December 10, 2023

Follow our live coverage of the arrest of FTX founder Sam Bankman-Fried.

Sam Bankman-Fried, founder of collapsed cryptocurrency exchange FTX, was arrested in the Bahamas on Monday after U.S. prosecutors filed criminal charges.

“SBF was arrested after receiving formal notification from the United States, which has filed criminal charges against SBF and may seek his extradition,” the Bahamian government said in a statement.

The arrest is the latest stunning development in one of the most high-profile falls from grace in recent corporate history. Mr. Bankman-Fried, 30, was due to testify before Congress on Tuesday about the collapse of FTX, one of the most powerful firms in the nascent cryptocurrency industry until almost overnight last month after a deposit run at $8 was exposed. Crash a billion-dollar accounting loophole.

The U.S. Attorney for the Southern District of New York confirmed that Mr. Bankman-Fried was indicted and said an indictment would be released Tuesday. Separately, the SEC said in a statement that it had authorized charges against “Mr. Bankman-Fried for violations of our nation’s securities laws.”

The criminal charges against Mr. Bankman-Fried include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering, a person familiar with the matter said.

Mr. Bankman-Fried, the only person charged in the indictment, has been detained by Bahamian authorities, the person said. He was arrested shortly after 6 p.m. at his apartment complex in the Albany resort in the Bahamas, according to a statement from Bahamas police. It is unclear when Mr. Bankman-Fried may be transferred to the United States. While the Bahamas has an extradition treaty with the United States, the process can take weeks, sometimes longer if the criminal defendant contests it.

Mr. Bankman-Fried was cooperative in the arrest and will be held overnight in a cell at the police station, according to a person familiar with the matter. He is scheduled to appear in District Court in Nassau, the capital of the Bahamas, on Tuesday.

A spokesman for Mr. Bankman-Fried declined to comment. Nicholas Bias, a spokesman for the U.S. Attorney’s Office, also declined to comment.

“Earlier this evening, authorities in the Bahamas arrested Samuel Bankman-Fried at the request of the United States government pursuant to a sealed indictment,” Damian Williams, U.S. Attorney for the Southern District of New York, said in a statement. said in a statement. “We expect to open the indictment in the morning and there will be more to say at that time.”

Once the golden boy of the cryptocurrency industry and a major Democratic donor, Mr. Bankman-Fried watched his sprawling business and political empire crumble with alarming speed. His exchange filed for bankruptcy last month, and his personal fortune has shrunk to almost nothing. While he was once hailed as a modern-day John Pierpont Morgan, he is now more often compared to Bernie Madoff, who masterminded the largest Ponzi scheme in history.

Lawyers involved expressed surprise at the suddenness of the arrest. Mr. Bankman-Fried is widely expected to face criminal charges. But complex white-collar fraud cases can take months to develop. Before his arrest, Mr. Bankman-Fried was scheduled to testify remotely about the FTX debacle at a hearing before the House Financial Services Committee on Tuesday. The hearing will continue without Mr. Bankman-Fried’s testimony.

“The American public deserves to hear directly from Mr. Bankman-Fried about actions that have harmed more than a million people,” Rep. Maxine Waters, D-Calif., chair of the committee, said in a statement. “The public has been eagerly awaiting these answers under oath in Congress, and the timing of this arrest robs them of that opportunity.”

The speed at which authorities filed criminal and civil charges suggested that prosecutors and regulators had obtained information from cooperating witnesses, several people familiar with the investigation said.

Mr. Bankman-Fried has been facing scrutiny from dozens of regulators around the world, including the Justice Department, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. Prosecutors in Manhattan have been examining whether FTX broke the law by moving billions of client funds to Alameda Research, the crypto hedge fund founded and owned by Mr. Bankman-Fried.

They also focused on whether Mr. Bankman-Fried and his hedge fund were involved in the market manipulation that may have brought down two prominent cryptocurrencies last spring.

Since the collapse of FTX, the SEC and federal prosecutors have moved quickly to request documents from various parties, including some large financial firms that invested as much as $2 billion in the cryptocurrency exchange starting last year, two people familiar with the matter said.

It is unclear whether federal authorities are considering charging anyone else for the FTX debacle. It is not uncommon for SEC civil actions to disclose more information about the events leading up to the charges than indictments.

FTX’s debacle began early last month when a deposit run revealed an $8 billion hole in the company’s finances. Mr. Bankman-Fried sought lifelines from a rival firm, cryptocurrency exchange giant Binance, but the deal fell through after Binance reviewed FTX’s books.

Mr. Bankman-Fried quickly became a villain in the crypto industry. Hundreds of thousands of customer funds are trapped on FTX, with little hope of recovering funds in the short term.

Surprisingly for an executive facing a criminal investigation, Mr. Bankman-Fried gave numerous media interviews after FTX collapsed. At the New York Times’ recent DealBook Summit, he blamed “colossal management lapses” and sloppy accounting for the company’s implosion, insisting he “never attempted to commit fraud” or knowingly used FTX clients’ funds to finance other transactions. invest.

When FTX filed for bankruptcy, Mr. Bankman-Fried resigned as CEO. He is replaced by John Ray, a seasoned corporate turnaround specialist who oversaw the dissolution of energy trading company Enron after a 2001 accounting scandal.

In last month’s bankruptcy filing, Mr. Ray said FTX’s management reflected a “complete failure of corporate control.”

Mr. Wray is also scheduled to testify before the House of Representatives on a prepared statementhe said FTX is a mess.

The collapse, he wrote, stemmed from “the absolute concentration of control in the hands of a handful of deeply inexperienced and naive individuals.”

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