US prosecutors usually grind away in obscurity for months or years before unveiling a criminal indictment. Their case against FTX founder Sam Bankman-Fried came together in a matter of weeks.
Speed was of the essence for Manhattan US Attorney Damian Williams, who unveiled criminal charges against the disgraced entrepreneur just over a month after FTX filed for bankruptcy. Bankman-Fried is now in jail in the Bahamas, where a judge denied him bail because of concerns that he is a flight risk.
His swift arrest shows the urgency of a high-profile case involving a founder who has courted the media and flouted the conventional wisdom for handling a corporate unraveling. Prosecutors were likely spurred into action by several factors, including public and political pressure for an indictment, as well as concerns that Bankman-Fried might flee to a jurisdiction from which it would be more difficult to extradite him to the US.
“They grabbed him as quickly as they could before he went to some other place,” said Edward M. Robbins Jr., a former federal prosecutor who isn’t involved in the case. “That’s just common sense.”
FTX and scores of related companies declared bankruptcy last month after three years of frenetic growth. At its peak, the exchange was worth US$32 billion. Bankman-Fried, its former chief executive, was celebrated as the crypto savant who would lead the industry to untold riches. His arrest late Monday appeared to be a surprise to many — he had been expected to testify before the House Financial Services Committee the next day in hearings on FTX’s downfall.
In a news conference Tuesday, Williams claimed that Bankman-Fried scammed FTX customers and venture-capital backers out of billions of dollars in “one of the biggest financial frauds in American history.” The prosecutor has brought other large crypto cases, overseeing the seizure in November 2021 of stolen Bitcoin valued at US$3.36 billion. A Georgia man, James Zhong, pleaded guilty last month to wire fraud charges related to the theft.
“You’re right, this is very, very fast,” Williams said of the Bankman-Fried probe. “Whether we are going to bring charges against anyone else, I can only say this clearly — we are not done.”
Regulators at the US Securities and Exchange Commission and the Commodity Futures Trading Commission have sued Bankman-Fried as well. His lawyer said he would fight plans to send him to the US to face charges. The judge set a Feb. 8 extradition hearing.
Bankman-Fried’s recent words and actions may have given prosecutors enough ammunition to move so quickly. The 30-year-old publicly tried to explain away his culpability and apologize for losing US$8 billion in customer funds.
He acknowledged he’d commingled funds between FTX customers and Alameda Research, a trading operation he controlled. Those transactions were central to wire fraud charges against him in the eight-count indictment.
“SBF making admissions on TV his lawyers did not want him to talk about is like happy hour for federal prosecutors,” said Michael Weinstein of Cole Schotz P.C.
The media circus extended beyond Bankman-Fried. On Tuesday, the House committee proceeded with its hearings without the incarcerated founder. His absence shone an even brighter light on John J. Ray III, the court-appointed CEO who took over FTX as it hurtled toward bankruptcy. Ray has spent the past month poring over the company’s financial records, saying poor controls and malfeasance are to blame for the collapse.
Ray is working with a wide cast of investigators and ex-prosecutors to unravel the FTX fraud. That spade work also helped the government move fast.