Samuel Bankman-Fried, founder of FTX, testifies during a Senate Committee on February 2022. Photo: AFP/ Saul Loeb
By Reuters reporters
The former head of major global cryptocurrency exchange FTX has been arrested after charges were laid against him in the United States by two government agencies.
Bankman-Fried founded and led FTX until a liquidity crunch forced the Bahamas-based cryptocurrency exchange to declare bankruptcy, at which point Bankman-Fried stepped down as chief executive.
Police in The Bahamas said they had arrested him after receiving a formal notice from the US of criminal charges laid against him.
A spokesperson for the US Attorney's office in Manhattan confirmed Bankman-Fried had been arrested but declined to comment on what the charges were.
However, The New York Times reported the charges included wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering, and cited a source familiar with the matter.
"As a result of the notification received and the material provided therewith, it was deemed appropriate for the Attorney General to seek [Bankman-Fried's] arrest and hold him in custody pursuant to our nation's Extradition Act," the office of The Bahamas Attorney General Ryan Pinder said.
Reuters said a lawyer for Bankman-Fried could not immediately be reached for comment.
Separate US charges also laid against Bankman-Fried
Meanwhile, the US Securities and Exchange Commission (SEC) said it had also authorised charges against Bankman-Fried on violations of securities laws.
"The Securities and Exchange Commission has separately authorised charges relating to Bankman-Fried's violations of our securities laws, which will be filed publicly tomorrow in the Southern District of New York," SEC official Gurbir Grewal said in a statement.
Stunning fall from grace
The arrest marks a stunning fall from grace for the 30-year-old entrepreneur who rode a cryptocurrency boom to create one of the world's largest cryptocurrency exchanges and a net worth that Forbes pegged a year ago at $26.5 billion.
The exchange, launched in 2019 and based in The Bahamas, filed for bankruptcy on 11 November after it struggled to raise money to stave off collapse while traders rushed to withdraw $6 billion from the platform in just 72 hours.
In a series of interviews and public appearances in late November and December, Bankman-Fried acknowledged failures in risk management but sought to distance himself from accusations of fraud.
He said he never knowingly commingled customer funds on FTX with funds at his proprietary trading firm, Alameda Research.
"I didn't ever try to commit fraud," Bankman-Fried said in a 30 November interview at the New York Times' Dealbook Summit. He added that he did not think he had any criminal liability.
FTX had been among the world's largest cryptocurrency exchanges and filed for bankruptcy protection on 11 November in one of the highest-profile crypto blowups after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.
Reuters previously reported that the liquidity crunch came after Bankman-Fried secretly moved $10b of FTX customer funds to Alameda, citing two people familiar with the matter. At least $1b in customer funds had vanished, the people said.
Bankman-Fried told Reuters the company did not "secretly transfer" but rather misread its "confusing internal labelling." Asked about the missing funds, he responded: "???".
The arrest came a day ahead of Bankman-Fried's scheduled appearance before US lawmakers on Tuesday (US Eastern Time), where he was planning to give testimony via a video link.
The US House Financial Services Committee was scheduled to hear from Bankman-Fried and current FTX chief executive John Ray during the first in a series of hearings to examine the collapse of FTX.
Bankman-Fried could surrender to United States custody after his indictment and arrest in the Bahamas or fight removal under the terms of the island nation's extradition treaty with the United States, potentially joining a number of high-profile extradition cases in recent years.
US crypto investors had also begun a motion to sue Bankman-Fried, in which they alleged he and a slew of celebrities who promoted FTX engaged in deceptive practices, leaving the investors with $11 billion in damages.
Bankman-Fried says lawyers pressured him to name new chief executive
The arrest came as Bankman-Fried prepared to lash out at his former lawyers at Sullivan and Cromwell, new FTX chief executive John Ray and rival exchange operator Binance at a Congressional hearing.
Bankman-Fried said he was pressured into nominating John Ray as chief executive of the FTX in early November by Sullivan and Cromwell lawyers who were advising his firm at the time, according to a draft of his testimony to Congress seen by Reuters.
Shortly after Bankman-Fried agreed to nominate Ray, he received a "potential funding offer for billions of dollars to help make customers whole," Bankman-Fried wrote. But by then he was told it was too late to rescind the move.
Reuters said Bankman-Fried could not be reached for comment, and Sullivan and Cromwell, FTX and John Ray were not immediately available for comment.
Cryptocurrency markets are still reeling from the collapse of FTX, but had no discernable immediate reaction to Bankman-Fried's arrest. Bitcoin was steady at $17,150. It was down more than 60 percent this year.
FTX's demise marked the latest turmoil for the cryptocurrency industry this year. The overall crypto market slumped amid a string of meltdowns that also took down other key players including Voyager Digital and Celsius Network.
- Reuters