The founder of failed cryptocurrency exchange FTX has been arrested in the Bahamas, and federal prosecutors in the United States have filed charges in New York.
“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 Damien Williams wrote in a statement shared on Twitter. “We expect to move to unseal the indictment in the morning and will have more to say at that time.”
Specific charges have not been disclosed. But the Royal Bahamas Police Force said in a news release that Bankman-Fried was arrested in connection with “various financial offenses against the laws of the United States, which constitute offenses against the laws of the Commonwealth of the Bahamas.” Bankman-Fried will appear in local court on Tuesday, the statement said.
FTX was a global company with more than 130 affiliates that allowed individual investors to trade cryptocurrencies, becoming the third-largest exchange by volume. The company’s advertisements featured prominent celebrities, and its logo appeared on NBA stadiums and MLB umpire’s uniforms.
The New York Times and Coindesk first reported this story.
Bankman-Fried was scheduled to appear before Congress Tuesday morning but that appearance will not happen, according to Maxine Waters (D-CA), chairwoman of the House Financial Services Committee.
Waters questioned the timing of the arrest.
“I am shocked to hear that Sam Bankman-Fried has been arrested in the Bahamas at the direction of the United States Attorney for the Southern District of New York,” Waters said. Judgment has begun. However, as the public knows, my staff and I have been working diligently over the past month to secure Mr. Bankman-Fried’s testimony.”
He added: “Although Mr. Bankman-Fried must be held accountable, the American people deserve to hear first-hand from Mr. Bankman-Fried about his actions that harmed over a million people and wiped out their hard-earned life savings. Many. The people under oath before Congress.” These are anxiously awaiting answers, and the timing of this arrest denies the public that opportunity.”
Bankman-Fried said in a recent tweet that he would try to shed light on the reasons for the crypto exchange’s crash and his own failure as a former CEO.
“I still don’t have access to a lot of my data – professional or personal. So there’s a limit to what I’ll be able to say, and I won’t be as helpful as I’d like,” Bankman-Fried said on Twitter. “I’ll try to be helpful during the hearing.”
USA TODAY’s inquiries to Mark Botnick, a spokesman for Bankman-Fried, were not immediately returned. Botnick confirmed earlier in the day that the FTX founder is being represented by white-collar criminal defense attorney Mark S. Cohen, who did not immediately respond to inquiries from USA TODAY.
Bahamian Attorney General Ryan Pinder issued a statement saying Bankman Fried was arrested at 6 p.m. local time is being held “in accordance with our nation’s extradition laws.”
Bahamian Prime Minister Philip Davis said that “the two countries have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law.”
“While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigation into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere,” he said. .
Several news outlets previously reported that FTX is the subject of an investigation by the US Securities and Exchange Commission, which enforces civil regulations, and the US Department of Justice, which could bring criminal charges. State and international regulators have also expressed concern about the company.
Bankman-Fried stepped down as CEO of FTX in early November, and the company filed for bankruptcy when it was unable to pay the exchange to all customers who wanted their money back. The company said more than 1 million people could be affected in the bankruptcy filings.
Yesha Yadav, a law professor at Vanderbilt University in Tennessee, said FTX grew because it attracted average people who wanted to invest in cryptocurrencies but didn’t want to deal with the complicated process of cryptocurrency trading.
A decade ago, Yadav said, crypto traders would have to download special software and then find someone willing to sell their cryptocurrency. On an exchange like FTX, a user places an order and will essentially be given an IOU for the crypto they purchased, she said. “From a user experience, that’s amazing,” she said.
“The reason it was considered so good was that it promised security,” Yadav said. “It promised consumer protection. It promised cutting-edge products without involving some of the risky aspects of crypto.”
John Jay Ray III, a bankruptcy specialist with 40 years of experience who oversaw Enron during its bankruptcy due to accounting fraud, has been serving as the company’s CEO since Bankman-Fried’s resignation.
In written testimony prepared for the House Committee on Financial Services on Tuesday, he wrote that cases involving corporate failures and allegations of criminal activity are very similar, such as “gross mismanagement, excessive leverage, failures of internal controls, failures of external audits. Audit firm failures, or Resulting in inadequate board governance.
He added: “But in my career I have never seen such a complete failure of corporate controls at every level of the organization, from the lack of financial statements to the complete failure of any internal controls or governance.”
Ray is expected to testify before the House Financial Services Committee on Tuesday morning.