First Major Law Enforcement Action Taken After the Collapse of FTX

First Major Law Enforcement Action Taken After the Collapse of FTX

On Monday, December 12, 2022, the Royal Bahamas Police Force confirmed the arrest of Sam Bankman-Fried after United States Department of Justice federal prosecutors in New York filed criminal charges contained in a sealed indictment. Mr. Bankman-Fried is currently in custody with Bahamian authorities, awaiting extradition to the U.S. The arrest is the first major law enforcement action taken after the collapse of FTX, a digital currency exchange of which Mr. Bankman-Fried was the Chief Executive Officer, which announced it had filed for Chapter 11 bankruptcy protection for assets and liabilities ranging from $10 – $50 billion on November 11, 2022.

Mr. Bankman-Fried, commonly referred to on social media and other media outlets as “SBF”, launched FTX as a platform where investors could buy and sell digital assets like Bitcoin, Dogecoin, and Ether. However, it has been alleged that FTX was merely a conduit for Mr. Bankman-Fried to illegally and fraudulently transfer the digital assets of FTX users to Alameda Research, a crypto investing firm also owned by Mr. Bankman-Fried.

Following the arrest, federal prosecutors from the Southern District of New York released the previously sealed eight-count indictment, which includes charges for wire fraud against customers and lenders and conspiracy to commit it, securities- and commodities-fraud schemes, and money laundering. Mr. Bankman-Fried was also charged with defrauding the United States by violating campaign-finance laws, which limit corporate contributions and require disclosure of donation sources.

The arrest of Mr. Bankman-Fried came on the eve of his much-anticipated testimony before the House Financial Services Committee on December 13, 2022. At the hearing, Mr. Bankman-Fried was expected to answer questions from lawmakers regarding his role in the historic collapse of FTX and allegations that the company was illegally transferring investor assets to Alameda Research.

Sources suggest that Mr. Bankman-Fried will challenge attempts to extradite him to the U.S. to face the charges against him, however legal analysts say such a challenge is unlikely to succeed as U.S. and Bahamian authorities have previously worked closely together on past extradition requests.

Mr. Bankman-Fried received additional bad news on Tuesday when the U.S. Securities and Exchange Commission announced its civil lawsuit against Mr. Bankman-Fried wherein it alleges that he engaged in a years-long fraud, diverting the funds of investors in FTX to support his crypto hedge fund, and for personal expenses such as venture-capital investments, real-estate purchases, and political contributions.

Cryptocurrency is a quickly evolving industry. Scandals such as those involving FTX create many of the same coverage and litigation issues P.K. Schrieffer LLP has been helping clients address for over 20 years. Cryptocurrencies, and centralized exchanges facilitating trading and custody of the same, also present novel issues, which require knowledge of the industry to resolve. If you or your business has any legal issue, we would be happy to discuss further with you.


Jon F. Winter | Paul K. Schrieffer

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