CEO Sam Bankman-Fried
Bloomberg | Bloomberg | Getty Images
FTX founder Sam Bankman-Fried was arrested by Bahamian authorities Monday evening after the US Attorney for the Southern District of Latest York shared a sealed indictment with the Bahamian government, setting the stage for extradition and U.S. trial for the onetime crypto billionaire at the guts of the crypto exchange’s collapse.
His arrest is the primary concrete move by regulators to carry individuals accountable for the multibillion-dollar implosion of FTX last month.
Before his arrest was announced, Bankman-Fried had been expected to testify virtually before the House Financial Services Committee on Tuesday, but his attorneys told CNBC that he won’t appear. Rep. Maxine Waters, D-Calif., who oversees that committee, said that she was “surprised” at his arrest, and dissatisfied that Congress wouldn’t give you the chance to listen to from him on Tuesday.
Damian Williams, the U.S. Attorney for the Southern District of Latest York, said on Twitter that the federal government anticipated moving to “unseal the indictment within the morning.” The costs include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering, based on the Latest York Times, citing an individual acquainted with the matter.
Meanwhile, the Securities and Exchange Commission has initiated a separate set of charges against Bankman-Fried, regarding “violations of our securities laws, which will probably be filed publicly tomorrow within the Southern District of Latest York,” enforcement director Gurbir Grewal said in a press release.
Bahamas Attorney General Ryan Pinder said that the US was “more likely to request his extradition.” The Royal Bahamas police force confirmed his arrest and said he would seem in magistrate court in Nassau on Tuesday.
In a press release, Bahamian Prime Minister Philip Davis said, “The Bahamas and the US have a shared interest in holding accountable all individuals related to FTX who could have betrayed the general public trust and broken the law.”
“While the US is pursuing criminal charges against SBF individually, The Bahamas will proceed its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the US and elsewhere,” continued the statement.
Bahamian regulators and FTX’s attorneys had been engaged in a bruising battle in chambers and within the court of public opinion. Earlier Monday, FTX attorneys accused the Bahamian government of allegedly working with Bankman-Fried to spirit away FTX assets from company control and into crypto wallets controlled by Bahamian regulators.
Bankman-Fried’s arrest by Bahamas law enforcement, in addition to his expected extradition, suggest that close cooperation between the Bahamas and the U.S. will proceed to evolve throughout the bankruptcy proceedings. The Bahamas and the US have had an extradition treaty in place because the early twentieth century, when the Bahamas was still under British control. The present treaty was signed in 1990 and requires that the requesting party provide an arrest warrant issued by a judge or “other competent authority.”
In November, FTX and its affiliates filed for bankruptcy and Bankman-Fried stepped down from his role as CEO. The crypto trading firm imploded in spectacular fashion following a run on assets much like a bank run.
FTX’s collapse was precipitated when reporting from CoinDesk revealed a highly concentrated position in self-issued FTT coins, which Bankman-Fried’s hedge fund Alameda Research used as collateral for billions in crypto loans. Binance, a rival exchange, announced it might sell its stake in FTT, spurring a large withdrawal in funds. The corporate froze assets and declared bankruptcy days later. Reports later claimed that FTX had commingled customer funds with Bankman-Fried’s crypto hedge fund, Alameda Research, and that billions in customer deposits had been lost along the best way.
Bankman-Fried was replaced by John J. Ray III, who had overseen Enron’s bankruptcy. Ray can be scheduled to testify before Congress this week. In prepared remarks released Monday, Ray said that FTX went on a “spending binge” from late 2021 through 2022, when roughly “$5 billion was spent buying a myriad of companies and investments, a lot of which could also be value only a fraction of what was paid for them,” and that the firm made greater than $1 billion in “loans and other payments…to insiders.”
Ray also confirmed media reports that FTX customer funds were commingled with assets from Alameda Research. Alameda used client funds to do margin trading, which exposed them to massive losses, Ray said.
Legal experts told CNBC that if the federal government pursues wire or bank fraud charges, Bankman-Fried could face life in prison without the potential of supervised release. Such a severe punishment could be unusual but not extraordinary. Ponzi scheme mastermind Bernie Madoff was sentenced to 150 years in prison, an efficient life sentence, for his massive ponzi scheme. FTX’s collapse has already triggered the demise of BlockFi Lending, and has thrown your entire space into disarray.
