Last night the former CEO of collapsed crypto exchange FTX, Sam Bankman Fried (SBF), was arrested in the Bahamas. The Attorney General of the Southern District of New York said on Twitter that the arrest was at its request and an indictment against SBF will be unsealed today (13 December). At the same time, the SEC said it is filing separate charges today.
While the Bahamas has an extradition treaty with the United States, it’s rarely a speedy process.
It also means that SBF won’t attend today’s Congressional Hearing by the House Committee of Financial Services.
Committee Chair Maxine Waters was displeased that he won’t be making an appearance. “Although Mr. Bankman-Fried must be held accountable, the American 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,” said Waters. But she stated, “It’s about time the process to bring Mr. Bankman-Fried to justice has begun.”
Senator Sherrod Brown who chairs the Senate’s Banking Committee applauded the Justice Department and the Bahamian authorities for “holding Sam Bankman-Fried accountable.”
However, the new FTX CEO John Ray, will be testifying and a transcript of his prepared speech repeats previous statements about the complete lack of controls at the FTX group.
While SBF has questioned whether FTX US should have been included in the bankruptcy, Ray clarified that the company was not operated independently from the rest of the group.
The “unacceptable management practices” include a lack of controls, so there was nothing to stop senior management from “redirecting” customer assets. There were no limits on how much Alameda could borrow from FTX.com and use for its own trading, and assets were co-mingled. Despite spending billions on 500 venture investments, there’s a lack of complete documentation. This will likely make it harder to sell them.
Circling back to the indictments, the Justice Department will have provided evidence to the Bahamas authorities. As we highlighted yesterday, to prosecute criminal fraud, there’s a need to show intent. We explored one potential avenue that looks bad for SBF, but there are several.
The Congressional heading takes place at 10am Eastern Time today, by which time the two indictments should be public.
