Politics

Sam Bankman-Fried Sent Back to Prison After Chaotic Hearing

A court hearing in the Bahamas in which Sam Bankman-Fried, the disgraced founder of the collapsed cryptocurrency exchange FTX, was expected to agree to extradition to the United States ended in turmoil on Monday with Mr. Bankman-Fried being sent back to the prison where he has been held for the past week.

A judge ordered the crypto entrepreneur returned to the Fox Hill jail in Nassau, the capital of the Bahamas, after one of the prosecutors chided Mr. Bankman-Fried’s local defense lawyer for not being prepared to proceed.

Following his arrest in the Bahamas last week, Mr. Bankman-Fried initially indicated that he would contest his extradition. But he changed his mind and was prepared to return to the United States to be arraigned on a criminal indictment, a person briefed on the matter had said over the weekend.

The hearing on Monday in Magistrate Court in Nassau had been arranged for Mr. Bankman-Fried to tell authorities he would not contest the extradition after all. But his local lawyer, Jerone Roberts, said he was “shocked” to see his client in court on Monday morning, and requested at least one 45-minute break to confer privately with Mr. Bankman-Fried.

Mr. Roberts then said Mr. Bankman-Fried wanted to read the indictment filed by federal prosecutors before making a decision on extradition.

What to Know About the Collapse of FTX

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What is FTX? FTX is a now bankrupt company that was one of 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 known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.

Who is Sam Bankman-Fried? He is the 30-year-old founder of FTX and the former chief executive of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways.

How did FTX’s troubles begin? Last year, 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 number 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 price of FTT, spooked investors.

What led to FTX’s collapse? Mr. Zhao’s announcement drove down the price and spooked investors. Traders rushed to withdraw from FTX, causing the company to have a $8 billion shortfall. Binance, FTX’s main rival, offered a loan to save the company 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 in the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.

The confusion in the courtroom is the latest twist in the criminal case arising from the sudden implosion of FTX, once one of the world’s largest cryptocurrency exchanges. FTX, which was based in the Bahamas, filed for bankruptcy on Nov. 11. Within a month, federal prosecutors had filed criminal charges against Mr. Bankman-Fried, who is also facing civil fraud charges from the Securities and Exchange Commission and the Commodity Futures Trading Commission.

It was unclear whether Mr. Bankman-Fried would return to court again this week to address his extradition. Mark Cohen, his lawyer in New York who was hired to handle the federal prosecution, was not present in the courtroom in the Bahamas.

Mr. Cohen did not return requests for comment.

Mr. Bankman-Fried, 30, has been held in custody in the Bahamas since Dec. 12, when he was arrested at his luxury apartment complex. Last week, federal prosecutors announced a grand jury had indicted him on eight counts of wire fraud, securities fraud, money laundering and a campaign finance violation.

The Magistrate Court building in Nassau.Credit…Eva Marie Uzcategui for The New York Times

He has been accused of using billions in customers deposits to finance a cryptocurrency trading firm he controlled, make lavish real estate purchases, invest in other companies and donate funds to politicians. Federal prosecutors and U.S. regulators contend he orchestrated a yearslong scheme to defraud customers, investors and lenders.

At a bail hearing in the Bahamas last week, Mr. Bankman-Fried said he would not waive his right to contest extradition. After he was denied bail, he was moved from a police holding cell to the Caribbean island nation’s notorious Fox Hill prison, which has been widely criticized for its poor living conditions.

He was expected to reverse his position on extradition when he appeared on Monday morning at Magistrate Court in Nassau. But the proceedings were thrown into chaos.

“Whatever trail got him here this morning, it did not involve me,” Mr. Roberts told the judge in front of a packed courtroom. The hearing was adjourned so Mr. Roberts could speak privately with Mr. Bankman-Fried.

The Aftermath of FTX’s Downfall

The sudden collapse of the crypto exchange has left the industry stunned.

  • A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? The Daily charted the spectacular rise and fall of the man behind FTX.
  • How FTX Operated: FTX called itself an exchange. But it was vastly different from stock exchanges, which are highly regulated and barred from engaging in many of the activities that the crypto company pursued. 
  • Parental Bonds: Mr. Bankman-Fried’s mother and father, who teach at Stanford Law School, are under scrutiny for their connections to their son’s crypto business.

When the hearing resumed, the confusion continued. Mr. Roberts said Mr. Bankman-Fried wanted to make a decision on extradition but needed “a bit more information.” He also said Mr. Bankman-Fried needed time to speak with his lawyers in the United States.

A court officer indicated that Mr. Bankman-Fried would be taken back to prison. “I certainly feel it is a wasted day,” said the magistrate judge, Shaka Serville.

Outside the courthouse in the Bahamas, some people, including those who said they had invested in cryptocurrency and done business with FTX, showed up to display their anger with Mr. Bankman-Fried.

Erin Gambrel, who flew to Nassau from Dallas to attend the hearing, was one of them. She said she had shared office space with FTX earlier this year in the Bahamas, where she met Mr. Bankman-Fried.

Ms. Gambrel said wanted to see him “go away for a long time.” She did not invest with FTX, but said some of her friends did.

“He’s ruined millions of lives,” she said. “He’s caused friends of mine to lose their life savings.”

A number of lawsuits seeking class-action status have been filed against Mr. Bankman-Fried in the United States.

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