US charges crypto tycoon Bankman-Fried with 'massive' fraud

NEW YORK, United States — Disgraced cryptocurrency tycoon Sam Bankman-Fried was hit with multiple criminal charges Tuesday, accused of committing one of the biggest financial frauds in US history.

The 30-year-old founder of the FTX platform, who was arrested in the Bahamas Monday at the request of the United States, is facing a raft of accusations, including from US market regulators who say that the investor knowingly built a fraudulent house of cards.

A Bahamian judge denied Bankman-Fried bail and remanded him into custody as the one-time high-flyer began to battle his extradition in a Nassau court room, with his parents looking on.

A new Bahamas court date to examine the US request for extradition was set for February 8, local media reported. 

Given the seriousness of the accusations, legal analysts said that Bankman-Fried risked as much as life in prison, recalling the fate of financier Bernie Madoff who died in a US prison last year after running the largest Ponzi scheme in US history.

In their indictment, US prosecutors said Bankman-Fried also carried out money laundering, violated campaign finance laws and committed wire fraud since the start of his company in 2019.

"It’s hard to compare these things, but this is one of the biggest financial frauds in American history," said US Attorney Damian Williams when asked to compare the case to the Madoff affair.

When asked if further charges against other individuals would be forthcoming, Williams added: "I can only say this: Clearly, we are not done."

'Massive fraud' 

Bankman-Fried "was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire," prosecutors said.

The legal hammer fell after the 30-year-old spent weeks defying legal advice and made multiple media appearances defending his actions, usually by video link from the Bahamas, where his company is headquartered.

"Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options," his lawyer Mark Cohen said in a statement.

Bankman-Fried had embodied the emergence of cryptocurrency as an above-board investment rather than a dodgy get-rich-quick scheme for high-risk investors.

His FTX platform was plugged by celebrities in advertising campaigns and he became a regular presence in Washington, where he donated tens of millions of dollars in political contributions, mainly to the Democratic Party.

But after reaching a valuation of $32 billion, FTX's implosion was swift following a November 2 media report on ties between FTX and Alameda, a trading company also controlled by Bankman-Fried.

The report exposed that Alameda's balance sheet was heavily built on the FTT currency -- a token created by FTX with no independent value -- and exposed Bankman-Fried's companies as being dangerously interlinked.

'Grossly inexperienced'

Reeling from customer withdrawals and short some $8 billion, FTX and around 100 related entities filed for bankruptcy protection on November 11, inviting scrutiny from regulators, prosecutors and furious clients.

"If convicted he could be facing the rest of his life in prison, given the dollar amount of the fraud," Jacob S. Frenkel, a former federal criminal prosecutor at Dickinson Wright, told AFP.

"We would not see an indictment if prosecutors were not absolutely convinced that they will win a conviction."

In his media interviews, Bankman-Fried has admitted to mistakes, but has denied intent to defraud his customers.

FTX CEO John Ray, who came to the company after the debacle, told Congress on Tuesday that the problems arose because control was "in the hands of a very small group of grossly inexperienced and unsophisticated individuals."

"Never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever," Ray said.

The fall of FTX has caused major doubts about the long term viability of cryptocurrency and heaped stress on other platforms and entities that rode the success of Bitcoin and other currencies.