The founder of the crypto platform FTX, Sam Bankman-Fried, was arrested in the Bahamas following the scandal that led to the bankruptcy of FTX. The founder and former director now faces extradition to the United States, where he will face criminal charges and civil damages from more than a million investors who have lost billions of dollars.
Sam Bankman-Fried, the founder of FTX arrested
Until a few months ago, many considered him the “boy wonder” of the crypto world, a revolutionary of digital finance. But today Bahamian police arrested Sam Bankman-Fried, on whom a warrant is pending Southern District of New York and another of the Securities Exchange Commissionthe federal financial agency of the United States.
The Bahamas has an extradition deal with the US, though it will be weeks before the FTX founder decides whether or not to contest this deal: before 2023 it should not end up in American courts. Instead you will have to appear today in the judicial halls of the Bahamas, after spending the night in police custody.
Bankman-Fried however, he will not be able to appear before the Congressional Commission who will discuss the FTX case, which according to the new CEO, John Ray III, was “a complete and unprecedented failure of corporate control”. As he has never seen in his 40 career.
What is FTX and why the CEO was arrested
Sam Bankman-Fried founded FTX in 2019. The platform allows you to trade digital assets such as Bitcoin, Dogecoin and other cryptocurrencies. Allows users to buy and sell these assets without having to deal with the technical side of the transaction: no crypto wallet is needed, just your credit card.
This type of platform has gained some popularity in recent years. To distinguish itself from its rivals, FTX offered low commissions to users and invested in aggressive takeover strategies. But he also focused heavily on celebrity support to promote the platform (he even bought a Super Bowl commercial).
30-year-old founder Sam Bankman-Fried then picked up over two billion dollars in venture capital investments. Also thanks to the dizzying increase in Bitcoin, which was worth $10,000 when FTX launched and reached peaks of $64,000 last year. But it has since suffered a series of meltdowns, so much so that at the time of this writing it is worth about 16 thousand dollars.
But as other crypto platforms shut down, FTX kept investing even buying struggling rivals. Until CoinDesk has not disclosed the scandal.
Alameda Research e FTX
Among the various cryptocurrencies processed by FTX, there are also tokens created by the same platform: gli FTT. The platform creates them and provides them as rewards to users. In addition to being used to buy other digital assets, these “proprietary” tokens also act as shares of the platform, assessing its operational solidity.
So when CoinDesk unveiled that most of the FTTs created by FTX belonged to Alamaeda Research, another company created by Sam Bankman-Fried. A non-transparent and risky practice: if the price of FTT had collapsed, FTX would not have the liquidity necessary to pay investors.
After the scandal, on Nov. 6, the CEO of rival platform Binance, Changpeng CZ Zhaoannounced that it would sold all Binance FTTs. The price started to crash, leading all investors to withdraw your funds from the FTX platform. Which blocked the withdrawals on November 8th.
What led to the arrest of Sam Bankman-Fried after the FTX scandal
Details of Alameda’s ties to FTX, as well as transaction details, remain classified during the investigation that led to the arrest of Sam Bankman-Fried. But Bloomberg, Financial Times, The Wall Street Journal and other outlets said an inside source reports that FTX is $8 billion short of what it should pay out to investors.
In a series of interviews during November, the FTX founder said he would find those funds to compensate all investors. But in the meantime, Coindesk has reported the transfer of $400 million in digital assets from FTX accounts to private wallets. However, it is currently impossible to determine whether they were transactions made by Bankman-Fried before leaving for the Bahamas, also because FTX and Alameda did not (according to the new administration) dutifully report the financial transactions. So it will take time before rebuild the architecture of this failed crypto empire.
The new CEO of FTX, John Rayan expert in handling corporate bankruptcies, said the company has found $740 million in crypto to compensate customers. But he says it’s only a “fraction” of what remains submerged.
Meanwhile, leaving the United States won’t play Bankman-Fried’s favor in the double-trial for fraudulent bankruptcy. And the civil lawsuit filed by FTX investors could cost them up to one million dollars per customer. Until a few weeks ago, the ex-CEO promised he would find a way to pay them back. But the “holiday” in the Bahamas makes us think and the start of criminal trials suggests that the matter will be long: we will keep you informed.