New York CNN —
Sam Bankman-Fried, the founder of failed crypto exchange FTX, was arrested in the Bahamas on Monday after US prosecutors filed criminal charges against him, according to a statement from the government of the Bahamas.
The Southern District of New York, which is investigating Bankman-Fried and the collapse of FTX and its sister trading firm Alameda, confirmed his arrest on Twitter.
“Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the US government, based on a sealed indictment filed by the SDNY,” wrote US attorney Damian Williams. “We expect to move to unseal the indictment in the morning and will have more to say at that time.”
Known as “SBF,” Bankman-Fried is a crypto celebrity who became a pariah overnight as his company suffered a liquidity crisis and filed for bankruptcy last month, leaving at least a million depositors unable to access their funds.
A representative for Bankman-Fried’s legal team didn’t immediately respond to CNN’s request for comment.
Shortly after the SDNY confirmed his arrest, the Securities and Exchange Commission said it had authorized separate charges relating to Bankman-Fried’s “violations of securities laws,” which will be filed publicly on Tuesday.
It’s unclear what charges await Bankman-Fried, the 30-year-old crypto celebrity who became a pariah overnight last month as his company suffered a liquidity crisis and filed for bankruptcy, leaving at least a million depositors unable to access their funds.
The New York Times, citing a person familiar with the matter, reported that the charges against Bankman-Fried included wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering.
The United States’ extradition treaty with the Bahamas allows US prosecutors to return defendants to American soil if the charges would be considered punishable by imprisonment of at least a year in both jurisdictions.
In the four weeks since FTX filed for bankruptcy, Bankman-Fried has sought to cast himself as a somewhat hapless chief executive who got out over his skis, denying accusations that he defrauded FTX’s customers.
“I didn’t knowingly commit fraud,” he told the BBC over the weekend. “I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was.”
Bankman-Fried was scheduled Tuesday to appear virtually before the US House Financial Services Committee, which is demanding answers about how the company came crashing down, ricocheting throughout the digital asset ecosystem. Several crypto companies have halted operations, freezing customer accounts and in some cases filing for bankruptcy themselves because of their exposure to FTX.
After his arrest, Rep. Maxine Waters, chairwoman of the committee, said Bankman-Fried would no longer give testimony as scheduled Tuesday. The hearing was set to move ahead, however, beginning with testimony from FTX’s new CEO, John J. Ray III, who took over for Bankman-Fried on November 11 and is tasked with shepherding it through the bankruptcy process.
“While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow, we remain committed to getting to the bottom of what happened,” Waters said in a statement Monday night.
Ray has so far painted a picture of a crypto empire with virtually no corporate controls and a shocking lack of financial and other record-keeping.
“The scope of the investigation underway is enormous,” Ray said in prepared remarks released Monday ahead of his testimony.
While the probe isn’t completed, Ray said, FTX’s collapse appears to stem from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to implement virtually any corporate controls.
Ray also states as fact that “customer assets from FTX.com were commingled with assets from the Alameda trading platform.” That’s a key issue for investigators, as FTX and Alameda were, on paper, separate entities.
SBF’s denials
Bankman-Fried has denied knowingly commingling funds and sought to distance himself from the day-to-day management of Alameda, which made a number of high-risk trading strategies such as arbitrage and “yield farming,” aka investing in digital tokens that pay interest-rate-like rewards, according to reporting from The Wall Street Journal.
He has admitted to mismanaging FTX and not paying enough attention to risk.
“Look, I screwed up,” he said at the New York Times’ DealBook Summit late last month. “I was CEO of FTX…I had a responsibility.”
Bankman-Fried also acknowledged the lack of corporate controls and risk management within the businesses he oversaw.
“There was no person who was chiefly in charge of positional risk of customers on FTX,” Bankman-Fried told DealBook. “And that feels pretty embarrassing in retrospect.”
One of the key questions about FTX’s collapse stems from a Reuters report last month that says Bankman-Fried built a “backdoor” into FTX’s accounting system, allowing him to alter the company’s financial records without tripping accounting red flags. The report said Bankman-Fried used this “backdoor” to transfer $10 billion in FTX customer funds to Alameda, the hedge fund, and at least $1 billion is now missing.
Bankman-Fried has denied knowledge of any such backdoor. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.
As an expert in the field of cryptocurrency and blockchain technology, I bring a wealth of knowledge and experience to analyze and discuss the recent developments surrounding Sam Bankman-Fried and the collapse of FTX and its sister trading firm Alameda.
Firstly, it's crucial to establish the credibility of the information presented. The arrest of Sam Bankman-Fried in the Bahamas, as reported by CNN, is a significant event that reflects the intersection of the cryptocurrency industry with legal and regulatory challenges. The Southern District of New York's involvement in investigating the collapse of FTX and Alameda adds a layer of seriousness to the situation.
The Securities and Exchange Commission's announcement of separate charges related to violations of securities laws highlights the multifaceted nature of the legal issues faced by Bankman-Fried. The anticipation of unsealing the indictment and the mention of wire fraud, securities fraud, and money laundering charges, as reported by The New York Times, underscore the severity of the allegations.
The extradition treaty between the United States and the Bahamas, allowing the return of defendants to American soil, demonstrates the global reach of legal actions in the cryptocurrency space. This legal framework enables authorities to pursue individuals involved in financial crimes across borders.
The scheduled appearance of Sam Bankman-Fried before the US House Financial Services Committee further underscores the impact of FTX's collapse on the broader digital asset ecosystem. The freezing of customer accounts, the filing for bankruptcy by some crypto companies with exposure to FTX, and the subsequent investigation reveal the interconnected nature of the cryptocurrency market.
John J. Ray III, the new CEO of FTX, has shed light on the lack of corporate controls and financial record-keeping within the company, pointing to a potential root cause of the collapse. The commingling of customer assets from FTX.com with those from the Alameda trading platform, despite being separate entities on paper, raises questions about the integrity of FTX's operational structure.
Sam Bankman-Fried's denials and attempts to distance himself from day-to-day management while admitting to mismanagement and lack of attention to risk add complexity to the narrative. The allegation that Bankman-Fried built a "backdoor" into FTX's accounting system, allowing the transfer of funds to Alameda, is a serious claim that he vehemently denies, citing his lack of coding knowledge.
In summary, the unfolding events surrounding Sam Bankman-Fried and FTX illustrate the challenges and risks inherent in the cryptocurrency industry. Legal scrutiny, regulatory compliance, and corporate governance are critical aspects that demand attention to ensure the stability and integrity of crypto platforms and the broader financial ecosystem.
