Sam Bankman-Fried, the disgraced former cryptocurrency executive, was granted release from federal custody in a Manhattan court on Thursday under highly restrictive bail conditions, including a $250 million bond secured by his parents’ interest of their California home and a requirement that he remain in home detention with them.
It was the most recent twist in a swiftly unfolding saga that has turned one among the crypto world’s most recognizable paper billionaires into its most distinguished villain inside weeks, drawing comparisons to Bernie Madoff, the notorious fraudster whose money management operation turned out to be the most important 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 based within the Caribbean nation.
His release also followed an announcement by Damian Williams, the U.S. attorney for the Southern District of Recent York, on Wednesday night that two former executives of Mr. Bankman-Fried’s businesses, Caroline Ellison and Gary Wang, had pleaded guilty to federal fraud charges and were cooperating with prosecutors. The costs against the executives are prone to further complicate Mr. Bankman-Fried’s defense.
The criminal investigation into FTX and its related entities has moved with startling speed. In under two months, FTX went from a flourishing exchange to a bankrupt entity whose executives are facing criminal charges for a few of the financial world’s most serious violations. Prosecutors have said Mr. Bankman-Fried’s crimes led to the implosion of his exchange and billions in customer losses.
Just just a few months ago, cryptocurrency enthusiasts hailed Mr. Bankman-Fried because the savior and spokesman of the shambolic industry, willing to bail out other corporations and vouch for crypto’s legitimacy to lawmakers and regulators. Now, along with his fortune gone and charges mounting, Mr. Bankman-Fried faces what’s prone to be a colossal legal fight with few good outcomes.
On Thursday, the judge, Gabriel W. Gorenstein, warned Mr. Bankman-Fried that if he failed to seem in court or violated any of the opposite bail conditions, a warrant could be issued for his arrest and he and his parents could be accountable for paying the hefty bond.
The $250 million personal recognizance bond — a written promise to seem in court as needed — might be secured by the parents’ Bay Area home, the judge said. Mr. Bankman-Fried was also required to give up his passport and to receive mental health evaluation and treatment. Any expenses above $1,000 would require prior approval by the federal government or the court.
As a part of the bail arrangement, Mr. Bankman-Fried will live along with his parents, the Stanford Law School professors Joe Bankman and Barbara Fried. He might be under strict electronic monitoring, including a bracelet that was to be placed on him before he left the courthouse.
Asked whether he understood, Mr. Bankman-Fried responded, “Yes, I do,” the one words he uttered within the hearing, which lasted lower than an hour.
Discussions a couple of bail deal had begun even before Mr. Bankman-Fried was extradited. In court on Thursday, Nicolas Roos, an assistant U.S. attorney, described the proposed package that had been worked out with the defense lawyers.
Mr. Roos said that Mr. Bankman-Fried had committed crimes of “epic proportions” and that the case against him involved cooperating witnesses, encrypted text messages and tens of 1000’s of pages of economic records. But he noted that Mr. Bankman-Fried had family and community ties and that his wealth had “diminished significantly.”
What to Know About the Collapse of FTX
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What’s FTX? FTX is a now bankrupt company that was one among the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency referred to as FTT. The corporate, based within the Bahamas, built its business on dangerous trading options that should not legal in the USA.
Who’s Sam Bankman-Fried? He’s the 30-year-old founding father of FTX and the previous chief executive of FTX. Once a golden boy of the crypto industry, he was a serious donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to offer away their wealth in efficient and logical ways.
How did FTX’s troubles begin? Last yr, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving a lot of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the value of FTT, spooked investors.
What led to FTX’s collapse? Mr. Zhao’s announcement drove down the value and spooked investors. Traders rushed to withdraw from FTX, causing the corporate to have a $8 billion shortfall. Binance, FTX’s essential rival, offered a loan to avoid wasting the corporate but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested within the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.
He also identified that Mr. Bankman-Fried had consented to extradition. Had he resisted the method, resulting in a drawn-out legal fight, it was “a near certainty” the federal government would have opposed any pretrial release, Mr. Roos added.
Mr. Bankman-Fried was escorted into court by federal marshals. He was wearing a dark suit, his ankles were shackled, and he was seated between his lawyers, Mark Cohen and Christian Everdell. He sat hunched over, along with his head tilted down barely.
Mr. Cohen argued that Mr. Bankman-Fried was not a flight risk and had agreed to return to Recent York to face the costs. “He wants to handle them,” Mr. Cohen said.
Judge Gorenstein appeared to agree. “It might be very difficult for this defendant to cover without being recognized,” he said. “So I feel that the danger of flight is appropriately mitigated.”
Mr. Bankman-Fried has been charged with two counts of wire fraud and 6 counts of conspiracy related to securities and commodities fraud, money laundering, and violations of campaign finance laws.
