Sam Bankman-Fried, the co-founder of the cryptocurrency exchange FTX, was ordered to jail on Friday by a federal judge who found him guilty of tampering with witnesses in his upcoming fraud trial.
A pattern of interference
Bankman-Fried, who was arrested in December 2022 on charges of orchestrating a massive crypto fraud scheme, had been out on a $250 million bail package that required him to stay at his parents’ house in Palo Alto, California. However, prosecutors accused him of violating his bail conditions by contacting potential witnesses, using a virtual private network to evade monitoring, and leaking private diary entries of his ex-girlfriend and former business partner, Caroline Ellison, to the New York Times.
Ellison, who pleaded guilty to federal charges in December 2022 and agreed to cooperate with the government, is expected to be a key witness against Bankman-Fried. She was the former chief executive of Alameda Research, a crypto hedge fund that Bankman-Fried allegedly used to siphon funds from FTX and finance risky bets, political donations, and lavish expenses in the Bahamas.
Prosecutors said that Bankman-Fried’s actions were part of a “pattern of witness tampering and evading his bail conditions” that showed he was a danger to the community and a flight risk. They argued that there were no conditions that could assure his compliance and requested that his bail be revoked.
A gag order rejected
Bankman-Fried’s lawyers denied the allegations and claimed that he was exercising his First Amendment right to defend himself and speak with the media. They also said that he needed access to the internet and a computer to review the voluminous discovery documents in preparation for his trial, which is scheduled to begin on October 2. They proposed that he accept a gag order that would prohibit him from making any public statements that could interfere with the case.
However, U.S. District Judge Lewis Kaplan rejected the gag order proposal and sided with the prosecutors. He said that there was probable cause to believe that Bankman-Fried had attempted to tamper with witnesses at least twice and that he had shown a disregard for the court’s orders. He ordered Bankman-Fried’s bail revoked and remanded him to custody until his trial.
Bankman-Fried was handcuffed and escorted out of the courtroom by U.S. marshals. He will be detained at the Metropolitan Detention Center in Brooklyn, a notorious federal jail that has been described as one of the most troubled facilities in the Bureau of Prisons.
A historic fraud case
Bankman-Fried is facing multiple conspiracy and fraud charges for allegedly running one of the biggest financial frauds in U.S. history. According to prosecutors, he used FTX, which was once one of the largest crypto exchanges in the world, as a personal piggy bank and deceived investors, regulators, and auditors about its financial condition. He allegedly transferred billions of dollars from FTX to Alameda Research and other entities without proper authorization or disclosure. He also allegedly manipulated the prices of various cryptocurrencies and engaged in insider trading.
Prosecutors estimate that Bankman-Fried’s scheme caused losses of over $10 billion to investors, creditors, and customers of FTX. They also allege that he used some of the stolen funds to make illegal campaign contributions to several American politicians, including former President Donald Trump and Senator Ted Cruz.
Bankman-Fried has pleaded not guilty to all charges and maintains his innocence. He faces up to 20 years in prison if convicted.