Last updated on December 14th, 2022 at 09:45 am
Police in the Bahamas arrested FTX founder Sam Bankman-Fried in anticipation of an extradition request after U.S. officials filed criminal charges, the country’s attorney general said.
The charges, are in relation to the collapse of FTX which saw millions of dollars of investor funds lost.
FTX CEO John Ray’s is preparing a statement for tomorrow’s House Financial Services Committee hearing, dubbed “Investigating the collapse of FTX, Part 1,” which will review the circumstances of FTX’s downfall and possible ways to hold accountable those found responsible.
House Financial Services Committee Chairwoman Maxine Waters has however expressed her disappointment that Sam Bankman-Fried will not be appearing at the FTX hearing scheduled for Tuesday.
Following news that Sam Bankman-Fried was arrested in the Bahamas, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, released the following statement:
“I am surprised to hear that Sam Bankman-Fried was arrested in the Bahamas at the direction of the United States Attorney for the Southern District of New York. It’s about time the process to bring Mr. Bankman-Fried to justice has begun. However, as the public knows, my staff and I have been working diligently for the past month to secure Mr. Bankman-Fried’s testimony before our Committee tomorrow morning. We received confirmation this afternoon from Mr. Bankman-Fried and his lawyers that he was still planning to appear before the Committee tomorrow, but then he was arrested.
“Although Mr. Bankman-Fried must be held accountable, the American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people, and wiped out the hard-earned life savings of so many. The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity. While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow, we remain committed to getting to the bottom of what happened, and the Committee looks forward to beginning our investigation by hearing from Mr. John Ray III tomorrow.”
FTX CEO John Ray is expected to mention the following things in his statement tomorrow:
1) Customer assets from FTX were commingled with assets from the Alameda trading platform.
2) Alameda used client funds to engage in margin trading which exposed customer funds to massive losses.
3) The FTX Group went on a spending binge in late 2021 through 2022, during which 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.
4) Loans and other payments were made to insiders in excess of $1 billion.
5) FTX stored certain private keys to crypto assets without effective security controls
6) FTX used computer infrastructure that gave senior management access to systems that stored customer assets.
Sam Bankman-Fried’s role in the collapse of FTX is still unclear, but these details may provide more insight into the events leading up to and during FTX’s collapse.
It is yet to be seen if Sam Bankman-Fried will face more charges or jail time in the near future, but it is clear that the House Financial Services Committee seeks answers as to the role of Sam Bankman-Fried in the collapse of FTX.
We can only hope that this hearing sheds some light on any wrongdoing which may have been committed as ex-CEO Sam Bankman-Fried has been accused of transferring $10 billion of customer funds from FTX to the digital asset trading house, Alameda Research.
Investors are however not likely to receive compensation for their losses as between $1 billion and $2 billion of FTX customer funds have disappeared.
It will be interesting to see how the Democratic Party, with whom Sam Bankman-Fried was the second largest donor to handles this situation.
Given that the party is still reeling from their losses in the recent elections, there are sure to be a lot of questions raised about their handling of such a high profile donor.
Mr. Bankman-Fried was the No. 2 overall top donor to Democrats in the election cycle, only behind George Soros, according to the Center for Responsive Politics. Mr. Ryan Salame, another top FTX executive, donated more than $23 million, mainly to Republicans and conservative groups and was the No. 11 overall donor to Republicans.
To distance themselves from FTX and Sam Bankman-Fried, some politicians have already resorted to donating funds they received from FTX to charity.
Following the collapse of FTX and its Nov. 11 bankruptcy filing, $73 million worth of its political donations is now at risk of being recalled to repay the failed exchange’s creditors, according to a report by Bloomberg.
The SEC has Charged Samuel Bankman-Fried with defrauding investors in crypto asset trading platform FTX.
They have charged him with wire fraud, wire fraud conspiracy, securities fraud conspiracy, money laundering and a whole host of other actions including:
-Orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire.
-Diverting billions in customer assets to Alameda to ensure that Alameda maintained its lending relationships, and that money could continue to flow in from lenders and other investors.
-Using FTX customer funds directed to Alameda for additional venture investments and for “loans” to himself and other FTX executives as was the case when Singh and Wang borrowed $554 million and $224.7 million, respectively, by executing promissory notes with Alameda in 2021 and 2022. All the while making misleading statements to investors about FTX’s financial condition and risk management.
-Enabling Alameda to draw down from a virtually limitless “line of credit” at FTX, which was funded by FTX customer assets.
-Giving liquidation exemption to Alameda research which meant that Alameda research could never get liquidated.
-Using customer money to pay all the loans they owed as a result of the Luna collapse. Billions of dollars of FTX customer funds were diverted to Alameda and used by Alameda to re-pay its third-party loan obligations.
-Failing to tell investors that he had exempted Alameda from FTX’s risk engine, and making false statements to certain investors that FTX had no exposure to FTT at all.
According to federal sentencing guidelines if you account for all of today’s development it looks like Sam Bankman-Fried is looking at many years in prison.