Sam Bankman-Fried had an appointment on Tuesday to testify at a special hearing before the US House committee on financial services regarding the collapse of FTX, the cryptocurrency exchange he founded.
He was going to do it virtually, from the Bahamas, but his testimony has been cancelled: the former CEO of the bankrupt company was arrested on Monday, according to the office of the Attorney General of the Bahamas, after the US Department of Justice filed criminal charges.
The federal indictment was unsealed on Tuesday and shows that Bankman-Fried is facing eight counts, including wire fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.
Meanwhile, the Securities and Exchange Commission (SEC) has also filed a civil lawsuit against Bankman-Fried, accusing him of engaging in a scheme to defraud investors. “Bankman-Fried raised more than $1.8 billion from investors, including US investors, who bought an equity stake in FTX believing that FTX had appropriate controls and risk management measures,” reads the complaint. “Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.”
His arrest in the Bahamas on Monday followed receipt of formal notification from the US that it had filed criminal charges against Bankman-Fried and was likely to request his extradition.
“At such time as a formal request for extradition is made, The Bahamas intends to process it promptly, pursuant to Bahamian law and its treaty obligations with the United States,” said a statement from Attorney General Ryan Pinder.
FTX became one of the world’s leading cryptocurrency exchanges and turned its founder into a billionaire. At the age of 29, Bankman-Fried had an estimated fortune of $22.5 billion, and he became a major donor to the Democratic Party.
One year later, his wealth evaporated overnight, FTX entered a liquidity crisis and the company filed for bankruptcy on November 11 after investors pulled out billions of dollars and Binance, the world’s biggest crypto exchange, backed out of a deal to rescue it. The collapse of FTX has had a knock-on effect in the industry.
An expert liquidator was brought in to track down the lost cryptocurrency investments of more than a million people. John Ray III – the attorney who oversaw the liquidation of Enron – has stated that “never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information. The concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals is unprecedented.”
This expert also believes that FTX may have illicitly utilized funds to buy houses and other personal items for managers, employees and advisers in the Bahamas.