Newly-appointed FTX Chief Executive John Ray III fielded questions from House Financial Service Committee members on Tuesday, charting out fresh details of cryptocurrency's most devastating scandal. FTX founder and former CEO Sam Bankman-Fried was sidelined — quite literally detained — following his Monday night arrest in the Bahamas. Bankman-Fried likely faces extradition to the U.S. after the Department of Justice filed criminal charges against the former FTX CEO, the Attorney General of the Bahamas announced.
"As a result of the notification received and the material provided therewith, it was deemed appropriate for the Attorney General to seek SBF's arrest and hold him in custody pursuant to our nation's Extradition Act," Sen. Ryan Pinder, Attorney General of the Bahamas wrote in the announcement. Officials will process any formal request for extradition promptly, pursuant to Bahamian law and its obligations to the U.S., Pinder wrote.
"The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who have betrayed the public trust and broken the law," Prime Minister Philip Davis said in the announcement. The Bahamas plans to cooperate with the United States, Prime Minister Davis said. And the Bahamas will continue its own regulatory and criminal investigations while U.S. officials pursue criminal charges against Sam Bankman-Fried individually.
The DOJ charges against Bankman-Fried include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering. While SBF is the only person named in the indictment, the charges indicate he conspired with others as part of the scheme. Some of those people are already known by the grand jury, the New York Times reports. The SEC filed its own civil complaint, charging Bankman-Fried with securities violations and orchestrating a scheme to defraud investors.
"We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto," SEC Chair Gary Gensler said in the announcement. "The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws ... "To those platforms that don't comply with our securities laws, the SEC's Enforcement Division is ready to take action."
SBF Testimony Canceled
Prior to the arrest, Bankman-Fried was scheduled to testify virtually on Tuesday before the House Financial Services Committee regarding the collapse of FTX. John J. Ray III, appointed CEO of FTX Group in order the manage bankruptcy proceedings, will now act as the star witness. Bankman-Fried was removed from the Financial Services Committee's witness list by Tuesday morning before the hearing.
"I am surprised to hear that Sam Bankman-Fried was arrested in the Bahamas at the direction of the United States Attorney for the Southern District of New York. It's about time the process to bring Mr. Bankman-Fried to justice has begun," Committee Chairwoman Maxine Waters (D-CA) released in a statement late Monday. Congresswoman Waters said Bankman-Fried and his lawyers confirmed he was still planning to appear the afternoon before his arrest.
Earlier Monday, Bankman-Friedman backed out of appearing at a Senate Banking Committee hearing on Wednesday.
The House hearing began on Tuesday, Dec. 13 at 10 a.m. ET. In the four hour hearing, the committee discussed the use of customer assets, risk management failures, FTX investigations and lawsuits, potential regulatory structures and the underlying factors that led to the crash of the $32 billion cryptocurrency exchange.
John Ray III Testifies
The financial trouble began at FTX "months or years" ago, it didn't start overnight, Ray said. And federal authorities allege SBF engaged in widespread fraud since the founding of FTX in 2019.
Ray said it will be difficult to recover the more than $7 billion in lost funds from FTX, and that the process would take "months not weeks." The restructuring team is struggling to piece together account information and track funds due to the lack of proper record-keeping. "We're dealing with a literal paperless bankruptcy," Ray said.
And Bahamian officials haven't been very collaborative during the process, according to Ray. The day after FTX filed for bankruptcy, Bahamian authorities moved funds with the aid of former employees, which they say was in the interest of Bahamian creditors.
However, Ray believes it violated the automatic stay in bankruptcy and says they have not provided requested information to assist in the investigation. And it appears Sam Bankman-Fried is trying to undermine the scope of U.S. federal bankruptcy law by moving assets into accounts under the control of Bahamian authorities, according to Ray.
The investigation will take months to complete, if not longer. And the second phase of the House Financial Services Committee hearing is scheduled for next year.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
