Dec. 12 (Reuters) – (Editor’s note: This story contains language in paragraph 18 that some readers may find offensive.)
FTX founder Sam Bankman-Fred was arrested in the Bahamas at the behest of US prosecutors on Monday, the day before he testified before Congress about the sudden failure last month of one of the world’s largest cryptocurrency exchanges.
The arrest marks a stunning drop for the 30-year-old entrepreneur widely known by his initials SBF, who boomed in bitcoin and other digital assets to become a multi-billionaire many times over until FTX’s swift demise.
The exchange, which launched in 2019 and is based in the Bahamas, filed for bankruptcy on November 11 after it struggled to raise funds to avoid collapse as traders scrambled to withdraw $6 billion from the platform in just 72 hours. Since then, it has emerged that Bankman-Fried secretly used $10 billion in customer funds to support his trading business.
The arrest came as Bankman-Fried prepares to attack his former attorneys at Sullivan & Cromwell, new FTX CEO John Ray, and rival exchange Binance in a congressional hearing.
In the affidavit, a draft copy of which was seen by Reuters, Bankman-Fried planned to say he was pressured by attorneys for Sullivan and Cromwell to nominate Ray for CEO after the sudden exodus of client funds. And when he changed his mind within minutes, after being offered billions of dollars in new financing, he was told it was too late.
Bankman-Fried will now not be able to testify, according to Congresswoman Maxine Waters, who said in a statement that she was surprised to hear of his arrest. Ray’s testimony will go ahead.
Bahamas police said Bankman-Fried was arrested shortly after 6 p.m. Monday (2300 GMT) at his apartment complex, a luxury gated apartment complex called Albany, and will appear in Magistrates Court on Tuesday. The Bahamas Attorney General’s office said it expected his extradition to the United States.
A spokesman for the US Attorney’s Office in Manhattan confirmed Bankman-Fried had been arrested in the Bahamas but declined to comment on the charges.
US prosecutors said the indictment against Bankman Fried is sealed and the charges will be released on Tuesday. The New York Times reported that he faces charges of fraud and money laundering. The US Securities and Exchange Commission separately cleared charges related to Bankman-Fried’s violations of securities laws, the regulator said Monday.
Bankman Fried and his attorney Mark Cohen did not immediately respond to requests for comment, nor did Sullivan, Cromwell, FTX, Ray and Binance.
Bankman-Fried said he did not believe he had any criminal liability. “I’ve never tried to commit fraud,” Bankman-Fried said in an interview Nov. 30 at the New York Times’ Dealbook Summit.
bore and roll industry
FTX’s demise sent shockwaves through the already battered cryptocurrency industry, which has seen a series of crashes this year wiping out other major players including Voyager Digital and Celsius Network.
There may be more problems on the horizon for the industry. Reuters reported Monday that some Justice Department prosecutors believe they have gathered enough evidence in their long-running investigation into Binance to indict the world’s largest cryptocurrency exchange and some of its top executives.
“We do not have any insight into the inner workings of the US Department of Justice, and it would not be appropriate for us to comment if we did,” a Binance spokesperson told Reuters about the article.
Bitcoin was flat at $17,150. It’s down more than 60% this year.
Middle East and Africa neglect
Since FTX’s collapse, Bankman-Fried has given numerous media interviews in which he apologizes for his wrongdoings and explains what happened at the company, something legal experts said could allow prosecutors to point out inconsistencies to undermine his credibility with a jury.
“The defense will become completely surrounded by the previous statements made by the SBF and the very crucial questions it answered in the press and on social media,” said criminal defense attorney and former federal prosecutor Renato Mariotti.
In his written testimony, Bankman-Fried reiterated, “I would like to begin by saying solemnly, under oath: I am fed up.”
Then, he began explaining how things went badly at FTX and his Alameda Research hedge fund, while criticizing Sullivan, Cromwell and Ray as well as arch-rival Binance for their actions as his company collapsed.
Bankman-Fried, describing his decision to step down from his role as CEO of FTX and hire Ray, said he was pressured by Sullivan, Cromwell and the general counsel of FTX’s US unit, who he said is a former attorney at the law firm.
Bankman-Fried said that less than 10 minutes after he signed a document at 4.30am on November 10 to make Ray CEO of FTX, he had received a “potential multi-billion dollar funding offer”. Bankman-Fried said he asked his lawyer to rescind the CEO’s appointment after a few minutes, but was told it was already too late to do so.
Bankman-Fried said he has since been cut off from FTX systems and that Ray has not responded to his emails offering help or other information.
Bankman-Fried, who became an iconic and unconventional figure known for his wild hair, T-shirt and shorts during the cryptocurrency boom, said the fortunes of FTX and his trading firm Alameda have fallen rapidly this year as cryptocurrencies collapse amid soaring interest rates.
In late 2021, he said Alameda had a net worth of more than $50 billion and manageable debt levels. This is becoming unsustainable with the decline of digital assets.
Bankman Fried wrote: “Last year, my net worth was estimated at $20 billion. Last I saw, I think my bank account contained about $100,000.”
Additional reporting by Jasper Ward in Washington, Luke Cohen and Jack Quinn in New York, Brian Ellsworth in Miami, and Angus Berwick in London; Editing by Megan Davies, Paritosh Bansal and Lincoln Feist
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