Financial news

Sam Bankman-Fried’s arrest in the Bahamas is described as “interesting timing” with the co-founder of collapsed digital-asset exchange FTX due to testify before US Congress this week.

The Bahamas police arrested the former FTX CEO after receiving formal notification from the US of criminal charges against him. Bankman-Fried is expected to be extradited to the US.

“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,” said a statement from the Office of the Attorney General & Ministry of Legal Affairs of the Bahamas.

“While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere.”

FTX owes more than $3billion to just 50 creditors, according to court filings.

‘Interesting timing’

Prior to this arrest, Bankman-Fried had been scheduled to testimony before the US Congress tomorrow. The US House of Representatives Committee on Financial Services is investigating the events that led up to FTX’s implosion.

Sheila Warren, CEO of the Crypto Council for Innovation, commented: “An arrest has always been suspected. What’s interesting is the timing – right before two Congressional hearings. As authorities around the world build their cases, the only thing we know for sure is that this story is far from over.

“Real people have been impacted by these actions and members of Congress were hoping to get some answers to some very serious questions. Going forward, the crypto industry will be continuing its calls for regulatory clarity.

“In 2023, we are likely to see more emphasis on crypto in Congress. There will be more discussions, more debate and more hearings as members of Congress evaluate the best way to protect innovation and consumers.”

‘Disappointed’

Congresswoman Maxine Waters, chair of the House Financial Committee, expressed surprise at the arrest.

“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.”

Congressman Lee Zeldin – also a Committee member – echoed Waters, tweeting: “Tomorrow, Sam Bankman-Fried was scheduled to testify in front of the House Financial Services Committee. HouseGOP
was ready to grill him six ways to Sunday…. Why not allow him to 1st testify tomorrow and answer our many questions?.”

Impact on crypto

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says the arrest “sends fresh shivers through the crypto world”.

“His rise to power and riches and dramatic fall from grace, epitomises the dangerous rollercoaster ride of the crypto wild west, where so many schemes have crashed and burned,” says Streeter.

“His company spent huge sums, advertising its ‘credibility’ and up to a million people put cash into the exchange. Now many fear they will not get their life savings back, and its 50 largest creditors are thought to be owed almost $3.1billion. The implosion of FTX sent shockwaves through the crypto world – and Bankman-Fried’s arrest sent Bitcoin back on another volatile ride.

“The scandal has reinvigorated lawmakers and regulators determination to regulate crypto, not just in the US but around the world. They will be walking a tricky tightrope. It’s clear that much better safeguards need to be in place to ensure consumers are more protected from another FTX style implosion, but at the same time regulators also don’t want to quash innovation in the digital coin and blockchain space.

“The challenge will be incubating, without giving too much legitimacy to an industry where fraud is rife and the intrinsic value of coins and tokens is sorely lacking. With the European Central Bank warning that Bitcoin is in its last gasp, there is a danger that other jurisdictions could be seen as a safe haven for illegal money if their arms open too wide to welcome the crypto industry.’’