Dec 12 (Reuters) – Sam Bankman-Fried, who founded and ran FTX until a liquidity crisis forced the cryptocurrency exchange to file for bankruptcy last month, was arrested in the Bahamas on Monday after being criminally charged by US prosecutors.
It marks a stunning fall from grace for the 30-year-old businessman who rode a cryptocurrency boom to create one of the world’s largest cryptocurrency exchanges and a net worth Forbes pegged a year ago at $26.5 billion.
The exchange, launched in 2019 and based in the Bahamas, filed for bankruptcy on Nov. 11 after struggling to raise money to avoid collapse as traders rushed to withdraw $6 billion of the platform in just 72 hours.
The Bahamas attorney general’s office said it made the arrest after receiving formal confirmation of the charges against Bankman-Fried, adding that it expected him to be extradited to the United States.
A statement from Bahamas police said Bankman-Fried was arrested shortly after 6:00 p.m. (23:00 GMT) on Monday at his apartment complex, located in Albany, Nassau, in the Bahamas.
“He was arrested in connection with various financial crimes against the laws of the United States, which are also crimes against the laws of the Commonwealth of the Bahamas,” the statement said, adding that he was taken into custody without incident and will appear in the Court of First Instance of Nassau on Tuesday.
A spokesman for the U.S. attorney’s office in Manhattan confirmed that Bankman-Fried had been arrested in the Bahamas, but declined to comment on the charges.
“Earlier this afternoon, Bahamian authorities arrested Samuel Bankman-Fried at the request of the US government, based on a sealed indictment filed by the US Attorney’s Office for the Southern District of New York,” US Attorney Damian Williams said in a statement. “We expect to move to reveal the indictment in the morning and will have more to say at that time.”
Mark Cohen, an attorney for Bankman-Fried, did not immediately respond to a request for comment.
Bankman-Fried’s indictment by US authorities comes as the Department of Justice is considering charges against a much bigger player in the crypto world, Binance, the industry’s leading exchange.
Reuters reported on Monday that some Justice Department prosecutors believe they have gathered enough evidence in their long-running investigation into Binance to indict the company and some top executives. A Binance spokesperson told Reuters in relation to the story: “We have no insight into the inner workings of the US Department of Justice, nor would it be appropriate for us to comment if we did.”
Binance is under investigation for possible money laundering violations and sanctions, Reuters has reported. Others in the department have argued that they are taking time to review more evidence, four people familiar with the matter told Reuters.
The arrest also came a day before Bankman-Fried’s scheduled appearance before US lawmakers on Tuesday, where she was scheduled to testify via video link.
The U.S. House Financial Services Committee was scheduled to hear from Bankman-Fried and current FTX CEO John Ray during the first of a series of hearings to examine FTX’s collapse from from 10:00 ET (1500 GMT).
INVESTIGATIONS
FTX’s liquidity crisis occurred after Bankman-Fried secretly moved $10 billion of FTX client funds to its proprietary trading firm, Alameda Research, Reuters reported, citing two people familiar with the matter. At least $1 billion in client funds were gone, the people said.
Bankman-Fried told Reuters the company did not “secretly transfer” but instead misinterpreted its “confusing internal labelling”. Asked about the missing funds, he replied: “???”
In a series of interviews and public appearances in late November and December, Bankman-Fried acknowledged mistakes in risk management but tried to distance herself from the fraud allegations, saying she never knowingly commingled the funds of the customers in FTX with the funds in Alameda.
“I never tried to commit fraud,” Bankman-Fried said in a Nov. 30 interview at the New York Times’ Dealbook Summit, adding that she personally does not believe she bears any criminal responsibility.
Bankman-Fried resigned as CEO of FTX on the same day of the bankruptcy filing.
The U.S. attorney’s office in Manhattan, led by veteran securities fraud prosecutor Williams, in mid-November began investigating how FTX handled client funds, a source with knowledge of the investigation told Reuters.
The Securities and Exchange Commission and the Commodity Futures Trading Commission also opened investigations.
US crypto investors also sued Bankman-Fried, alleging that he and a slew of celebrities who promoted FTX engaged in deceptive practices, leaving investors with $11 billion in damages.
The demise of FTX marked the latest upheaval for the cryptocurrency industry this year. The global crypto market has collapsed amid a series of strikes that have brought down other key players, including Voyager Digital and Celsius Network.
Reporting by Jasper Ward in Washington, Luc Cohen in New York and Brian Ellsworth in Miami; Edited by Megan Davies and Lincoln Feast
Our standards: the Thomson Reuters Trust Principles.
Luc Cohen
Thomson Reuters
Reports on New York Federal Courts. He previously worked as a correspondent in Venezuela and Argentina.