Sam Bankman Fried behind bars. The controversial founder of bankrupt crypto exchange FTX was taken into custody in the Bahamas yesterday after criminal charges were filed against him by the US Department of Justice.
In a news conference today, the U.S. Attorney for the Southern District of New York said Bankman-Fried is facing a total of eight criminal charges, including defrauding FTX customers, FTX investors and lenders of sister company Alameda Research.
The arrest has sparked cheers in crypto circles, after some nail biting about his apparently generous treatment by “mainstream media” and speculation (by Twitter CEO Elon Musk, no less) that his political donations could earn him some sort of free pass with US law enforcement.
However, the timing of the arrest — a day before Bankman-Fried was due to testify before Congress about the collapse of FTX — has raised eyebrows.
Against the advice of his lawyers, Bankman-Fried has given a series of interviews since the collapse, but none have been particularly enlightening (with the exception of a Vox report that caught him off guard). He has largely dodged straightforward questions, provided tangential answers, and was generally inattentive—playing video games during at least one interview.
But as U.S. Representative Maxine Waters, the chair of the House Financial Services Committee, noted, today’s hearing would have been the first time Bankman-Fried spoke under oath about the FTX debacle. In a statement, Waters said she was “surprised” when she learned of the arrest. “The public has been eagerly awaiting these sworn answers before Congress,” she wrote, “and the timing of this arrest denies the public this opportunity.”
In addition to giving his own testimony, Bankman-Fried should also respond to the testimony of John Ray III, the liquidation savant who stepped into his shoes as CEO of FTX on Nov. 11, who was scheduled to speak for him.
A written preview of Ray’s testimony, published prior to the hearing, gave the first indication that Bankman-Fried was going to have a hard time. “Never in my career have I seen such a total failure of corporate controls at every level of an organization,” wrote Ray, before describing Bankman-Fried and his inner circle as “very inexperienced and unsophisticated.”
While the details remain unclear, Ray confirmed that FTX client deposits were mixed with funds from sister company Alameda Research and used to fund high-risk trading activities, exposing FTX users to “massive losses.” He explained that too, unlike Bankman-Fried’s repeated claims that FTX’s US division has always remained solvent, the offshoot “was not operated independently of FTX.com”, dashing any remaining hope that US-based customers will get their money back in full. Bankman-Fried’s counsel did not respond to a request for comment.
A leaked version of Bankman-Fried’s own preparations obtained by Forbes, suggests that his own testimony would have added much to the spectacle as well. According to the document, Bankman-Fried was preparing to point the finger at least in part at rival exchange Binance, which the document says played a role in causing the run on the bank that led to FTX’s collapse. Not only was Binance engaged in an ongoing smear campaign, the document suggests, it was also “never intended” to go through with a rescue package agreed on Nov. 8, which prevented Bankman-Fried from speaking to other would-be white knights.
