Former FTX boss Bankman-Fried arrested in the Bahamas after the US has filed charges

Dec. 12 (Reuters) – (Editor’s note: This story contains language in section 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, a day before he was to testify before Congress about the sudden failure last month of one of the world̵[ads1]7;s largest cryptocurrency exchanges.

The arrest marks a stunning fall from grace for the 30-year-old entrepreneur widely known by the initials SBF, who rode a boom in bitcoin and other digital assets to become a multi-billionaire until FTX’s swift demise.

The exchange, which launched in 2019 and is based in the Bahamas, filed for bankruptcy on Nov. 11 after it struggled to raise cash to stave off collapse as traders rushed to withdraw $6 billion from the platform in just 72 hours. Since then, it has emerged that Bankman-Fried secretly used $10 billion in client funds to support its trading operations.

The arrest came as Bankman-Fried prepared to lash out at her former attorneys at Sullivan and Cromwell, new FTX chief John Ray and rival exchange operator Binance during a congressional hearing.

In the testimony, a draft copy of which was seen by Reuters, Bankman-Fried planned to say he was pressured by Sullivan and Cromwell’s lawyers to nominate Ray as CEO after the sudden exodus of client funds. And when, within minutes, he changed his mind after an offer of billions of dollars in new funding, 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 that she was surprised to learn of his arrest. Ray’s testimony will continue.

Bankman-Fried was arrested just after 6:00 p.m. Monday (2300 GMT) at his apartment complex, a luxury gated community called Albany, and will appear in a magistrate’s court on Tuesday, Bahamian police said. The Bahamas attorney general’s office said it expects he will 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 charges.

US prosecutors said they had a sealed indictment against Bankman-Fried and the charges will be revealed on Tuesday. The New York Times reported that he is accused of fraud and money laundering. The US Securities and Exchange Commission separately approved charges related to Bankman-Fried’s securities law violations, the regulator said 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 has said that he does not believe he has any criminal responsibility. “I never tried to commit fraud,” Bankman-Fried said in a Nov. 30 interview at the New York Times’ Dealbook Summit.

CRYPTO INDUSTRY RAILWAY

FTX’s demise sent shockwaves through an already battered cryptocurrency industry, which has seen a series of meltdowns this year that have taken down other key players, including Voyager Digital and Celsius Network.

More trouble could be on the horizon for the industry. Reuters reported on Monday that some Justice Department prosecutors believe they have gathered enough evidence in their long-running investigation into Binance to charge the world’s largest cryptocurrency exchange and some top executives.

A spokesperson for Binance told Reuters for the article: “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 steady at $17,150. It is down over 60% this year.

MY CULPA

Since the collapse of FTX, Bankman-Fried has given a series of media interviews apologizing for his mistakes and explaining what happened at the company, which legal experts said could allow prosecutors to point to inconsistencies to undermine his credibility with a jury.

“The defense is going to be completely framed by the previous statements SBF has made and the very sharp questions he has answered in the press and on social media,” said defense attorney and former federal prosecutor Renato Mariotti.

In his written testimony, Bankman-Fried repeated his mea culpa: “I would like to start by formally saying, under oath: I fucked up,” he wrote.

He then launched into an explanation of how things went wrong at FTX and his hedge fund Alameda Research, while criticizing Sullivan and Cromwell and Ray as well as arch-rival Binance for their actions when his firm 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 at the law firm .

Bankman-Fried said less than 10 minutes after signing a document at 4:30 a.m. on Nov. 10 to make Ray CEO of FTX, he received “a potential multibillion-dollar financing offer.” Bankman-Fried said he asked his lawyer to withdraw the CEO appointment a few 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 with help or other information.

Bankman-Fried, who had become a prominent and unconventional figure known for his wild hair, T-shirts and shorts during crypto’s boom, said the fortunes of FTX and his trading firm Alameda plummeted this year as cryptocurrencies crashed amid rising interest rates.

At the end of 2021, he said Alameda had a net asset value of more than $50 billion and manageable debt levels. It became unsustainable as digital assets declined.

“Last year my net worth was valued at $20 billion,” Bankman-Fried wrote. “Last I looked, I think there was about $100,000 in my bank account.”

Reporting by Jasper Ward in Washington, Luc Cohen and Jack Queen in New York, Brian Ellsworth in Miami and Angus Berwick in London; Editing by Megan Davies, Paritosh Bansal and Lincoln Feast

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