FTX founder, Sam Bankman-Fried was arrested in the Bahamas at the behest of U.S. prosecutors on Monday, December 12, the day before he was to testify before Congress about the sudden failure last month of one of the world’s largest cryptocurrency exchanges.
The arrest marks a stunning fall for the 30-year-old entrepreneur who became a billionaire with the FTX bitcoin and other digital assets until FTX’s rapid demise.
The Bitcoin exchange, launched in 2019 and based in the Bahamas, filed for bankruptcy Nov. 11 after it struggled to raise money to stave off collapse as traders rushed to withdraw $6 billion from the platform in just 72 hours. Since then it emerged Bankman-Fried secretly used $10 billion in customer funds to fund his trading business.
The arrest came as Bankman-Fried is ready to criticize his former lawyers at Sullivan and Cromwell, new FTX CEO John Ray and rival exchange operator Binance at a Congressional hearing.
In the testimony, a draft copy of which was seen by Reuters, Bankman-Fried planned to say he was pressured by Sullivan and Cromwell lawyers to nominate Ray as CEO following the sudden exodus of customer funds. And when within minutes he changed his mind, following an offer of billions of dollars of fresh funding, he was told it was too late.
Bankman-Fried will now be unable to testify, according to Congresswoman Maxine Waters, who said in a statement she was surprised to hear of his arrest. Ray’s testimony will go ahead.
Bankman-Fried was arrested shortly after 6:00 pm Monday (2300 GMT) at his apartment complex, and will appear in a magistrate court on Tuesday, Bahamian police said. The Bahamas attorney general’s office said it expects he will be extradited to the United States.
U.S. prosecutors said they had a sealed indictment against Bankman-Fried and charges would be revealed on Tuesday. The New York Times reported he faces fraud and money laundering charges. The U.S. Securities and Exchange Commission separately authorized charges relating to Bankman-Fried’s violations of securities laws, the regulator said on Monday.
FTX’s fall from grace sent shockwaves through an already damaged cryptocurrency industry, which has seen a string of meltdowns this year that have taken down other key players including Voyager Digital and Celsius Network.
The Bitcoin Industry could still face more shock as a Reuters report on Monday said that some Justice Department prosecutors believe they have gathered sufficient evidence in their long-running investigation of Binance to charge the world’s largest cryptocurrency exchange and some top executives.
Bankman-Fried, who had become a prominent and unconventional figure during crypto’s boom, said the fortunes of FTX and his trading firm Alameda declined rapidly this year as crypto currencies crashed amid rising interest rates.
In late 2021, he said Alameda had net asset value of more than $50 billion and manageable levels of debt. That became unsustainable as digital assets declined.
“Last year, my net worth was valued at $20b,” Bankman-Fried wrote. “Last I saw, I believe my bank account had about $100k in it.”