Disgraced co-founder and former CEO of FTX was arrested at his home in Bahamas on Sunday. The U.S Justice Department had filed a criminal indictment to prosecute SBF under accusations of mismanaging and misusing customer funds worth over $10 billion.
Sam Bankman-Fried, the co-founder and ex-CEO of collapsed crypto exchange FTX has been arrested in the Bahamas where his company was headquartered. The arrest comes after the US government filed a criminal indictment against SBF for misusing customers’ assets before his firms FTX and Alameda Research collapsed.
The disgraced founder is currently held in custody of the Royal Bahamas Police Force pending an extradition process at request of the US Attorney’s Office for the Southern District of New York. According to the New York Times, federal prosecutors have charged Bankman-Fried with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.
Sam Bankman-Fried was to testify before the House Financial Services Committee on December 13th regarding the implosion of his crypto empire which included the FTX exchange and market maker / trading firm Alameda Research. However, SBF declined an invite from the US Senate’s Banking Committee for questioning. In a statement given to crypto media outlet Decrypt, the Bahamas Police said the FTX and Alameda Research founder was arrested at his apartment complex in Albany on Sunday.
The crypto exchange had a very complicated business relationship with its sister firm Alameda Research. While FTX was the face of the empire, Alameda was acting as its custodian for all client assets. The market maker which at one point held over $14 billion worth of crypto assets was accused of inflating prices of the company’s native token FTT and selling them to investors. The company also used the funds to pay for promotional campaigns that included endorsements from sports teams and celebrities including NBA team Miami Heats and NFL legend Tom Brady to maintain a good name. Sam Bankman-Fried was also accused of donating over $300,000 to lawmakers who are members of the House Financial Services Committee and the Digital Assets Working Group that were investigating his companies.
However in November when customers got a sniff of their crypto assets being mismanaged by SBF, they tried to withdraw funds from FTX, leading to a bank run on the exchange. Fearing liquidity draining from the platform, FTX froze all crypto assets on the exchange and suspended customer withdrawals. The company then admitted that it did not hold one-to-one reserves of over $10 billion worth of client assets and was forced to file for Chapter 11 bankruptcy protection in the United States.
Long before FTX’s collapse, the once second largest cryptocurrency exchange by trading volume was being investigated by the Complex Frauds and Cybercrime Unit for potential anti-money laundering (AML) violations under the Bank Secrecy Act. Several US federal agencies have opened up investigations into the SBF and his 100-related companies, including the Justice Department (DoJ), SEC, CFTC (Commodities Futures Trading Commission) and a number of US State regulatory agencies.
The Securities and Exchanges Commission (SEC) authorised separate civil charges against Bankman-Fried for his violation of securities laws. SEC’s Enforcement Director Gurbir Grewal gave a statement confirming that the charges will be filed publicly in Manhattan on Tuesday. Moreover, members of the U.S Congress have asked SEC Chairman Gary Gensler to testify about his agency’s handling of and failure to prevent the FTX debacle. Hearings at the Congress and Senate are likely to take place without SBF’s presence.
Despite all the accusations, the ex-CEO has been giving interviews to numerous media outlets and appearing in Twitter Spaces sessions apologising for his mistakes. Recently Bankman-Fried joined the New York Times’ annual DealBook Summit via video call and spoke with columnist Andrew Ross Sorkin, an event also participated in by Ukraine President Vlodymir Zelenski.
If convicted for wire fraud alone, Sam Bankman-Fried faces up to 20-years in prison, and if convicted of all crimes, he could be looking at a life sentence. Justice will finally be served to millions of customers who trusted his companies with their life savings.