DEC 12 (Reuters) – (Editor’s note: This story contains language in paragraph 18 that some readers may find offensive)
FTX founder Sam Bankman-Fried was arrested in the Bahamas at the behest of US prosecutors on Monday, a day before he was due to testify before Congress about the abrupt collapse of one of the world’s largest cryptocurrency exchanges last month.
The arrest marks a stunning fall from grace for the 30-year-old entrepreneur, widely known by his initials SBF, who saw a boom in Bitcoin and other digital assets to become a billionaire many times before FTX’s rapid demise.
The 2019-founded Bahamian-based exchange filed for bankruptcy on Nov. 11 after struggling to raise funds to stave off the collapse as traders rushed to withdraw $6 billion from the platform in just 72 hours. It has since been revealed that Bankman-Fried was secretly using $10 billion in client funds to shore up his trading business.
The arrest came as Bankman-Fried prepared to blast his former attorneys at Sullivan and Cromwell, new FTX CEO John Ray and rival exchange operator Binance at a congressional hearing.
In the testimony, a draft of which Reuters was able to see, Bankman-Fried said he was pressured by attorneys for Sullivan and Cromwell to appoint Ray as CEO after the sudden outflow of client funds. And when he changed his mind within minutes of being offered billions of dollars in new funding, he was told it was too late.
Bankman-Fried is no longer able to testify, according to Congresswoman Maxine Waters, who said in a statement she was surprised to hear of his arrest. Ray’s testimony will continue.
Bankman-Fried was arrested just after 18:00 (2300 GMT) on Monday at his apartment complex, a luxury condominium called Albany, and will appear in a magistrates’ court on Tuesday, Bahamian police said. The Bahamas Attorney General said it expects him to be extradited to the United States.
A spokesman for the US Attorney’s Office in Manhattan confirmed that Bankman-Fried was arrested in the Bahamas but declined to comment on the allegations.
US prosecutors said they had a sealed indictment against Bankman-Fried, and the indictment would be unveiled on Tuesday. The New York Times reported that he faces charges of fraud and money laundering. The U.S. Securities and Exchange Commission separately approved indictments related to Bankman-Fried’s violations of securities laws, the regulator said Monday.
Bankman-Fried and his attorney, Mark Cohen, did not immediately respond to requests for comment, nor did Sullivan and Cromwell, FTX, Ray and Binance.
Bankman-Fried said he doesn’t think he will be criminally liable. “I’ve never tried to commit fraud,” Bankman-Fried said in a Nov. 30 interview at the New York Times Dealbook Summit.
CRYPTO INDUSTRY REELING
FTX’s demise sent shockwaves through an already battered cryptocurrency industry, which has seen a series of collapses this year that have brought down other major players like Voyager Digital and Celsius Network.
The industry could face further problems. Reuters reported Monday that some Justice Department prosecutors believe they have amassed enough evidence in their long-running investigation into Binance to indict the world’s largest cryptocurrency exchange and some top executives.
A Binance spokesperson told Reuters of the article: “We have no insight into the inner workings of the US Department of Justice, nor would it be appropriate for us to comment if we did.”
Bitcoin remained stable at $17,150. It’s down more than 60% this year.
Since FTX’s collapse, Bankman-Fried has given numerous media interviews apologizing for his mistakes and explaining what happened at the company, which legal experts say could allow prosecutors to point out inconsistencies to undermine his credibility with a jury .
“The defense is completely hemmed in by the SBF’s previous statements and the very succinct questions he has answered in the press and on social media,” said defense attorney and former federal prosecutor Renato Mariotti.
In his written testimony, Bankman-Fried repeated his mea culpa: “I would like to begin by formally declaring under oath: I screwed up,” he wrote.
He then began by explaining how things were going badly at FTX and his hedge fund Alameda Research, while criticizing Sullivan and Cromwell and Ray and arch-rival Binance for their actions as his firm imploded.
Bankman-Fried described his decision to step down from his role as CEO of FTX and appoint Ray, saying he was from Sullivan and Cromwell and the general counsel of FTX’s US unit, who he says was a former attorney at the law firm, been urged to do so.
Bankman-Fried said less than 10 minutes after he signed a document at 4:30 a.m. on Nov. 10 to make Ray CEO of FTX, he received “a potential billion-dollar funding offer.” Bankman-Fried said he told his attorney to rescind the CEO appointment minutes later, but was told it was too late to do so.
Bankman-Fried said he has since been cut off from FTX’s systems and Ray has not responded to his emails offering help or other information.
Bankman-Fried, who had become a prominent and bohemian figure known for his wild hair, T-shirts and shorts during the crypto boom, said the fortunes of FTX and its trading firm Alameda have declined rapidly this year, as cryptocurrencies plummeted amid rising interest rates.
In late 2021, he said Alameda had a net asset value of more than $50 billion and manageable debt. That became unsustainable as digital assets declined.
“Last year my net worth was estimated at $20 billion,” Bankman-Fried wrote. “Last time I looked, my bank account had about $100,000.”
Reporting from Jasper Ward in Washington, Luc Cohen and Jack Queen in New York, Brian Ellsworth in Miami and Angus Berwick in London; Edited by Megan Davies, Paritosh Bansal and Lincoln Feast
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