News

Sam Bankman-Fried Was Just Arrested Over FTX Collapse

BY Jolene Creighton

December 12, 2022

Moments ago, authorities in the Bahamas announced that Sam Bankman-Fried (SBF) was arrested. If you haven’t been following the FTX saga, SBF is the Founder and Former CEO of FTX, a cryptocurrency exchange that recently collapsed and lost billions of dollars. Most of the money belonged to customers.

According to a press release issued by the Office of the Attorney General, SBF was brought into custody by The Royal Bahamas Police Force after the United States Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government. The press release also noted that the government will extradite SBF as soon as U.S. officials request it.

“As a result of the notification received and the material provided therewith, it was deemed appropriate for the Attorney General to seek SBF’s arrest and hold him in custody pursuant to our nation’s Extradition Act,” a statement attributed to Bahamian Attorney General Ryan Pinder read. “At such time as a formal request for extradition is made, The Bahamas intends to process it promptly, pursuant to Bahamian law and its treaty obligations with the United States.”

A tweet posted by official governing offices in New York reinforced these statements, adding that the federal government would move to unseal the indictment tomorrow morning. The charges included wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering, said a person with knowledge of the matter told the New York Times.

Notably, the U.S. isn’t the only nation pursuing action against SBF.

In a statement, Bahamian Prime Minister Philip Davis said that his government was taking similar steps. “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. While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere,” he said.

Ultimately, FTX’s collapse came about as a result of reporting from CoinDesk, which revealed a highly concentrated position in self-issued FTT coins, which Alameda Research — SBF’s hedge fund — was using as collateral for billions in crypto loans. Shortly after the CoinDesk report, Binance CEO Changpeng Zhao said his exchange would sell its stake in FTT, citing “recent revelations.” At the time, Zhao said the move was risk management, stemming from lessons he learned from Luna, a cryptocurrency that collapsed in value earlier in 2022.

Zhao’s announcement led to a massive withdrawal of funds from FTX, which sent prices plummeting. FTX froze assets and declared bankruptcy just days later.

Subsequent reports alleged that FTX mixed its customer funds with assets from Alameda Research and that Alameda ultimately used client funds to do margin trading. This exposed the funds to massive losses. FTX’s newly appointed CEO, John J. Ray III, confirmed earlier today that billions in customer deposits were lost along the way. In remarks prepared for the House Financial Services Committee, Ray said FTX went on a “spending binge” from 2021 to 2022 when approximately “$5 billion was spent buying a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them.”

Further adding to SBF’s troubles, the Securities and Exchange Commission (SEC) issued a press release on Tuesday in which the body officially charged the FTX founder with “orchestrating a scheme to defraud equity investors in FTX Trading Ltd.” The SEC also stated that further investigations into other securities violations, in addition to other individuals related to the alleged misconduct, are ongoing.

“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” explained SEC Chair Gary Gensler in the press release. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business.”

“It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action,” added Gensler. The announcement represents the latest move in the SEC’s year-long crypto crackdown. While many Web3 enthusiasts, including crypto exchange Coinbase and even SEC members themselves, have long advocated for a softer, regulatory-based approach to the crypto world rather than a punitive one, the ripple effects from the collapse of FTX have significantly altered that conversation. Whatever comes of the SEC’s charges against SBF will likely have a major impact on the course of Web3 regulation in 2023 and beyond.

This was a breaking story and was updated.

Learn

Guides & Explainers