Sam Bankman-Fried, the founder of the defunct cryptocurrency exchange FTX, was arrested by Bahamian authorities on Monday evening after the US Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government. This paves the way for his extradition and trial in the United States.
Bankman-Fried was scheduled to testify online before the House Financial Services Committee on Tuesday before he was arrested, but his lawyers told CNBC that he will not be appearing. His arrest marks the first real action taken by authorities to bring those responsible for last month’s multibillion-dollar collapse of FTX to justice.
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New York’s United States Attorney Damian Williams tweeted that the federal government planned to “unseal the indictment in the morning.” According to the New York Times, which cited a source familiar with the situation, the allegations include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.
U.S. officials have indicated that they are “likely to request his extradition,” according to Bahamas Attorney General Ryan Pinder. His arrest was confirmed by the Royal Bahamas Police Force, and he is scheduled to appear in Nassau Magistrate Court on Tuesday.
Prime Minister Philip Davis of the Bahamas made the following statement: “The Bahamas and the United States have a shared interest in holding responsible all people affiliated with FTX who may have breached the public trust and broken the law.”
Regulatory and criminal investigations into the FTX collapse will continue in The Bahamas, with the ongoing assistance of its law enforcement and regulatory colleagues in the United States and worldwide, the statement said.
A heated battle between Bahamian authorities and FTX’s attorneys has been going on in courtrooms and the court of public opinion. On Monday, FTX’s legal team claimed that the Bahamian government had colluded with Bankman-Fried to transfer the company’s cryptocurrency holdings from its own wallets to those of the government.
The arrest of Bankman-Fried by Bahamian authorities and his likely extradition to the United States are indicative of the continued development of tight cooperation between the two countries throughout the bankruptcy processes. Since the early 20th century, while the Bahamas were still under British administration, the two countries have had an extradition pact in effect. The requesting state must present an arrest warrant issued by a judge or “other competent authority” under the terms of the current treaty, which was signed in 1990.
Bankman-Fried resigned as CEO of FTX in November after the company and its subsidiaries filed for bankruptcy. A similar to a bank run asset run caused the crypto trading firm to implode spectacularly.
As reported by CoinDesk, Bankman-hedge Fried’s fund Alameda Research used self-issued FTT coins as collateral for billions in crypto loans, which contributed to the collapse of FTX. The rival exchange Binance decided to liquidate its holdings in FTT, prompting a large-scale capital evacuation. Days later, the corporation froze its assets and filed for bankruptcy. Later reports suggested that billions in customer deposits had vanished when FTX allegedly mixed their assets with those of Bankman-crypto Fried’s hedge fund, Alameda Research.
John J. Ray III, who oversaw the bankruptcy filing for Enron, succeeded Bankman-Fried. This week, Ray is also expected to speak before Congress. On Monday, Ray released prepared remarks in which he claimed that from late 2021 to early 2022, FTX engaged in a “spending binge,” spending roughly “$5 billion buying a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for,” and paying out more than $1 billion in “loans and other payments…to insiders.”
Ray also revealed to the media that FTX customer cash were mixed in with Alameda Research’s assets. According to Ray, Alameda took on enormous risk by using client funds for margin trading.
Depending on the severity of the charges, Bankman-Fried may be looking at life in prison without the prospect of supervised release if the federal government decides to pursue wire or bank fraud charges against her. A sentence of this severity would be exceptional, though not unheard of. Bernie Madoff, the mastermind of the largest ponzi scheme in history, was given a life sentence (really 150 years) in prison. BlockFi Lending has already died as a result of FTX’s failure, and the entire industry is in shambles.
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