Sam Bankman-Fried, the one-time billionaire and former CEO of bankrupt cryptocurrency exchange FTX, was released on a $250 million bond package on Dec. 22, the largest bail sum in US history. While many quickly pointed out that he only claimed to have about $100,000 in his bank account, the disgraced crypto savior was not required to pay the total amount immediately. So, for now, he will await trial in his parents’ humble abode on the West Coast rather than inside a prison cell.
Sam Bankman-Fried Out on Bail
Federal prosecutors accused Sam Bankman-Fried of stealing billions of dollars in client funds to eliminate losses at Alameda Research, calling it a “fraud of epic proportions.” He was not asked to enter a plea, and his next court appearance has been scheduled for Jan. 3, 2023, before US District Judge Ronny Abrams. A warrant would be issued for his arrest if he failed to appear in court. The man who was called the next JP Morgan of crypto wore a gray suit and leg restraints, a far cry from his previous attire of a t-shirt, shorts, and sneakers.
Mark Cohen, Bankman-Fried’s defense attorney, told the court that he would abide by all the conditions laid out by the court if he is released before the case. Bankman-Freid was then granted a record $250 million bail package, which also involved surrendering his passport, wearing an ankle bracelet, receiving routine mental health treatment and evaluation, and staying at his parents’ home in Palo Alto, CA.
Many have been surprised by the nine-figure number, but there is more to the bail fund. The judge approved the bond because a portion of it was secured by the equity in Bankman-Fried’s parents’ home. Plus, the bond must be signed by two other individuals of “considerable means.” It is unclear if he would await trial behind bars if he failed to meet the terms and conditions of the bail.
Bankman-Fried was flown in from the Bahamas to the US on Dec. 21. He agreed to the extradition as part of his “desire to make the relevant customers whole” and return as much money as possible to clients and investors, according to a Dec. 20 affidavit.
Last week, the Securities and Exchange Commission (SEC) accused Bankman-Fried of defrauding investors, using the money to make large political donations, purchase opulent real estate properties, and execute undisclosed venture investments. In addition, the SEC argued that he violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. SEC Chair Gary Gensler in a statement:
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto. The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business. It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action.”
Two former associates of Bankman-Fried pleaded guilty to SEC charges on Dec. 21, promising to cooperate with investigators in exchange for a reduced prison sentence. Former Alameda Research CEO Caroline Ellison and former FTX CTO Gary Wang pled guilty to commodities fraud, securities fraud, and wire fraud. They were released on $250,000 bail with travel restricted to the continental United States. Ellison could face up to 110 years in jail, while Wang could get up to 50 years.
The Beginning of a Crypto Crackdown?
If the SEC possessed a modicum of consternation about cracking down on the cryptocurrency ecosystem, then the current situation with Sam Bankman-Fried and FTX might provide Gensler carte blanche to rein in the sector. Gensler has talked tough over the last two years, expressing skepticism over proof-of-reserves reports and tokens that are merely unregistered securities. But now that the collapse of FTX has impacted everyone, from hedge funds to multi-millionaire celebrities to retail traders, the federal government might employ new rules, regulations, and restrictions in the industry. If that happens, the Bankman-Frieds of the world might find it harder to avoid being held accountable.
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