Economy

Sam Bankman-Fried Is Expected to Agree to Extradition to the U.S.

Sam Bankman-Fried, the disgraced cryptocurrency executive, is expected to agree to extradition to the United States, according to a person briefed on the matter, as he faces charges that he orchestrated a yearslong fraud culminating last month in the collapse of his crypto exchange, FTX.

In the United States, Mr. Bankman-Fried, 30, has been charged with using his customers’ FTX deposits to make lavish real estate purchases, invest in other companies and donate funds to politicians. Mr. Bankman-Fried was arrested last Monday at his luxury apartment complex in the Bahamas. After being held overnight in a police cell, he was denied bail by a judge in the Bahamas on Tuesday and transferred to the island’s notorious Fox Hill prison.

In court on Tuesday, Mr. Bankman-Fried said he wouldn’t waive his right to challenge the extradition. But after a few days in prison, he’s now inclined to go along with the extradition, though his decision could still change, according to the person briefed on the matter, who requested anonymity to discuss sensitive legal deliberations. He is expected to state his new position at a court hearing as early as Monday, the person said.

An extradition sets up what will likely become a monthslong legal drama in the United States. On Tuesday, prosecutors for the Justice Department’s Southern District of New York unsealed a 13-page criminal indictment, charging Mr. Bankman-Fried with eight counts, including wire fraud against customers and lenders, as well as conspiracy to defraud the United States.

Once he is transferred to the United States, Mr. Bankman-Fried will be arraigned in federal court in Manhattan and have a new bail hearing.

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.

After the charges were filed, Mark Cohen, a lawyer for Mr. Bankman-Fried, said his client was “reviewing the charges with his legal team and considering all of his legal options.”

The news that Mr. Bankman-Fried was expected to agree to extradition was first reported by Reuters.

The collapse of FTX was an extraordinary fall for Mr. Bankman-Fried, a crypto celebrity who testified in front of Congress and was at the forefront of an effort to make the technology mainstream.

He founded FTX in Hong Kong but moved the company to the Bahamas in late 2021, capitalizing on the country’s friendly regulatory posture toward crypto. He also marketed the company aggressively in the United States: His face was plastered on advertisements, and he rubbed shoulders with actors and star athletes, cultivating a reputation as a hard-working do-gooder who intended to donate his vast wealth to charity. For a while, he was widely thought to be the second richest crypto industry mogul.

Even as other crypto firms struggled this year, FTX was viewed as a responsible company in a freewheeling, loosely regulated industry. That changed in early November, when a run on deposits revealed an $8 billion hole in the company’s accounts, forcing the exchange to file for bankruptcy on Nov. 11. Its collapse has rocked the industry, sending crypto prices spiraling and forcing one other major crypto company, the lender BlockFi, to file for bankruptcy.

Mr. Bankman-Fried resigned the day of FTX’s bankruptcy filing. He was replaced by John Jay Ray III, a lawyer who specializes in restructuring troubled companies. In bankruptcy filings and testimony to Congress, Mr. Ray has harshly criticized Mr. Bankman-Fried’s management, calling it a “complete failure of corporate control.”

In the early 2000s, Mr. Ray oversaw the unwinding of Enron, the energy trading firm that collapsed in an accounting scandal. But he said in a court filing that the mess at FTX was the worst he had ever seen.

The Fox Hill correctional center in the Bahamas, where Mr. Bankman-Fried has been held since he was denied bail.Credit…Eva Marie Uzcategui for The New York Times

Since he was denied bail in the Bahamas, Mr. Bankman-Fried has been held at the Fox Hill correctional center in Nassau, the country’s capital, in a room with five other people.

Known among locals as “Fox Hell,” the prison has been widely criticized for its harsh conditions. Running water inside the prison is sparse, beatings from guards are common and inmates sometimes defecate in buckets, according to former prisoners, family members of inmates and a U.S. State Department report.

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.

A former Fox Hill prisoner released last year, Sean Hall, said he was briefly incarcerated in maximum security, where he was crammed into a cell no wider than his wingspan with five other inmates. They slept on metal bunk beds without mattresses, he said, and woke up covered in bug bites.

“It’s no living condition for no type of living being,” Mr. Hall said.

Doan Cleare, the prison’s head administrator, declined to allow a New York Times reporter and photographer to enter the prison grounds. He wouldn’t give many details on Mr. Bankman-Fried’s condition, except to say that the FTX founder was in the medical facility for reasons that couldn’t be specified. He described the medical facility as a “dorm-style apartment.”

“There’s no preferential treatment,” Mr. Cleare said, noting that the prison is undergoing renovations to improve conditions.

Mr. Bankman-Fried’s parents, the Stanford Law School professors Joe Bankman and Barbara Fried, visited the prison on Thursday, dropping off clothes and medicine, according to a person familiar with the matter.

They also deposited money in Mr. Bankman-Fried’s commissary account, Mr. Cleare said, but were not permitted to see their son.

Sean Hall, a former Fox Hill prisoner released last year, said he was briefly held in maximum security. “It’s no living condition for no type of living being,” he said.Credit…Eva Marie Uzcategui for The New York Times

Royston Jones, Jr. and Amanda Holpuch contributed reporting.

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