FTX founder Sam Bankman-Fried detained in Bahamas and charged by SEC

First modification: 13/12/2022 – 13:44Last modification: 13/12/2022 – 13:43

“We will provide more information about the indictment” on Tuesday morning, prosecutor Damian Williams said in a tweet, without specifying the nature of the charges.

However, earlier this Tuesday, the Wall Street regulator, the Securities and Exchange Commission (SEC), accused him of orchestrating a system that aimed to defraud investors.

“We assert that Sam Bankman-Fried built a house of cards founded on deception, signaling to investors that this was one of the safest cryptocurrency systems around,” SEC Chairman Gary Gensler said in a statement.

Bankman-Fried has made several appearances in the media in the last month, despite the risk of being prosecuted for fraud after the fall of the firm that at the beginning of the year was valued at 32,000 million dollars.

Bahamas Attorney General Ryan Pinder said in a statement via Twitter that the United States “filed a complaint” against the 30-year-old man and “will likely request his extradition.”

The former head of FTX will appear before a court in the Bahamian capital, Nassau, on Tuesday.

Both countries “have an interest in holding accountable individuals linked to FTX who have defrauded the public or violated the law,” said Philip Davis, prime minister of the northeastern Cuban kingdom.

He added, quoted in a statement, that the Bahamas will conduct its own “criminal investigation into the collapse of FTX.”

In the United States, “if he is convicted of fraud, he could spend the rest of his life in prison, given the number,” estimated Jacob Frenkel of the Dickinson Wright consultancy.

“There would be no prosecution if prosecutors were not absolutely convinced that they are going to get a conviction,” added the federal investigations expert who worked for the US Securities and Exchange Commission (SEC).

“little knowers”

Sam Bankman-Fried was expected to testify before a committee of the US House of Representatives on Tuesday, along with John Ray, the new director of FTX.

The platform’s former executives have shown a “total failure” at all levels of control, spending without counting their clients’ money, John Ray said in a document Monday.

At first glance “the collapse of FTX appears to be the result of the absolute concentration of control in the hands of a small group of inexperienced, uninformed and possibly corrupt individuals, who did not put any control system in place for a company to which that other people’s money or assets are entrusted,” said the new manager.

Considered one of the world’s leading cryptocurrency exchanges, FTX suddenly stopped returning money deposited by its clients in early November amid a drop in bitcoin’s value. The group filed for bankruptcy on November 11.

“I never tried to defraud anyone,” Sam Bankman-Fried said at the end of November at a conference organized by the newspaper ‘The New York Times’.

“Clearly I made a lot of mistakes and I would give everything to be able to amend certain things,” he said.

The former FTX boss chose to give multiple interviews and make statements on Twitter, despite the seriousness of the allegations against him.

“Spending Frenzy”

“It was too risky a strategy,” Jacob Frenkel said. The investigation has already shown that assets deposited by FTX clients were placed in the Alameda cryptocurrency investment company, also founded by Sam Bankman-Fried.

That use of the funds would constitute fraud if it is proven that it violated the terms of the agreement between FTX and its clients, jurists estimate.

FTX was also under a “spending frenzy” beginning in late 2021, with some $5 billion in ventures and investments “may only be worth a fraction” of that, according to John Ray.

The platform also disbursed more than $1 billion in loans or payments to people within the company.

For the new manager who has supervised several bankruptcy cases, including that of the energy giant Enron, the objective now is to “maximize the value” of the assets that FTX still has to, as far as possible, reimburse clients and creditors of the group.