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Tuesday, June 18, 2024 | Back issues
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FTX founder Sam Bankman-Fried pleads not guilty to massive fraud

U.S. prosecutors managed to extradite the 30-year-old from the Bahamas before disclosing that they had already obtained guilty pleas from two of his former business partners.

MANHATTAN (CN) — Sam Bankman-Fried, the extradited former CEO of collapsed crypto exchange FTX, pleaded not guilty Tuesday afternoon to allegations that he diverted billions of dollars in customer funds to a crypto hedge fund where the money was lost in risky trades.

Speaking through his attorneys at the in-person arraignment in the Southern District of New York, the 30-year-old crypto executive will now head to trial on eight counts of financial fraud and conspiracy.

U.S. District Judge Lewis Kaplan has tentatively set Oct. 2, 2023, as the start date for that trial.

Federal prosecutors said Tuesday that they expect their case to last approximately four weeks, while Bankman-Fried's lawyers anticipated a two- to three-week defense case. Tuesday's hearing lasted just 27 minutes.

Bankman-Fried is under criminal investigation by U.S. and Bahamian authorities after the crypto exchange he founded in May 2019 collapsed abruptly and spectacularly in November 2022.

With the company once valued at $32 billion now bankrupt, customers of FTX have been filing lawsuits for violations of federal anti-racketeering law. 

Bankman-Fried was arrested in the Bahamas where he was detained for a week before agreeing to his extradition to the United States. Late last month, the ex-CEO secured release on a $250 million personal recognizance bond.

The terms of his pretrial release require him to live at his parents’ home in Palo Alto, California, and limit his travel to the Northern District of California, with an electronic monitoring bracelet.

At a press conference in December announcing Bankman-Fried’s grand jury indictment, U.S. Attorney Damian Williams for the Southern District of New York called the FTX founder's scheme "one of the biggest financial frauds in America’s history."

The indictment alleges a wide-ranging fraud on FTX customers and investors, as well as lenders to a separate cryptocurrency hedge fund entity under Bankman-Fried's control, Alameda Research.

Bankman-Fried is represented attorneys Mark Cohen and Chris Evedell, both of whom previously represented Ghislaine Maxwell in an unsuccessful bid to be released on bail ahead of her 2021 criminal trial in the same courthouse on sex-trafficking charges.

The conditions of Bankman-Fried’s bail required his parents to co-sign his $250 million personal recognizance bond. and that two additional sureties sign separate bonds in lesser amounts.

Defense attorneys for Bankman-Fried requested Tuesday in a letter that the court keep the names of those two bail sureties sealed from the public record.

Judge Kaplan, a Clinton appointee, agreed to redact the two unnamed co-signors for now but did so "without prejudice," meaning he can act differently on future applications to release identifying information.

In addition to fraud, the indictment accuses Bankman-Fried of trampling campaign-finance law by making large political campaign donations to both Democratic and Republican candidates using the proceeds of his embezzlement scheme.

According to OpenSecrets.org, a nonpartisan group that tracks campaign spending via Federal Election Commission filings, Bankman-Fried was the second biggest Democratic-leaning megadonor in the 2022 election cycle. FTX co-chief executive officer Ryan Salame separately made over $19 million in contributions to Republican campaigns.

The same night that Bankman-Fried was transferred to the custody of U.S. marshals, U.S. Attorney Williams announced the unsealing of guilty pleas signed earlier by FTX's co-founder, Gary Wang, and Alameda's co-founder, Caroline Ellison. Ellison, 28, has been romantically linked to Bankman-Fried, and her cooperation with the government is expected to help the government's case against her former partner.

U.S. District Judge Ronnie Abrams had previously been assigned to Bankman-Fried's case, but the judge recused herself in December because her husband’s law firm, Davis Polk & Wardwell, previously advised FTX in 2021.

Prior to the bankruptcy and collapse of FTX, Bankman-Fried had been lauded as one of the most prominent evangelists of the philanthropic social philosophy known as “effective altruism,” which believes in prioritizing donations to projects that will have the largest impact on the most number of people.

Bankman-Fried had been worth tens of billions of dollars — at least on paper — and was able to woo celebrities like Tom Brady or former politicians like Bill Clinton and Tony Blair to his conferences at luxury resorts in the Bahamas. One prominent Silicon Valley firm, Sequoia Capital, invested hundreds of millions of dollars in FTX.

“I wanted to get rich, not because I like money but because I wanted to give that money to charity,” Bankman-Fried said in a since-removed YouTube video titled “The Most Generous Billionaire,” published last year by producer Nuseir Yassin.

A philanthropic infrastructure Bankman-Fried established through FTX promised that 1% of its crypto exchange fees would be donated to charities. It also matched user donations made through its platform up to $10,000 a day. Before it suspended its services, the company said more than $24 million was donated through user fees, donations and its matching program.

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Categories / Business, Criminal, Securities, Technology

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