Image source: The Japan Times
On Monday, the founder and former CEO of bankrupt crypto exchange FTX, Sam Bankman-Fried, was arrested in the Bahamas.
According to a Bahamian government statement, the arrest comes after the order from US prosecutors, which filed criminal charges against him.
The Southern District of New York investigated Sam Bankman-Fried and the collapse of his companies, FTX and Alameda.
The SDNY also confirmed the arrest and announced the news on Twitter.
US Attorney Damian Williams recounted the arrest in a tweet:
“Earlier this evening, Bahamian authorities arrested Samual Bankman-Fried at the request of the US government, based on a sealed indictment filed by the SDNY.”
“We expect to move to unseal the indictment in the morning and will have more to say at that time.”
Sam Bankman-Fried was a cryptocurrency celebrity until early November, when his company faced a liquidity crunch, forcing him to file for bankruptcy.
He quickly became a pariah and left more than a million depositors without access to their money.
On Monday night, SBF was arrested without incident in the Bahamas at his apartment complex.
He is expected to show up in court in Nassau on Tuesday, according to a statement from the Royal Bahamas Police Force.
The Securities and Exchange Commission confirmed that it authorized separate charges connecting to Sam Bankman-Fried’s “violations of securities laws.”
It remains to be seen what the founder of FTX, a 30-year-old crypto celebrity and now a crypto pariah, is charged with.
The company struggled with a liquidity crunch that forced it to file for bankruptcy in November.
As a result, millions of FTX customers have lost access to their funds.
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The New York Times wrote about a person familiar with the situation and revealed SBF’s charges, which include:
- Wire fraud
- Wire fraud conspiracy
- Securities fraud
- Securities fraud conspiracy
- Money laundering
The US has an extradition treaty with the Bahamas that allows US prosecutors to bring suspects back to American soil.
The settlement said the charges would be punishable by more than a year in prison in both jurisdictions.
Aftermath of the collapse
Four weeks after FTX filed for bankruptcy, Sam Bankman-Fried had the demeanor of a “hapless” CEO.
He portrayed the role of someone soaring above the sky, denying fraud allegations against FTX customers.
“I didn’t knowingly commit fraud,” said SBF on BBC last weekend.
“I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was.”
Sam Bankman-Fried was scheduled to make a virtual appearance on Tuesday before the US House Financial Services Committee.
The committee asked for answers on how FTX crashed and traversed the digital asset ecosystem.
Due to their involvement with FTX, several cryptocurrency companies have gone bankrupt, frozen client accounts, and ceased operations.
After the arrest, Rep. Maxine Waters, chair of the committee, said SBF was no longer required to testify.
Originally, the hearing was to be supported by testimony from John J. Ray III, the new CEO of FTX.
He took the role from Sam Bankman-Fried on November 11, leading the company through the bankruptcy process.
“While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow,” Waters said in a Monday night statement.
“We remain committed to getting to the bottom of what happened.”
So far, Ray has described a crypto empire as having no corporate oversight and no financial or other records.
“The scope of the investigation underway is enormous,” said Ray in remarks on Monday ahead of his testimony.
While the investigation is still ongoing, the collapse appears to have resulted from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to put corporate control within the company.
According to Ray, SBF mixed client resources from the FTX website with Alameda’s resources.
The revelation is crucial information for investigators because, on paper, FTX and Alameda were separate entities.
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After the collapse, Sam Bankman-Fried denied that he pooled the funds.
He tried to distance himself from Alameda’s day-to-day operations.
The company developed risky trading strategies, including arbitrage and yield farming.
According to a Wall Street Journal report, yield farming invests in digital tokens that pay rewards, including interest.
SBF admitted to mismanaging the company and having little awareness of the risks.
He made a virtual appearance at the New York Times DealBook Summit late last month.
“Look, I screwed up,” said Bankman-Fried during the summit.
“I was CEO of FTX… I had a responsibility.”
Sam Bankman-Fried also admitted there was a lack of corporate and risk management controls in the companies under his watch.
“There was no person who was chiefly in charge of positional risk of customers on FTX,” said SBF.
“And it feels pretty embarrassing in retrospect.”
A November Reuters report raised a crucial question about the incident, claiming SBF had created a “backdoor” into FTX’s accounting system.
It allowed him to change the company’s finances without raising red flags.
According to the report, Bankman-Fried used the backdoor to transfer $10 billion of client funds to Alameda.
As a result, more than $1 billion has gone missing.
However, Sam Bankman-Fried denied knowing anything about the back door.
“I don’t even know how to code,” he said in a November interview with Tiffany Fong.
Sam Bankman-Fried, FTX’s founder, is arrested in the Bahamas