Sam Bankman-Fried, FTX’s founder, is arrested in the Bahamas

New York
CNN
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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 Bahamian government statement.

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,” US Attorney Damian Williams wrote. “We expect to move to quash the charges tomorrow and will have more to say at that time.”

Bankman-Fried, was arrested without incident at his apartment complex shortly after 6 p.m. ET Monday in Nassau, and is scheduled to appear in court Tuesday, the Royal Bahamas Police Force said in a statement.

A representative for Bankman-Fried’s legal team did not 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 related to Bankman-Fried’s “securities law violations,” which will be filed publicly on Tuesday.

It is unclear what charges await Bankman-Fried, the 30-year-old crypto celebrity who became an overnight pariah last month when his company suffered a liquidity crisis and filed for bankruptcy, leaving at least one million depositors unable to access their money.

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 U.S. extradition treaty with the Bahamas allows U.S. prosecutors to return defendants to U.S. soil if the charges would be considered punishable by at least one year in prison in both jurisdictions.

In the four weeks since FTX filed for bankruptcy, Bankman-Fried has tried to portray himself as a somewhat hapless CEO who got out, denying accusations that he defrauded FTX’s customers.

“I did not intentionally commit fraud,” he told the BBC at the weekend. “I didn’t want any of this to happen. I was certainly nowhere near as competent as I thought I was.”

Bankman-Fried was due to appear virtually before the US House Financial Services Committee on Tuesday, which is demanding answers about how the company crashed, ricocheting throughout the digital asset ecosystem. Several crypto companies have suspended operations, frozen customer accounts and in some cases filed for bankruptcy themselves due to their exposure to FTX.

After his arrest, Rep. Maxine Waters, chairman of the committee, that Bankman-Fried would no longer testify as scheduled on Tuesday. The hearing was set to go ahead, however, beginning with testimony from FTX’s new CEO, John J. Ray III, who took over for Bankman-Fried on Nov. 11 and is tasked with guiding 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 going on is enormous,” Ray said in prepared remarks released Monday ahead of his testimony.

Although the probe is not complete, 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 question for investigators, as FTX and Alameda were, on paper, separate entities.

Bankman-Fried has denied knowingly commingling funds and sought to distance himself from the day-to-day management of Alameda, which created a series of high-risk trading strategies such as arbitrage and “yield farming,” also known as investing in digital tokens that pay. interest-like rewards, according to reporting from The Wall Street Journal.

He has admitted to mishandling FTX and not taking sufficient account of risk.

“Look, I’ve turned it up,” he said at the New York Times’ DealBook Summit late last month. “I was the CEO of FTX … I had a responsibility.”

Bankman-Fried also acknowledged the lack of corporate controls and risk management in the businesses he oversaw.

“There was no one person primarily responsible for the position risk of clients at FTX,” Bankman-Fried told DealBook. “And it feels pretty embarrassing afterwards.”

One of the key questions about FTX’s collapse stems from a Reuters report last month that said Bankman-Fried built a “backdoor” into FTX’s accounting system so he could change the company’s financial records without tripping up accounting red flags. The report said Bankman-Fried used this “backdoor” to transfer $10 billion in FTX client funds to Alameda, the hedge fund, and that 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.