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The founder and former CEO of bankrupt crypto exchange FTX, Sam Bankman-Fried, was arrested in the Bahamas on Monday.
A Bahamian government statement revealed that the arrest came from the orders of US prosecutors who filed criminal charges against him.
The news
The Southern District of New York investigated Sam Bankman-Fried and the FTX and Alameda collapse.
The SDNY also confirmed the arrest, announcing the news on Twitter.
US Attorney Damian Williams made the arrest public 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.”
The arrest
Sam Bankman-Fried was a cryptocurrency celebrity until earlier last month, when his company faced a cash crunch, forcing him to file for bankruptcy.
He quickly became a pariah, leaving over a million depositors without access to their funds.
The FTX founder was arrested in the Bahamas at his apartment complex on Monday night.
According to a statement from the Royal Bahamas Police Force, he will appear in court in Nassau on Tuesday.
The SEC
The Securities and Exchange Commission confirmed it approved separate charges related 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, will be charged for.
The company’s collapse follows a struggle with a cash crunch that forced it to file for bankruptcy in November.
As a result, millions of FTX customers can no longer access their funds.
Read also: Maxine Waters firm on having Sam Bankman-Fried attend hearing
Charges
Writing about a person familiar with the situation, The New York Times revealed SBF’s allegations, which include:
- Wire fraud
- Wire fraud conspiracy
- Securities fraud
- Securities fraud conspiracy
- Money laundering
The United States has an extradition treaty with the Bahamas that allows US prosecutors to return suspects to US soil.
According to the treaty, the charges would carry 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 behavior of a “hapless” CEO.
He acted like someone hovering in the sky, denying allegations of fraud against FTX clients.
“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 scheduled to appear before the US House Financial Services Committee via video call on Tuesday.
The committee demanded answers on the FTX crash and how it traversed the digital asset ecosystem.
Due to their FTX involvement, several cryptocurrency companies have gone bankrupt, frozen client accounts, and gone out of business.
After the arrest, Rep. Maxine Waters, chair of the committee, said SBF was no longer required to testify in court.
Statement
Originally, the hearing was to be supported by testimony from John J. Ray III, the new CEO of FTX.
He assumed Sam Bankman-Fried’s role on November 11 and guided 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 the company as a crypto empire with no 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.
Although investigations are ongoing, the collapse appears to have stemmed from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to entrench control of the company within the company.
According to Ray, SBF mixed client resources from FTX with Alameda.
The revelation is crucial information for investigators since FTX and Alameda were separate entities on paper.
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Denials
After the crash, Sam Bankman-Fried denied pooling the funds.
He has since tried to distance himself from the daily operations of Alameda.
The company allegedly developed risky trading strategies, including arbitrage and yield farming.
According to a Wall Street Journal report, the Yield Farm strategy invests in digital tokens that pay rewards, including interest.
SBF admitted to mismanaging the company and having little awareness of the risks.
Late last month, he made a virtual appearance 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.”
Sam Bankman-Fried also admitted that the companies he oversaw lacked corporate controls and risk management.
“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 crucial question about the incident, saying SBF had created a “backdoor” into FTX’s accounting system.
It allowed him to change the company’s finances without raising the alarm.
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 dollars disappeared.
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.
Reference:
Sam Bankman-Fried, FTX’s founder, is arrested in the Bahamas
