On Wednesday, Sam Bankman-Fried, the disgraced founder and former CEO of collapsed cryptocurrency exchange FTX, was issued a gag order by a federal judge as part of his bail conditions, restricting him from speaking publicly about his case.
DoJ Drops Two Charges Against FTX Founder Sam Bankman-Fried
The same day, federal prosecutors from the Department of Justice (DOJ) informed Judge Kaplan that they were dropping a campaign finance charge against him. The reason being they failed to obtain permission from the government of the Bahamas for the accusation when SBF was extradited from the island nation in December 2022.
In March, the U.S. Attorney’s Office in Manhattan dropped another charge against SBF on the same grounds. It was alleged that he had paid over $40 million worth of cryptocurrencies in bribes to a Chinese government official in order to unfreeze bank accounts that belonged to Alameda Research – a hedge fund co-founded by the con man.
Bankman-Fried, who served as the CEO of FTX, was arrested after the crypto exchange – valued at $32 billion during its peak – collapsed in November. SBF and his associates mismanaged $8 billion worth of customer and investor assets by siphoning them to sister firm Alameda Research and using them to make speculative investments for personal gains.
FTX, which was once considered the third-largest crypto exchange by trading volume, soon filed for Chapter 11 bankruptcy protection.
The DoJ hit SBF with a slew of charges, accusing him of running a “wide-ranging scheme” to misappropriate billions of dollars in customer funds deposited with FTX while misleading lenders and investors about the financial status of his companies. However, the 31-year-old denied all allegations and pleaded not guilty in his case.
The FTX debacle is considered to be one of the biggest financial frauds in the history of the United States.
U.S. Prosecutors Demand SBF’s Arrest Over Witness Tampering
On Monday, Assistant U.S. Attorney Danielle Sassoon requested the court to imprison Bankman-Fried over allegations of witness tampering. Prosecutors accused him of leaking the diary of his ex-girlfriend and business partner Caroline Elisson to the press.
Elisson, the former CEO of Alameda Research, had reached a plea deal with the DoJ and is expected to testify against SBF at his trial in October.
Sassoon claimed in court that Bankman-Fried attempted to “discredit and intimidate” witnesses in his case, putting their safety at risk. The prosecutor alleged that SBF went on a media tour after the collapse of FTX to save his image while pushing his partners under the bus.
As per the accusations, SBF had been extensively communicating with journalists since his arrest, exchanging 100 emails and 1,000 phone calls. It was revealed that he made 100 phone calls to the New York Times author who wrote an article that involved exerts from Elisson’s diary.
The prosecutor also cited that SBF attempted to destroy all pieces of evidence of his communication with the media by setting up auto-deletion for his calls and messages and using a VPN to subvert monitoring.
Mark Cohen, who is Bankman’s lead attorney, said the defense team has not been given sufficient time to analyze the request to jail him and had only found out about the charge “one minute before the court”.
Cohen also noted that the case was already difficult to work with as it includes 32 million pages of discovery documents involving complex financial transactions. He requested the court not to remand SBF as that would make it “almost impossible” to prepare him for trial in October.
Judge Issues Gag Order Against SBF
Judge Kaplan adjourned the day’s proceedings by giving both sides time until August 3 to prepare a formal presentation to explain their views before the court makes a final ruling on whether to jail the former billionaire.
Kaplan also warned SBF that he should take the case seriously as the government is heavily interested in the issue and imposed a gag order, preventing him from sharing any more information on the case.
The prosecution said they will be submitting their argument before court on Friday and the defense would make their case by August 1. Bankman-Fried is out on bail until then and will remain under house arrest at his parent’s home in Palo Alto, California, where he has been since his extradition from the Bahamas.
Caroline Ellison, a key witness in the case, was charged with conspiracy to commit wire fraud and commodities fraud that eventually led to the collapse of FTX and Alameda Research.
Following her arrest in December, she accepted a guilty plea deal with the DoJ by promising to testify against SBF.
Elisson, along with FTX’s former chief technology officer Gary Wang and former director of engineering Nishad Singh, are the three former members of SBF’s inner circle who pleaded guilty to fraud charges and agreed to cooperate with prosecutors to jail Bankman-Fried.
FTX Seeks $1 Billion in Damage From SBF and Partners
FTX, which is currently under the stewardship of John Ray III after SBF resigned from his position as CEO following its bankruptcy, has filed lawsuits against all four executives, accusing them of making numerous fraudulent transfers that solely benefited them and not the company.
Bankman-Fried and Wang allegedly took out below-market interest loans from Alameda Research that did not require them to provide any collateral. The loans were personally approved by Elisson.
The crypto exchange is seeking $1 billion in damages, an amount that was allegedly misappropriated before FTX went bust. In a bid to reimburse customers and investors, FTX reported in court that it had recovered a total of $7.3 billion in liquid assets.
During a House Financial Services Committee hearing in December, John Ray warned FTX’s clients that a full recovery of their funds was never possible.
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