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Sam Bankman-Fried arrested by Bahamian authority

Sam Bankman-Fried under arrest by Bahamas police

Image source: The Japan Times

Sam Bankman-Fried, the founder and former CEO of bankrupt crypto exchange FTX, was arrested on Monday in the Bahamas.

According to a statement from the Bahamian government, the arrest was made after US prosecutors filed criminal charges against SBF.

The news

The Southern District of New York has been investigating Sam Bankman-Fried and the collapse of FTX and trading firm Alameda.

They were also the ones who confirmed his arrest, sharing the news on Twitter.

US attorney Damian Williams announced the arrest, writing:

“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.”

The arrest

Sam Bankman-Fried was a 30-year-old crypto celebrity until last month when his company faced a liquidity crisis, prompting them to file for bankruptcy.

He quickly became a pariah overnight, leaving over a million depositors locked out and without access to their funds.

SBF was arrested without incident on Monday evening at his apartment complex.

According to a statement from the Royal Bahamas Police Force, he is due to appear in a Nassau court on Tuesday.

The SEC

Following the confirmation of SBF’s arrest, the Securities and Exchange Commission said it authorized separate charges related to Sam Bankman-Fried’s “violations of securities laws.”

What charges await the FTX founder, 30-year-old crypto celebrity, and later crypto pariah remains to be seen.

SBF’s company suffered a liquidity crisis that required them to file for bankruptcy in November.

As a result, millions of depositors are now unable to access their funds.

Read also: Jon Tester, US Senator, remains skeptical of crypto

Charges

According to the New York Times, a person familiar with the matter reported that SBF’s charges include:

  • Wire fraud
  • Wire fraud conspiracy
  • Securities fraud
  • Securities fraud conspiracy
  • Money laundering

The United States has an extradition treaty with the Bahamas, allowing US prosecutors to return defendants to American soil.

The agreement says that the charges would be considered punishable by imprisonment for over a year in both jurisdictions.

Aftermath of the collapse

Four weeks after FTX filed for bankruptcy, Sam Bankman-Fried presented himself as a “hapless chief executive.”

He played the role of someone who got out over his skies, denying accusations of defrauding FTX’s 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.”

House hearing

Sam Bankman-Fried was initially scheduled for a virtual appearance before the US House Financial Services Committee on Tuesday.

The committee was demanding answers about how FTX collapsed, darting across the digital asset ecosystem.

Due to their exposure to FTX, several crypto companies halted operations, froze customer accounts, and even filed for bankruptcy.

Following the arrest, Rep. Maxine Waters, the chairwoman of the committee, announced that SBF would no longer give testimony.

Statement

Initially, the hearing was going to move forward with testimony from John J. Ray III, FTX’s new CEO.

He took over for Sam Bankman-Fried on November 11, shepherding 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 with no corporate controls and a lack of financial and other record-keeping.

“The scope of the investigation underway is enormous,” said Ray in remarks on Monday ahead of his testimony.

Although the probe isn’t completed, the collapse appeared to have come from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to implement any corporate control.

According to Ray, customer assets from the FTX website were mixed with assets from the Alameda trading platform.

The revelation is a crucial issue for investigators as FTX and Alameda were separate entities on paper.

Read also: Dogecoin suffers major losses in overnight plummet

Denials

Since the collapse, Sam Bankman-Fried has denied commingling funds.

He tried to distance himself from the day-to-day management of Alameda.

The company made several high-risk trading strategies like arbitrage and “yield farming.”

According to a report from The Wall Street Journal, yield farming invests in digital tokens that pay rewards like interest rates.

SBF admitted that he mismanaged the company and didn’t pay enough attention to risk.

In late November, he appeared and spoke at the New York Times’ DealBook Summit.

“Look, I screwed up,” said Bankman-Fried during the summit.

“I was CEO of FTX… I had a responsibility.”

Additionally, Sam Bankman-Fried acknowledged the lack of corporate controls and risk management among the businesses he was managing.

“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 Reuters report in November raised a fundamental question about the collapse, saying SBF created a “backdoor” into FTX’s accounting system, allowing him to alter the company’s financial records without triggering accounting red flags.

According to the report, Bankman-Fried used the backdoor to transfer $10 billion in customer funds to the hedge fund Alameda.

As a result, over $1 billion is currently missing.

However, Sam Bankman-Fried denied knowledge of a backdoor.

“I don’t even know how to code,” he said in a November interview with Tiffany Fong.

Reference:

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

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