House Financial Services Committee Examines Digital Assets, Sam Bankman-Fried

Sam Bankman-Fried, former chief executive officer of the FTX.com cryptocurrency exchange, was arrested by the Royal Bahamas Police on Monday at the request of U.S. authorities, in another step in the saga of a US$32 billion company that imploded in bankruptcy in a matter of days last month.

The arrest was based on an indictment that will be unsealed on Tuesday, said Damian Williams, the U.S. attorney for the Southern District of New York, on Twitter. The New York Times reported the charges include wire fraud, securities fraud, and money laundering, citing a person familiar with the matter.

“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,” Bahamian Prime Minister Philip Davis said in a statement. The U.S. will likely request his extradition, according to Bahamas Attorney General Ryan Pinder.

FTX, formerly one of the world’s largest crypto trading platforms, filed for Chapter 11 bankruptcy protection on Nov. 11, along with its brokerage arm Alameda Research and dozens of other affiliated companies.

The collapse caused billions of dollars of losses worldwide, with accusations of operational misconduct alleging FTX misappropriated, or comingled, client deposits for trading by Alameda.

Who’s next?

This has led to speculation the former heads of Alameda, Caroline Ellison and Sam Trabucco, may also face indictment.

“A lot depends on the sealed indictment,” Braden Perry, ​​former senior trial attorney at the Commodity Futures Trading Commission and partner at law firm Kennyhertz Perry, told Forkast.

“If the U.S. alleges conspiracy to commit any of the crimes, there could be a number of FTX executives charged. Based on the comingling concerns, I would not be surprised if Ellison, Trabucco, and potentially others are charged.”

See related article: FTX failure a ‘wake-up call’ for security, says former Mt Gox CEO Mark Karpeles

The indictment has likely been in the works for days between law enforcement officials, and the timing shows the urgency behind U.S. authorities wanting Bankman-Fried in custody, said Perry.

However, Perry, who is not directly involved in the case, cautioned that the extradition process will be heavily negotiated with his lawyers and could take weeks or months if Bankman-Fried fights the procedure.

“It’s early to speculate, but due to his refusal to voluntarily enter the U.S. prior to his arrest, it could be a lengthy process,” he said. ​​

Flight risk?

Perry said that Bankman-Fried was supposed to testify on Tuesday at the House Financial Services Committee hearing, and “the arrest may have been due to his refusal to testify in person and to remain overseas,” Perry said.

“There was also speculation that SBF had planned to flee the Bahamas for a non-extradition country. The arrest could be a response to those rumors as well,” Perry said.

Richard Levin, chair of fintech and regulation practice of law firm Nelson Mullins Riley & Scarborough, told Forkast that if Bankman-Fried is in custody he will not be able to give testimony before Congress.

“If he is out on bond, he could give testimony. However, I would believe it would be unlikely for him to do so if he has been indicted,” said Levin, who is not directly involved in the case.

Facing time

Bankman-Fried, if convicted, could face decades in prison, Perry and Levin told Forkast last month.

“With respect to the criminal sanctions, depending on the number of violations and the dollar value of violations, under the federal sentencing guidelines, you could be looking at potential criminal liability that could exceed 20 years of incarceration,” Levin said.

Perry said Bankman-Fried could even face “life in federal prison without the possibility of supervised release.”

See related article: Sam Bankman-Fried probed over Terra-LUNA crash: report

Cryptocurrency critic U.S. Senator Elizabeth Warren waded in on Twitter:  “I’ve long urged [The Department of Justice] to hold corporate executives personally accountable when their companies break the law,” she wrote.

“Crypto executives who break the law are just like any other crooks. If Sam Bankman-Fried committed fraud, then federal prosecutors should send him to prison.”

Piling up

The U.S. Securities and Exchange Commission also indicated it will file charges against Bankman-Fried.

“We commend our law enforcement partners for securing the arrest of Sam Bankman-Fried on federal criminal charges, Gurbir Grewal, the director of the SEC’s Division of Enforcement head, said on Monday in the U.S.

“The SEC has authorized separate charges relating to his violations of securities laws, to be filed publicly tomorrow in the Southern District of New York,” said Grewal on Twitter.

Bankman-Fried has repeatedly denied any knowledge of improper use of customer funds.

While he said last month at the New York Times DealBook Summit that criminal liability is not his biggest concern, he has hired white-collar crime specialist Mark Cohen to represent him, a Bankman-Fried spokesperson told Forkast last week.

John J. Ray III, the new chief executive of FTX.com, said the company’s failure was caused by the “concentration of control in a very small group of grossly inexperienced and unsophisticated individuals,” in his testimony prepared ahead of Tuesday’s House Financial Services Committee hearing.

At FTX’s first bankruptcy hearing last month, an attorney for the company said it was run as a “personal fiefdom” of Sam Bankman-Fried and that a “substantial amount of assets” has either been stolen or gone missing.

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