Bankman-Fried was taken into custody in the Bahamas after the U.S. filed charges against him.
By Jasper Ward, Luc Cohen, and Angus Berwick
Sam Bankman-Fried, the founder of FTX, was arrested in the Bahamas on Monday at the request of U.S. prosecutors, one day before he was supposed to talk to Congress about the sudden failure of one of the world’s biggest cryptocurrency exchanges last month.
The arrest of SBF, a 30-year-old entrepreneur who is best known by his initials, is a shocking fall from grace. SBF became a billionaire many times over during a boom in bitcoin and other digital assets, but when FTX went down quickly, he lost everything.
Related: What happens if Sam Bankman-Fried misses the deadline to answer the request for testimony?
The exchange, which opened in 2019 and was based in the Bahamas, filed for bankruptcy on November 11 because it couldn’t get enough money to keep from going bankrupt as traders rushed to take out $6 billion from the platform in just 72 hours. Since then, it has come to light that Bankman Fried used $10 billion of his customers’ money to keep his trading business going.
Bankman-Fried was arrested as he was getting ready to lash out at his former lawyers at Sullivan and Cromwell, the new CEO of FTX, John Ray, and a competitor exchange, Binance, at a Congressional hearing.
Reuters saw a draught of the testimony that Bankman-Fried was going to give. In it, he was going to say that after the sudden loss of customer funds, Sullivan and Cromwell lawyers put pressure on him to name Ray as CEO. And when, after being offered billions of dollars in new funding, he changed his mind within minutes, he was told it was too late.
Congresswoman Maxine Waters (NYSE:WAT) said in a statement that she was surprised to hear of Bankman’s arrest and that Fried will no longer be able to testify. Ray will be able to tell his story.
Bahamian police said that Bankman-Fried was arrested shortly after 6:00 p.m. (2300 GMT) on Monday at his apartment complex, the Albany, which is a high-end gated community. He will appear in a magistrate court on Tuesday. The Bahamas attorney general’s office said that they expect him to be sent to the US.
A spokesman for the U.S. Attorney’s office in Manhattan confirmed that Bankman-Fried had been arrested in the Bahamas, but he wouldn’t say anything about the charges.
Prosecutors in the United States said they had a sealed indictment against Bankman-Fried and that the charges would be made public on Tuesday. The New York Times said that he is being charged with fraud and laundering money. Monday, the U.S. Securities and Exchange Commission said it had approved separate charges against Bankman-Fried for breaking securities laws.
Bankman-Fried and his lawyer, Mark Cohen, as well as Sullivan & Cromwell, FTX, Ray, and Binance did not respond right away to requests for comment.
Bankman-Fried has said that he doesn’t think he’s guilty of any crime. In an interview on November 30 at the New York Times’ Dealbook Summit, Bankman-Fried said, “I never tried to commit fraud.”
HAPPY CRYPTOCURRENCY INDUSTRY
The collapse of FTX sent shockwaves through the cryptocurrency industry, which had already been through a lot this year. Other major players, like Voyager Digital and Celsius Network, have also gone under this year.
There could be more trouble ahead for the industry. Reuters reported on Monday that some Justice Department prosecutors think they have enough evidence in their long-running investigation of Binance to charge the largest cryptocurrency exchange in the world and some of its top executives.
A Binance representative told Reuters for the article, “We don’t know how the U.S. Justice Department works on the inside, and it wouldn’t be right for us to say anything if we did.”
Bitcoin stayed at $17,150 for a while. This year, it has gone down by more than 60%.
MEA CULPA
Since FTX went bankrupt, Bankman-Fried has given numerous media interviews in which he apologised for his mistakes and explained what happened at the company.Legal experts say that prosecutors could use the inconsistencies in these interviews to hurt his credibility with a jury.
“Renato Mariotti, a criminal defence lawyer and former federal prosecutor, said that SBF’s past statements and answers to very pointed questions in the press and on social media are going to make it impossible for the defence to win.”
Related: Bankman-Fried, the inventor of FTX, will appear before the United States House of Representatives.
In his written testimony, Bankman-Fried said again that he was sorry. “I want to start by saying, under oath, that I messed up,” he wrote.
Then, he started talking about how things went wrong at FTX and his hedge fund, Alameda Research, while criticising Sullivan and Cromwell, Ray, and Binance for what they did while his firm was falling apart.
UNDER PRESSURE
Bankman-Fried said that Sullivan and Cromwell and the general counsel of FTX’s U.S. unit, who he said was a former lawyer at the firm, put pressure on him to step down as CEO of FTX and give the job to Ray.
Bankman-Fried said that he got “a possible funding offer for billions of dollars” less than 10 minutes after making Ray the CEO of FTX at 4.30 a.m. on November 10. Bankman-Fried said he told his lawyer a few minutes later to take back the CEO appointment, but he was told it was too late.
Bankman-Fried said that he had since been cut off from FTX’s systems and that Ray had not answered his emails offering help or other information.
During the crypto boom, Bankman-Fried became a well-known and unusual figure known for his wild hair, t-shirts, and shorts. He said that FTX and his trading firm Alameda lost a lot of money this year because crypto currencies crashed and interest rates went up.
He said that by the end of 2021, Alameda would have a net asset value of more than $50 billion and a manageable level of debt. As the value of digital assets went down, that was no longer possible.
“My net worth was estimated to be $20 billion last year,” Bankman-Fried wrote. “The last time I looked, I think my bank account held about $100,000.”
