7 million, respectively, by similarly executing promissory notes with Alameda in 2021 and 2022, the filing says. 

Singh and Wang have not been charged with any crimes at this point. 

The loans to Bankman-Fried and others were "poorly documented, and at times not documented at all," the lawsuit says. 

When prices of crypto assets plummeted in May 2022, Bankman-Fried paid back Alameda’s demanding third-party lenders from its FTX “line of credit,” further growing the multi-billion-dollar liability and then concealed it in the Alameda balance sheet to avoid alarming investors, the complaint alleges. 

The FTX chief executive continued to leverage the companies for his personal benefit, loaning himself $136 million in late July 2022 - one month after offering crypto financial services company BlockFi a $250 million revolving line of credit to ease its own liquidity issues, according to the filing.  Meanwhile, throughout the summer, he presented a "false and misleading positive account" of the company to investors, despite its "tenuous financial condition", the SEC alleges.