Sam Bankman-Fried is expected to answer in person soon to criminal and civil charges brought against him by US regulators investigating the unexpected bankruptcy of his cryptocurrency empire.
The 30-year-old former trader is notably accused of fraud and criminal association to defraud customers and investors of the FTX cryptocurrency exchange and its sister company Alameda Research, a hedge fund which also served of trading platform.
FTX and Alameda were the main sister companies of the Bankman-Fried empire.
Bankman-Fried lives in the Bahamas, where FTX was also headquartered. He was arrested on December 12. He was denied bail the following day.
“From at least 2019 on or about 2019, up to and including about November 2022”, Bankman-Fried “and others known and unknown, willfully and knowingly combined, conspired, confederated and agreed together and with each other to commit a wire fraud,” prosecutors for the Southern District of New York from the U.S. Department of Justice alleged.
“Bankman-Fried orchestrated a massive, years-long fraud, embezzling billions of dollars of trading platform client funds for his own benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.
Mark Cohen, attorney for Bankman-Fried, said his client is “reviewing the charges with his legal team and considering all of his legal options.”
A hearing on his extradition has been set for February 8, 2023.
A big meeting on December 19
But it is now likely that this hearing will not take place, because Bankman-Fried has changed his mind and no longer wishes to challenge his extradition to the United States.
He will appear on December 19 before a Bahamian court to say that he renounces to challenge his extradition, according to several information. The main consequence of this decision is that it will remove a major obstacle to the request for extradition by the American authorities.
It’s hard to know what made Bankman-Fried change his mind. The collective prison sentence to which he faces a possible conviction on all counts is 115 years.
US regulators want to move very quickly. But to achieve this, it will be necessary to obtain the extradition of Bankman-Fried so that he can be tried on American soil.
There is an extradition treaty between the United States and the Bahamas, but the process could take several months, as Bankman-Fried told the judge he would not waive his right to an extradition hearing.
Bankman-Fried used client funds to “make undisclosed venture capital investments, lavish real estate purchases and significant political donations,” the complaint states.
As a crypto exchange, FTX executed orders for clients, taking their money and buying cryptocurrencies on their behalf. FTX acted as the custodian, holding the clients’ crypto.
FTX then used the crypto assets of its clients, through the trading arm of its sister company Alameda Research, to generate liquidity through borrowing or market making. Money borrowed by FTX was used to bail out other crypto institutions in the summer of 2022.
At the same time, FTX used the cryptocurrency it issued, FTT, as collateral on its balance sheet. This was a large exposure, due to FTT’s concentration risk and volatility.
FTX’s insolvency stemmed from a lack of liquidity when clients attempted to withdraw funds from the platform. The shortfall appears to have been the result of the alleged transfer of $10 billion in client funds from FTX to Alameda Research by Bankman-Fried.