by Dec. 12 (Reuters) – (Editor’s note: This story contains language in paragraph 18 that some readers may find offensive)
FTX founder Sam Bankman-Fried was arrested in the Bahamas at the behest of US prosecutors on Monday, the day before he was due to testify before Congress about last month’s abrupt bankruptcy of one of the world’s largest cryptocurrency exchanges.
The arrest marks a stunning fall from grace for the 30-year-old entrepreneur widely known by his initials SBF, who rode a boom in bitcoin and other digital assets to become a multi-billionaire many times over until the swift demise of FTX.
The Bahamas-based exchange, launched in 2019, filed for bankruptcy on Nov. 11 after it struggled to raise funds to avoid collapse as traders scrambled to withdraw $6 billion from the platform in just 72 hours. It has since emerged that Bankman-Fried secretly used $10 billion in client funds to support his business.
The arrest came as Bankman-Fried prepared to lash out at his former lawyers Sullivan and Cromwell, new FTX CEO John Ray and rival exchange operator Binance in a congressional hearing.
In the testimony, a draft of which was seen by Reuters, Bankman-Fried planned to say he was pressured by lawyers for Sullivan and Cromwell to name Ray as CEO following the sudden exodus of client funds. And when he changed his mind within minutes, following an offer of billions of dollars in new financing, he was told it was too late.
Bankman-Fried will now be unable to testify, according to Congresswoman Maxine Waters, who said in a statement she was surprised to hear of his arrest. Ray’s testimony will continue.
Bankman-Fried was arrested shortly after 6pm on Monday (11pm GMT) at his apartment complex, an upscale gated community called Albany, and will appear before a magistrate court on Tuesday, Bahamian police said. The Bahamian attorney general’s office said it expects him to be extradited to the United States.
A spokesman for the US attorney’s office in Manhattan confirmed that Bankman-Fried had been arrested in the Bahamas but declined to comment on the allegations.
US prosecutors said they have a sealed indictment against Bankman-Fried and the charges were reportedly revealed on Tuesday. The New York Times reported that he was accused of fraud and money laundering. The U.S. Securities and Exchange Commission separately cleared allegations of Bankman-Fried’s securities law violations, the regulator said on Monday.
Bankman-Fried and his attorney Mark Cohen did not immediately respond to requests for comment, nor did Sullivan and Cromwell, FTX, Ray and Binance.
Bankman-Fried said he doesn’t think he has any criminal liability. “I’ve never tried to commit fraud,” Bankman-Fried said in a Nov. 30 interview with the New York Times’ Dealbook Summit.
THE CRYPTO INDUSTRY CORE
The demise of FTX has sent shockwaves through an already battered cryptocurrency sector, which has seen a series of crashes this year that brought down other key players including Voyager Digital and Celsius Network.
Other problems may be on the horizon for the industry. Reuters reported on Monday that some Justice Department prosecutors believe they have gathered enough evidence in their lengthy investigation of Binance to indict the world’s largest cryptocurrency exchange and some top executives.
A Binance spokesperson told Reuters for the story, “We have no insight into the inner workings of the US Department of Justice, nor would it be appropriate for us to comment if we did.”
Bitcoin was stable at $17,150. It’s down more than 60% this year.
MY BAD
Since the collapse of FTX, Bankman-Fried has given numerous media interviews apologizing for his mistakes and explaining what happened at the company, something that legal experts say could allow prosecutors to point out inconsistencies to undermine his credibility with a jury. .
“The defense will be fully framed by the previous statements SBF has made and the very incisive questions it has answered in the press and on social media,” said defense attorney and former federal prosecutor Renato Mariotti.
In her written testimony, Bankman-Fried repeated her mea culpa: “Let me begin by formally stating, under oath: I screwed up,” she wrote.
Then, he launched into an explanation of how things went wrong at FTX and its hedge fund Alameda Research, as he criticized Sullivan, Cromwell and Ray as well as arch-rival Binance for their actions as his company imploded.
UNDER PRESSURE
Describing his decision to relinquish his role as CEO of FTX and appoint Ray, Bankman-Fried said he was pressured to do so by Sullivan and Cromwell and the general counsel of FTX’s US unit, who he said was a former attorney of the law firm.
Bankman-Fried said less than 10 minutes after he signed a document at 4:30 on Nov. 10 to name Ray CEO of FTX, he received “a potential billion-dollar funding offer.” Bankman-Fried said he told his attorney to dismiss the CEO appointment minutes later, but was told it was already too late to do so.
Bankman-Fried said he had since been cut off from FTX’s systems and Ray had not responded to his emails offering help or other information.
Bankman-Fried, who had become a prominent and unconventional figure known for his wild hair, T-shirts and shorts during the cryptocurrency boom, said the fortunes of FTX and its Alameda trading firm have declined rapidly this year due to the collapse of cryptocurrencies due to rising interest rates.
As of late 2021, he said Alameda had a net asset value of over $50 billion and manageable debt levels. This has become unsustainable with the decline of digital assets.
“Last year, my net worth was valued at $20 billion,” Bankman-Fried wrote. “Last I saw, I believe my bank account was about $100,000.”
Reporting by Jasper Ward in Washington, Luc Cohen and Jack Queen in New York, Brian Ellsworth in Miami and Angus Berwick in London; Edited by Megan Davies, Paritosh Bansal and Lincoln Feast
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