Sam Bankman-Fried’s Prosecutors Ask Judge to Tighten Bail Conditions
Federal prosecutors in Manhattan said on Friday that the disgraced cryptocurrency executive Sam Bankman-Fried had tried to contact a potential witness in his criminal case, and they asked a judge to impose new bail conditions limiting his ability to communicate with former colleagues.
In a court filing, the U.S. attorney’s office for the Southern District of New York said Mr. Bankman-Fried sent messages over email and the encrypted messaging app Signal this month to the general counsel of the U.S. arm of FTX, the cryptocurrency exchange he founded. Mr. Bankman-Fried, 30, has been charged with fraud, money laundering and campaign finance violations linked to the implosion of FTX last year.
The communication was “suggestive of an effort to influence Witness-1’s potential testimony,” the filing said. “This is particularly concerning given that the defendant is aware that Witness-1 has information that would tend to inculpate the defendant.”
Prosecutors asked Judge Lewis A. Kaplan, who is overseeing Mr. Bankman-Fried’s case, to prohibit the entrepreneur from contacting current and former FTX employees or using Signal or other encrypted apps to communicate.
A spokesman for Mr. Bankman-Fried did not immediately respond to a request for comment.
Mr. Bankman-Fried built FTX into one of the biggest cryptocurrency exchanges in the world before the company filed for bankruptcy in November. He was arrested in December at his home in the Bahamas, where FTX was based, and then extradited to the United States to face the criminal charges. Judge Kaplan granted him bail under highly restrictive conditions, confining him to his parents’ home near the campus of Stanford University in Northern California.
What to Know About the Collapse of FTX
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.
Mr. Bankman-Fried has pleaded not guilty to the charges against him.
From his home confinement, Mr. Bankman-Fried has entertained visitors, including the author Michael Lewis, who is writing a book about him. He has also started mounting a defense, writing posts on Substack that detail his version of the events leading up to FTX’s collapse.
According to Friday’s filing, Mr. Bankman-Fried wrote to the general counsel of FTX U.S. on Jan. 15, saying he would “really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other.”
Prosecutors said the witness “has firsthand knowledge of the defendant’s conduct during the charged conspiracies” and participated in communications on Signal and the messaging system Slack with a small group of insiders the month that FTX collapsed. Mr. Bankman-Fried has also contacted other current and former FTX employees, according to the filing.
The document does not identify the witness by name. The general counsel of FTX U.S. is Ryne Miller, according to his LinkedIn page.
For much of his tenure at FTX, Mr. Bankman-Fried relied on Signal, which gives people the option to automatically delete messages. According to prosecutors, he also directed employees of FTX and Alameda Research, a hedge fund he founded, to set their communications to automatically disappear after 30 days or less.
The Aftermath of FTX’s Downfall
The spectacular collapse of the crypto exchange in November has left the industry stunned.
- Gaming Markets?: Since FTX imploded, Sam Bankman-Fried denied accusations that he manipulated markets for his companies’ benefit. Cryptocurrency investors disagree.
- Legal Counsel: A judge allowed the law firm Sullivan & Cromwell to continue advising FTX on bankruptcy, after critics complained of a potential conflict of interest between the firm and the exchange.
- Modulo Capital: Not long before FTX collapsed, Mr. Bankman-Fried sent $400 million to this obscure cryptocurrency trading firm, which is now emerging as a crucial part of the federal investigation into the exchange.
- Bankman-Fried’s Bail Negotiations: Intense legal wrangling led to the disgraced crypto mogul paying virtually nothing to live with his parents ahead of his upcoming trial.
“The autodeletion of FTX and Alameda’s Slack and Signal communications has impeded the government’s investigation,” the filing said. “Potential witnesses have described relevant and incriminating conversations with the defendant that took place on Slack and Signal that have already been autodeleted.”
In the court filing, prosecutors said Mr. Bankman-Fried’s use of Signal could obstruct their efforts to determine whether he tried to contact more potential witnesses during his confinement.
“The proposed bail conditions in combination would more effectively prevent the defendant from obstructing justice,” the filing said.
