by CEO Sam Bankman-Fried
Bloomberg | Bloomberg | Getty Images
FTX founder Sam Bankman-Fried was arrested by Bahamian authorities this evening after the US Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government, setting the stage for the extradition and US trial for former crypto billionaire amid cryptocurrency exchange crash.
Bankman-Fried was scheduled to testify before the House Financial Services Committee on Tuesday. His arrest is the first concrete move by regulators to hold people accountable for the multi-billion dollar implosion of FTX last month.
related investment news
Damian Williams, the United States Attorney for the Southern District of New York, said on Twitter that the federal government anticipated moving to “unveil the allegation in the morning.”
Bahamian Attorney General Ryan Pinder said the United States “will likely seek his extradition.”
In a statement, Bahamian Prime Minister Philip Davis said, “The Bahamas and the United States have a common interest in holding accountable all individuals associated with FTX who may have betrayed public trust and broken the law.”
“As the United States individually pursues criminal charges against SBF, the Bahamas will continue its regulatory and criminal investigations into the collapse of FTX, with continued cooperation from law enforcement and regulatory partners in the United States and elsewhere,” the statement continued. .
Regulators in the Bahamas and FTX’s attorneys had been engaged in an uphill battle in chambers and before the court of public opinion. On Monday, FTX lawyers accused the Bahamian government of allegedly working with Bankman-Fried to siphon FTX assets out of the firm’s control and into crypto wallets controlled by Bahamian regulators.
Bankman-Fried’s arrest by Bahamian law enforcement, as well as his expected extradition, suggest that the close cooperation between the Bahamas and the United States will continue to evolve during the bankruptcy proceedings. The Bahamas and the United States have an extradition treaty in place since the early 20th century, when the Bahamas was still under British control. The current treaty was signed in 1990 and requires the requesting party to 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 cryptocurrency trading company has exploded spectacularly following a run on assets similar to a bank run.
FTX’s collapse was precipitated when reports from CoinDesk revealed a highly concentrated position in self-issued FTT coins, which Bankman-Fried hedge fund Alameda Research used as collateral for billions in crypto loans. Binance, a rival exchange, announced it would sell its stake in FTT, spurring a massive withdrawal of funds. The company froze its assets and filed for bankruptcy a few days later. Reports later claimed that FTX had mixed client funds with Bankman-Fried’s cryptocurrency hedge fund, Alameda Research, and that billions in client deposits had been lost along the way.
Bankman-Fried was replaced by John J. Ray III, who had overseen the bankruptcy of Enron. Ray is also expected to testify before Congress this week. In prepared remarks released Monday, Ray said FTX had a “spending binge” from late 2021 to 2022, when an estimated “$5 billion was spent buying myriad assets and investments, many of which could be worth only a fraction of what was paid to them” and that the company made more than $1 billion in “loans and other payments … to insiders”.
Ray also confirmed media reports that FTX client funds were mixed with Alameda Research assets. Alameda used client funds to trade on margin, which exposed them to huge losses, Ray said.
Legal experts told CNBC that if the federal government pursues bank or bank fraud charges, Bankman-Fried could face a life sentence without the possibility of supervised release. Such severe punishment would be unusual but not extraordinary. Ponzi mastermind Bernie Madoff was sentenced to 150 years in prison, an effective life sentence, for his massive Ponzi scheme. The FTX crash has already triggered the demise of BlockFi Lending and has thrown the entire space into chaos.
