One month after FTX, the No. 2 crypto exchange worldwide, collapsed amid allegations of self-dealing, police in the Bahamas arrested its co-founder and former CEO, Sam Bankman-Fried, at the request of U.S. prosecutors.
In a tweet Monday night, Damian Williams, the U.S. attorney in Manhattan, said Bahamanian officials acted on his office’s request and that prosecutors plan to unseal an indictment Tuesday morning against the 30-year-old entrepreneur.
“While the United States is pursuing criminal charges against SBF individually, the Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX,” the island nation’s office of the attorney general said in a statement.
The office said it will will “promptly” process Bank-Fried’s extradition to the U.S.
Bankman-Fried had been expected to testify before the House Financial Services Committee on Tuesday, but that will not happen now. John Ray, FTX’s court appointed CEO and a restructuring specialist, is expected to testify on what he has described as “an utter failure of corporate controls at every level.”
According to his prepared remarks for the hearing, Ray plans to describe how FTX did not maintain records of its transactions, and “comingled assets” between the exchange and Alameda Research, the crypto hedge fund Bankman-Fried also controlled.
Senior management had access to stored customer assets such as crypto tokens without security controls “to prevent redirecting those assets,” Ray said. He also plans to provide details on how Alameda borrowed funds held at FTX for its own trading or investments “without effective limits” and had a lack of documentation for transactions involving almost 500 investments made with FTX’s assets funds and assets.
The U.S. Securities and Exchange Commission is also expected to file a lawsuit on Tuesday against Bankman-Fried in connection with the criminal case.
Customer to Creditors
The swiftness of criminal action in the FTX case us startling. It was only in early November that the collapse of the exchange rocked the crypto world as one of its most high profile champions filed for bankruptcy and converted up to 1M customers into creditors.
The solvency of FTX and Alameda came under scrutiny after news broke that 40% of the hedge fund’s balance sheet relied on FTX’s homegrown token, FTT. The revelation raised questions about Alameda’s financial position and prompted Binance to announce it was preparing to sell off $500M worth of FTT, which it has acquired as an early investor ion FTX. The move triggered a wave of withdrawals at FTX, leaving it effectively insolvent.
FTX filed for chapter 1d1 bankruptcy and SBF resigned as CEO on Nov. 11 after $10B in customer assets was identified as missing from the platform.
In numerous media interviews, Bankman-Fried has suggested he did not knowingly defraud customers but made honest mistakes.
“Look, I screwed up, I was the CEO of FTX,” he said in a streamed interview with The New York Times on Nov. 30. “I say this again and again, that means I had responsibility. We messed up big.”