Last week, Mr. Williams, the U.S. attorney, called FTX “one among the largest financial frauds in American history.” The costs against Mr. Bankman-Fried could carry what would amount to a life sentence if he was convicted.
When Mr. Madoff’s Ponzi scheme unraveled after customers tried to retrieve their funds through the 2008 financial crisis, 1000’s of victims lost their savings, although much of the cash was clawed back. Mr. Madoff was serving a 150-year sentence when he died last yr in a federal prison.
The case against Mr. Bankman-Fried echoes one other financial scandal from greater than a decade ago — the autumn of MF Global, a commodities brokerage firm that collapsed after revelations that it had misused customer funds to prop up its business. Customers lost greater than $1 billion.
Mr. Bankman-Fried is accused of funneling billions of dollars of FTX customer deposits to Alameda Research, a crypto hedge fund that he also founded and owned. Regulators and prosecutors say he used customer funds to finance lavish real estate purchases, investments in other corporations, political contributions and a celebrity-driven marketing campaign.
Within the Bahamas, Mr. Bankman-Fried lived in an expensive penthouse before his arrest landed him within the island’s notorious Fox Hill prison. Now, he is about to live along with his parents.
Mr. Bankman-Fried’s father and mother have served on the Stanford Law School faculty because the Eighties. Mr. Bankman-Fried and his younger brother, Gabe, grew up on Stanford’s campus, in a house next to a student-run cooperative where undergraduates often threw raucous parties.
When Mr. Bankman-Fried began FTX, his parents were enthusiastic supporters. Mr. Bankman was an worker for 11 months, specializing in the corporate’s charitable work. Each parents were in court on Thursday, Ms. Fried wearing all black and Mr. Bankman with an emotionless expression.
The Aftermath of FTX’s Downfall
The sudden collapse of the crypto exchange has left the industry stunned.
Mr. Bankman and Ms. Fried should not actually paying $250 million to have Mr. Bankman-Fried released. But in theory, they’d be answerable for that quantity if their son fled, and their house could possibly be seized.
Mr. Bankman-Fried’s legal jeopardy is growing by the day. The plea deals with the 2 former executives, Ms. Ellison and Mr. Wang, appear to significantly strengthen the case against him. Each were a part of his inner circle within the Bahamas; they lived with Mr. Bankman-Fried in a luxury penthouse with seven others, and Ms. Ellison and Mr. Bankman-Fried have dated at times.
Ms. Ellison, 28, became the chief executive of Alameda after Mr. Bankman-Fried began FTX. Mr. Wang, 29, helped Mr. Bankman-Fried found Alameda and FTX, before serving because the exchange’s chief technology officer. The costs against the 2 were “in reference to their roles within the frauds that contributed to FTX’s collapse,” said Mr. Williams, the U.S. attorney.
“The cooperation deals make it significantly harder for Bankman-Fried to argue that he didn’t know what was occurring at FTX,” said Rebecca Roiphe, a former assistant district attorney in Manhattan who’s now a professor at Recent York Law School.
Mr. Wang and Ms. Ellison also agreed to settle civil charges from the Securities and Exchange Commission and the Commodity Futures Trading Commission. Each agencies are pursuing cases against Mr. Bankman-Fried.
The S.E.C. grievance against Ms. Ellison and Mr. Wang provides some of the detailed accounts thus far of the alleged fraud at FTX, claiming that the 2 cooperators were closely involved in a scheme dating back to the corporate’s founding in 2019.
In 2019 and 2020, the grievance said, Mr. Bankman-Fried instructed Mr. Wang and other FTX engineers to jot down software code that effectively allowed Alameda to borrow a limiteless amount of cash from FTX. That software loophole was the technological basis for Alameda to misuse billions of dollars in FTX customers funds, the grievance claims.
In response to the S.E.C. grievance, Mr. Bankman-Fried also worked closely with Ms. Ellison to control the value of FTT, a cryptocurrency that FTX created and that Alameda used as collateral to borrow funds. In 2019, the grievance said, Mr. Bankman-Fried grew concerned about “the psychological effect of the value of FTT dropping below a certain threshold.” So he instructed Ms. Ellison to have Alameda purchase FTT to support the value — a directive that he repeated two years later, in 2021.
In an interview on Thursday, Gary Gensler, the chair of the S.E.C., compared crypto tokens similar to FTT that exchanges create to micro-cap fraud schemes, saying they resemble the thinly traded micro-cap stocks of dubious value that insiders control and manipulate.
“This results in distorted incentives and puts the general public further in danger,” Mr. Gensler said.
Ephrat Livni, Lora Kelley and Liset Cruz contributed reporting. Kitty Bennett contributed research.