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The founder of the cryptocurrency exchange FTX has been arrested in the Bahamas, and federal prosecutors in the United States have filed charges in New York.
“Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the SDNY,” U.S. Attorney Damian Williams wrote in a statement shared on Twitter. “We expect to move to unseal the indictment in the morning and will have more to say at that time.”
The specific charges have not been revealed.
FTX was a global company with more than 130 affiliates that allowed individual investors to trade cryptocurrencies, growing to be the third-largest exchange by volume. The company’s commercials featured prominent celebrities, and its logo appeared on an NBA stadium and on MLB umpire uniforms.
The New York Times and Coindesk first reported this story.
USA TODAY’s inquiry to Bankman-Fried’s spokesman, Mark Botnick, was not immediately returned. Botnick confirmed earlier in the day the FTX founder was being represented by white-collar criminal defense attorney Mark S. Cohen, who did not immediately respond to USA TODAY’s inquiry.
Multiple news outlets had already reported that FTX is the subject of investigations by the U.S. Securities and Exchange Commission, which enforces civil regulations, and the U.S. Department of Justice, which can bring criminal charges. State and international regulators have also raised concerns about the company.
Bankman-Fried resigned as CEO of FTX in early November, and the company filed for bankruptcy when it was unable to pay all of the customers on the exchange who wanted their money back. The company said in bankruptcy filings there could be more than 1 million people affected.
Yesha Yadav, a law professor at Vanderbilt University in Tennessee, said FTX grew because it attracted average people who wanted to invest in cryptocurrency but didn’t want to deal with the complex process that often accompanies a cryptocurrency trade.
A decade ago, Yadav said, crypto traders would need to download specific software and then find someone willing to sell their cryptocurrency. On an exchange like FTX, a user would place an order an essentially be given an IOU for the crypto they bought, she said. “From the user experience, that’s awesome,” she said.
“The reason it was so well regarded was because it promised safety,” Yadav said. “It promised consumer protection it promised cutting-edge products without some of the kind of riskier aspects of crypto attaching to it.”
John J. Ray III, an insolvency expert with 40 years of experience who also oversaw Enron during its bankruptcy due to accounting fraud, has been serving as the CEO of the company since Bankman-Fried’s resignation.
In written testimony prepared for the House Committee on Financial Services Tuesday, he wrote that cases involving corporate failures and allegations of criminal activity have a lot in common, “ranging from gross mismanagement, excessive leverage, failures of internal controls, failures of external checks as a result of audit firm failures, or insufficient board governance.
He added: “But never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever.”
Bankman-Fried is also scheduled to appear before Congress at the same hearing as Ray. He said in a Friday tweet that he would try to shed light on what led to the crypto exchange’s crash and his own failings as the former CEO.
“I still do not have access to much of my data – professional or personal. So there is a limit to what I will be able to say, and I won’t be as helpful as I’d like,” Bankman-Fried said on Twitter. “I will try to be helpful during the hearing.”
As of Monday night, the House Committee on Financial Services’ website still said Bankman-Fried was slated to make an appearance.
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