They just reported that Sam Bankman-Fried (SBF) has been detained in the Bahamas. In case you haven’t been keeping up with the FTX debacle, SBF was the exchange’s founder and CEO before it went bankrupt and lost billions of dollars in bitcoin. Customers were responsible for the bulk of the funds.
The United States Attorney for the Southern District of New York sent a sealed indictment to the Bahamian government, which resulted to SBF’s arrest by The Royal Bahamas Police Force, as stated in a news statement released by the Office of the Attorney General. The government’s commitment to extraditing SBF upon request from the United States was also emphasized in the announcement.
A statement attributed to Bahamian Attorney General Ryan Pinder said, “As a consequence of the notice received and the information presented therewith, it was judged necessary for the Attorney General to seek SBF’s arrest and keep him in jail according to our nation’s Extradition Act.” If and when a formal extradition request is issued, The Bahamas intends to handle it expeditiously in accordance with Bahamian law and its treaty responsibilities with the United States.
A tweet from New York’s official government accounts confirmed these claims and said the federal government will take action to unseal the indictment the following morning. A source familiar with the situation told the New York Times that the allegations included wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.
The United States isn’t the only country looking at taking action against SBF, though.
Phillip Davis, prime minister of the Bahamas, issued a statement saying his country will follow suit. The United States and the Bahamas have a mutual interest in prosecuting anybody connected to FTX who may have violated the law or damaged the public trust. Regulatory and criminal investigations into the FTX collapse will continue in The Bahamas, he said, adding that although the United States is pursuing criminal charges against SBF separately, the two countries will continue to work together.
Alameda Research, SBF’s hedge fund, used self-issued FTT coins as collateral for billions of dollars in crypto loans, which led to the collapse of the FTX exchange, as reported by CoinDesk. Binance CEO Changpeng Zhao said the exchange will sell its investment in FTT after the CoinDesk story, citing “new developments.” At the time, Zhao explained his actions as precautionary measures inspired by his experience with Luna, a cryptocurrency whose value had just plummeted.
With Zhao’s revelation, investors fled FTX in droves, sending prices down. A few days later, FTX froze its assets and filed for bankruptcy.
Alameda Research’s assets were allegedly included in FTX’s customer money, and the latter were allegedly utilized by Alameda for margin trading. Because of this, the money was vulnerable to devastating losses. John J. Ray III, FTX’s newly appointed CEO, revealed earlier today that billions in client deposits were stolen. Ray said in prepared comments for the House Financial Services Committee that between 2020 and 2021, FTX engaged in a “spending frenzy,” shelling out around “$5 billion to purchase a multiplicity of companies and assets, many of which may be worth just a fraction of what was paid for them.”
Tuesday saw the publication of a news statement from the Securities and Exchange Commission (SEC) that formally accused the creator of FTX with “orchestrating a plan to defraud equity investors in FTX Trading Ltd,” adding to SBF’s already considerable problems. The SEC said that it is still looking into potential securities violations by additional companies and people connected to the scandal.
We argue that Sam Bankman-Fried erected a house of cards on a foundation of lies while promising investors that it was one of the safest structures in crypto, as SEC Chair Gary Gensler put it in the press release. Mr. Bankman-alleged Fried’s scam should serve as a wake-up call to the crypto space, which must ensure it abides by our rules. Time-tested precautions, such as securing client cash and separating competing lines of business, are just two examples of how compliance protects both those who invest on and those who invest in crypto platforms.
For traders, this means more transparency, and for regulators, it means more power to examine and audit trading platforms. Gensler noted that the SEC’s Enforcement Division is prepared to take action against any platforms that do not comply with U.S. securities regulations. The SEC has been cracking down on cryptocurrencies for the last year, and this notification is the latest action in that campaign. Although many proponents of Web 3.0, such as cryptocurrency exchange Coinbase and even SEC members themselves, have long advocated for a more gentle, regulatory-based approach to the crypto world rather than a punitive one, the fallout from the FTX collapse has fundamentally changed the conversation. What happens with the SEC’s accusations against SBF might have far-reaching effects on how the Web3 is regulated in 2023 and beyond.
