Bankman-Fried charges showcase U.S. prosecutor’s growing role in crypto enforcement


By Luc Cohen and Chris Prentice

NEW YORK (Reuters) – When he took over as top federal prosecutor in Manhattan at the end of 2021, Damian Williams pledged to prioritize “rooting out corruption in our financial markets.”

Now, with fraud charges filed earlier this week against Sam Bankman-Fried, the founder of the bankrupt FTX exchange, Williams has further solidified his office’s growing role in prosecuting cryptocurrency-related financial crimes, according to interviews with half a dozen former prosecutors.

“Each federal prosecutor is defined in the public eye by some of the most important cases they bring,” said Harry Sandick, a partner at the Patterson Belknap law firm and a former Manhattan federal prosecutor. “This will be forever connected to the current US Attorney.”

The indictment against Bankman-Fried, who was accused of using billions in stolen client funds to buy real estate, pay off debt from his hedge fund, Alameda Research, and donate to political campaigns, places Williams as the main adversary of the high profile businessman. whose fall captured public attention and led to calls for greater regulation of cryptocurrency platforms.

Bankman-Fried, 30, acknowledged risk management flaws at FTX but said he doesn’t believe he bears criminal liability. His attorney said he is evaluating his legal options. On Tuesday, a judge in The Bahamas ordered his detention there while he contests a US extradition request.

Williams led the Southern District of New York (SDNY) Securities and Commodities Task Force before being nominated as Chief District Attorney by President Joe Biden. Williams, SDNY’s first black US attorney, earned his law degree from Yale and worked for former Supreme Court Justice John Paul Stevens, as well as current Attorney General Merrick Garland when Garland was an appeals judge.

Earlier this year, Williams filed the first insider trading cases involving digital assets with charges against a former employee of non-fungible token trading platform OpenSea, as well as a former product manager at Coinbase Global Inc, a rival of FTX.

Both defendants have pleaded not guilty.

SDNY has long been known as one of the strongest enforcers of financial crimes, and some former prosecutors compared Williams’ spate of crypto-related prosecutions to the focus on insider trading by Preet Bharara, who served as a federal prosecutor from 2009 to 2017 and secured the convictions of fund managers like Raj Rajaratnam.

Williams was a prosecutor in several high-profile financial crime cases during Bharara’s tenure, including the insider trading conviction of former Goldman Sachs board member Rajat Gupta and the fraud conviction of a former portfolio manager. at Visium Asset Management LP.

“Cryptocurrency is the Wild West, but at the end of the day, fraud is fraud,” said Mike Ferrara, a former prosecutor and now an attorney at Kaplan Hecker & Fink LLP in New York. “Damian is doing a good job of saying, ‘we’re going to push the envelope on crypto,’ the way Preet was aggressive with insider trading.”

A spokesman for Williams’ office declined to comment.


Pursuing cryptocurrency-related prosecutions is not without its challenges. Defense attorneys may argue that because the industry is relatively new and questions about how it will be regulated are still being resolved, their clients were unclear about how laws designed for traditional finance applied to them.

“The government is having trouble keeping up and making it clear to industry participants what they are supposed to do,” said Elise Maizel, a professor at NYU Law School and a former white-collar defense attorney. “With these criminal cases, most of the time they are regulated by law enforcement.”

In a setback for prosecutors, three former founders of crypto exchange Bitmex and their first employee, who pleaded guilty to charges brought by Williams’ predecessor of failing to establish an anti-money laundering program, earlier this year received more sentences. less than what prosecutors requested.

The judge in that case said that while the crime was serious, prosecutors had not filed more serious charges of money laundering or fraud, and there were no identifiable victims.

To be sure, Williams’ office has also pursued more traditional financial crime cases, with charges filed this year against the founder of Archegos Capital Management for lying to banks to get loans before the company went bankrupt, and against the former head of investments of a unit of the German Allianz SE for inflating the results of the funds.

Both pleaded not guilty.

In the aftermath of Bankman-Fried’s arrest, Williams has made it clear that he will move forward with enforcing cryptocurrency. On Wednesday, he announced wire fraud conspiracy charges against the founders of two separate cryptocurrency mining and trading companies that he called Ponzi schemes.

The five people charged in one of the cases have pleaded not guilty, while the three people charged in the other have yet to plead guilty.

On Tuesday, Williams told reporters that more charges were possible in the FTX investigation.

“This investigation is ongoing and it is moving very fast,” Williams said. “To anyone who has been involved in wrongdoing at FTX or Alameda Research and hasn’t come forward yet, I strongly encourage you to come see us before we do.”

(Reporting by Luc Cohen and Chris Prentice in New York; Editing by Noeleen Walder, Amy Stevens and Matthew Lewis)