CEO Sam Bankman Fried
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FTX founder Sam Bankman-Fried was arrested by Bahamian authorities Monday night after the United States Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government, opening the way to the extradition and US trial of the former crypto billionaire at heart. of the collapse of the crypto exchange.
Prior to news of his arrest, Bankman-Fried was scheduled to testify virtually before the House Financial Services Committee on Tuesday. His arrest is the first concrete step by regulators to hold individuals accountable for FTX’s multi-billion dollar implosion last month.
Damian Williams, U.S. Attorney for the Southern District of New York, said on Twitter that the federal government planned to “discover the indictment in the morning”.
Bahamas Attorney General Ryan Pinder said the United States was “likely to seek his extradition”.
In a statement, Bahamas Prime Minister Philip Davis said, “The Bahamas and the United States have a common interest in holding accountable anyone associated with FTX who may have betrayed public trust and broken the law. “.
“While the United States individually pursues criminal charges against SBF, The Bahamas will pursue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners. in the United States and elsewhere,” the statement continued.
Bahamian regulators and FTX lawyers had been engaged in a deadly battle in the chambers and in the court of public opinion. Earlier Monday, lawyers for FTX accused the Bahamian government of allegedly working with Bankman-Fried to move FTX assets away from corporate control and into crypto wallets controlled by Bahamian regulators.
Bankman-Fried’s arrest by Bahamian law enforcement, along with his expected extradition, suggests that close cooperation between the Bahamas and the United States will continue to evolve throughout the bankruptcy proceedings. The Bahamas and the United States have had an extradition treaty since the turn of the 20th century, when the Bahamas was still under British control. The current treaty was signed in 1990 and requires the requesting party to provide a warrant of arrest issued by a judge or “another competent authority”.
In November, FTX and its subsidiaries filed for bankruptcy and Bankman-Fried resigned as CEO. The crypto trading firm imploded dramatically 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 loans cryptographic. Binance, a rival exchange, announced that it would sell its stake in FTT, prompting a massive withdrawal of funds. The company froze assets and declared bankruptcy a few days later. Reports then claimed that FTX mixed client funds with Bankman-Fried crypto hedge fund Alameda Research and billions in client deposits were lost along the way.
Bankman-Fried was replaced by John J. Ray III, who had overseen Enron’s bankruptcy. Ray is also due to testify before Congress this week. In prepared remarks released Monday, Ray said FTX went on a “spending spree” from late 2021 to 2022, when approximately “$5 billion was spent buying up a myriad of businesses and investments, including many may be worth only a fraction of what was paid for them,” and that the company has made more than $1 billion in “loans and other payments…to insiders.”
Ray also confirmed media reports that FTX client funds were commingled with Alameda Research assets. Alameda used client funds for margin trading, which exposed them to massive losses, Ray said.
Legal experts told CNBC that if the federal government pursues wire or bank fraud charges, Bankman-Fried could face life in prison without the possibility of supervised release. Such a severe punishment would be unusual but not extraordinary. Ponzi scheme mastermind Bernie Madoff was sentenced to 150 years in prison, an effective life sentence, for his massive Ponzi scheme. The collapse of FTX has already triggered the demise of BlockFi Lending and has thrown the entire space into disarray.