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Sam Bankman-Fried charged: What charges is FTX founder SBF facing and do they carry a jail term?

By Darius McQuaid


Updated

CEO of FTX Sam Bankman-Fried testifies during a hearing before the House Financial Services Committee at Rayburn House Office Building on Capitol Hill 8 December 2021 in Washington, DC
The chair of the SEC said that SBF had built a “house of cards” in FTX - Photo: Getty Images

Sam Bankman-Fried, founder and former CEO of the collapsed crypto exchange FTX, is expected to enter a “not guilty” plea to charges that he cheated investors and looted billions of dollars through FTX.

The cryptocurrency exchange filed for bankruptcy on 11 November 2022, and Bankman-Fried was arrested in the Bahamas just over a month late. After he was extradited to the United States, a source familiar with the matter has said he would enter a “not guilty” plea at 2pm EST (19:00 GMT) before US District Judge Lewis Kaplan in Manhattan on 3 January 2023.

A lawyer for Bankman-Fried did not immediately reply to Reuters’ request for comment.

Bankman-Fried is accused of illegally using FTX customer deposits to support the quantitative crypto trading firm Alameda Research, which he also founded, as well as buying real estate and providing millions of dollars in political contributions.

It is possible for defendants to change their plea at a later date, even if they originally pleaded not guilty.

Bankman-Fried was released on a $250m bond package while he awaited fraud charges. The bond was signed by Bankman-Fried’s parents who have agreed to keep him under house arrest in California where they live. Bankman-Fried’s parents posted the equity in their home as assurance for SBF’s return to court on 3 January 2023.

The former FTX CEO has been charged with two counts of wire fraud and six conspiracy counts, including to launder money and commit campaign finance violations, which could result in 115 years in prison if convicted.

Under Bankman-Fried, FTX donated millions to both the Democratic and Republican parties in the United States.

Caroline Ellison, who was Alameda's chief executive, and Gary Wang, FTX's former chief technology officer, have pleaded guilty to seven and four criminal charges, respectively, and agreed to cooperate with prosecutors.

Bankman-Fried was arrested on 12 December 2022 by the Royal Bahamas Police Force following a “formal notification by the US that it has filed criminal charges against SBF and is likely to request his extradition”.

Also on 13 December Bankman-Fried was formally charged by the US Securities and Exchange Commission (SEC). SEC chair Gary Gensler said the “alleged fraud” committed by Bankman-Fried was a “clarion call to crypto platforms that they need to come into compliance with our laws”.

The Prime Minister of the Bahamas, Philip Davis, announcing Bankman-Fried’s arrest, said: “The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law.

ETH/USD

3,648.30 Price
+13.960% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

XRP/USD

0.54 Price
+4.370% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.16 Price
+6.150% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

BCH/USD

509.50 Price
+4.180% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

“While the United States is pursuing criminal charges against SBF individually, the Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere.”

In the US, wire fraud can result in 20 years’ imprisonment, securities fraud 25 years and money laundering 20 years.

BTC to USD

‘House of cards’

The news of Bankman-Fried’s arrest came the day before that formal charges were brought against him by the SEC.

According to an SEC statement, Bankman-Fried has been charged with orchestrating a scheme to defraud equity investors in FTX Trading Ltd (FTX), the crypto trading platform of which he was the CEO and co-founder.

Bankman-Fried has been charged under the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

The SEC said investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct were ongoing.

SEC chair Gary Gensler said: “We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.

“The alleged fraud committed by Mr Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business.

“It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s enforcement division is ready to take action.”

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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