FTX Collapse: Bankman-Fried Flip-Flops On His Extradition

The fallen founder of the cryptocurrency exchange is in prison in the Bahamas, where he was arrested at the request of the US authorities.

Sam Bankman-Fried is expected to answer in person soon to the criminal and civil charges leveled against him by U.S. regulators investigating the unexpected bankruptcy of his cryptocurrency empire.

The 30-year-old former trader is notably accused of fraud and conspiracy to defraud customers and investors of the FTX cryptocurrency exchange and its sister company Alameda Research, a hedge fund that also served as a trading platform.

FTX and Alameda were the twin principal 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 in or about 2019, up to and including in or about November 2022,” Bankman-Fried “and others known and unknown, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit wire fraud,” prosecutors within the U.S. Department of Justice’s Southern District of New York alleged.

“Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.

Mark Cohen, an 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 was set for February 8, 2023.

A Major 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 make an appearance on December 19 before a Bahamian court to say that he renounces the challenge of his extradition, according to several reports. The main consequence of this decision is that it will remove a major obstacle to the extradition request by the American authorities.

It is difficult to know what made Bankman-Fried change his mind. The collective prison time he faces from a possible conviction on all charges is 115 years.

American 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 existing extradition treaty between the United States and the Bahamas but the procedure could take several months, because Bankman-Fried told the judge that he would not waive his right to an extradition hearing. 

Bankman-Fried used customer funds to “make undisclosed venture investments, lavish real estate purchases, and large political donations,” the complaint said.

As a crypto exchange, FTX executed orders for clients, taking their cash and buying cryptocurrencies on their behalf. FTX acted as a custodian, holding the clients’ crypto. 

FTX then used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market-making. The cash FTX borrowed was used to bail out other crypto institutions in summer 2022.

At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This was a significant exposure, due to the concentration risk and the volatility of FTT.

The insolvency of FTX stemmed from a liquidity shortfall when clients attempted to withdraw funds from the platform. The shortfall appears to have been the result of Bankman-Fried allegedly transferring $10 billion of customer funds from FTX to Alameda Research.

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