U.S. Government Finally Pushes Bahamas To Handcuff Former FTX CEO, Modern Madoff Is In Custody

U.S. Government Finally Pushes Bahamas To Handcuff Former FTX CEO, Modern Madoff Is In Custody

FTX custody

Photos: Sam Bankman-Fried (Tom Williams/CQ Roll Call via AP) / Bahamas by Fernando Jorge on Unsplash, https://unsplash.com/@fx24?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText

Sam Bankman-Fried, the 30-year-old founder and former CEO of the collapsed FTX crypto exchange, was arrested at around 6 p.m. Monday in his Nassau, Bahamas apartment after the U.S. filed criminal charges, authorities in both countries said.

U.S. regulators filed civil securities fraud charges on Tuesday against SBF. The Securities and Exchange Commission charged him with misleading investors about the financial health of the crypto exchange and its sibling crypto trading platform, Alameda Research. Investors trusted FTX with nearly $2 billion in recent years.

SBF “concealed his diversion of FTX customers’ funds to crypto trading firm Alameda Research while raising more than $1.8 billion from investors,” the SEC said in a press release Tuesday. This included about $1.1 billion from approximately 90 U.S.-based investors. SBF promoted FTX as a safe, responsible crypto asset trading platform with sophisticated, automated risk measures to protect customer assets. In reality, the SEC said Bankman-Fried orchestrated a years-long fraud.

The Bahamas police said SBF was taken into custody for charges of “various Financial Offenses against laws of the United States, which are also offenses against laws of the Commonwealth of The Bahamas.” He will appear in Magistrate Court on Tuesday in Nassau, the police said. SBF faces extradition.

“The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law,” Bahamian Prime Minister Philip Davis said in a statement.

SBF was scheduled to testify Tuesday at a U.S. congressional hearing. Congressional aides said late Monday that FTX’s new CEO John Ray III will likely still appear before the committee, Wall Street Journal reported.

In a statement, Rep. Maxine Waters (D-CA), chairwoman of the House Financial Services Committee, said she was disappointed that the American public would be denied the opportunity to hear directly from Bankman-Fried.

The public “deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people, and wiped out the hard-earned life savings of so many,” Waters said. “The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity.”

FTX’s collapse “appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals,” Ray said in testimony prepared for Tuesday’s hearing, Wall Street Journal reported. They failed to implement controls “that are necessary for a company that is entrusted with other people’s money or assets.”

Worried customers began a run on the bank after news of FTX’s not-so-great financial health was reported in the media. Reports surfaced that the company had lent billions of dollars in customer assets to fund risky bets by SBF’s Alameda Research.

Bankman-Fried has been compared to Bernie Madoff, the financier who ran the largest-ever Ponzi scheme — a type of investment fraud in which investors are lured by promises of artificially high rates of return with little or no risk, and earlier investors are paid with funds from more recent investors. A one-time chairman of the NASDAQ stock exchange, Madoff defrauded thousands of investors out $64.8 billion via his firm, Bernard L. Madoff Investment Securities LLC. In 2009 Madoff was sentenced to 150 years in prison and forced to forfeit $170 billion as restitution. He died in prison on April 14, 2021.

SBF was recently applauded while speaking publicly, admitting that he screwed up, insisting he had no intention to defraud and denying that he knew FTX customer funds had been commingled with Alameda Research.

“SBF’s repeated public claims give the S.E.C. 90 percent of what they need,” said Erik Gordon, a law and business professor at the University of Michigan, New York Times reported. “No secret smoking gun needed.”

As FTX was collapsing in November, SBF tried to placate Bahamian authorities by offering to let customers in the country withdraw funds from FTX, Wall Street Journal reported. Meanwhile, withdrawals across FTX.com had been suspended, according to lawyers for the firm’s new management.

An email that Bankman-Fried wrote on Nov. 9 to the Bahamas attorney general said that FTX “would be more than happy to open up withdrawals for all Bahamian customers on FTX, so that they can, tomorrow, fully withdraw all of their assets, making them fully whole,” according to court papers filed Monday.

Bankman-Fried then reopened withdrawals for more than 25 hours, allowing nearly $100 million in crypto to be withdrawn from the exchange by “1,500 individuals and entities purporting to be Bahamian customers,” according to FTX’s filing.

“No other customers of FTX entities were given such an opportunity for preferential treatment,” according to FTX’s filing, which said it continues to investigate the identities of those who withdrew the crypto.

SBF has been accused of selling the Bahamas an empty crypto dream. “The country’s credibility as a jurisdiction that properly monitors digital asset businesses has been shattered,” Scott Chipolina wrote for the Financial Times.

“Crypto was going to be our way out,” said Stefen Deleveaux, of the Caribbean Blockchain Alliance. “We could interact with the global economy in a way we couldn’t before.”

In its civil complaint against Bankman-Fried, the SEC said SBF “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.”

One of the biggest exchanges in the world, FTX spent big on advertising, marketing, and political contributions.

“Sam Bankman-Fried was my hero,” an anonymous writer, who identified as a junior trader at a crypto trading firm, lamented. “This has blown my mind.”

“SBF was all about taking things slow and steady and not making the mistakes of other crypto firms regarding growth,” the anonymous writer continued in a Nov. 9 column posted to eFinancialCareers. “I think this will make people of my age much more hesitant about going into crypto.”


Photos: Sam Bankman-Fried (Tom Williams/CQ Roll Call via AP) / Bahamas by Fernando Jorge on Unsplash, https://unsplash.com/@fx24?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText