DOJ and SEC Come for SBF

Former FTX CEO Sam Bankman-Fried Arrested in Bahamas

FTX founder and former Chief Executive Sam Bankman-Fried was arrested Monday in the Bahamas after the U.S. filed criminal charges, the authorities in the two countries said.

Mr. Bankman-Fried, 30 years old, was arrested without incident shortly after 6 p.m. EST at his apartment in Nassau, the Bahamas, said the Royal Bahamas Police Force in a statement.

The arrest was made based on a sealed indictment filed by the U.S. attorney’s office for the Southern District of New York, the U.S. attorney said. The charges in the indictment include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering, according to a person familiar with the matter.

“We expect to move to unseal the indictment in the morning and will have more to say at that time,” said U.S. Attorney Damian Williams in a statement.

SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX

The Securities and Exchange Commission today charged Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX), the crypto trading platform of which he was the CEO and co-founder. Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.

According to the SEC’s complaint, since at least May 2019, FTX, based in The Bahamas, raised more than $1.8 billion from equity investors, including approximately $1.1 billion from approximately 90 U.S.-based investors. In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets. The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors (1) the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; (2) the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and (3) undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.

Top US Lawmaker Says FTX Hearing Will Continue Without Sam Bankman-Fried

A hearing by the House Financial Services Committee on the collapse of crypto exchange FTX will go on as planned on Tuesday even without the firm’s former CEO and founder Sam Bankman-Fried, who has been arrested.

Bankman-Fried was taken into custody by Bahamas police late on Monday. As soon as the island nation got word that the U.S. had charged the former CEO, reportedly for fraud and money laundering, they arrested him, expecting a request for extradition.

Maxine Waters (D-Calif.), Chairwoman of the U.S. House Financial Services Committee, which will hold the hearing, said she was “surprised” to hear of Bankman-Fried’s arrest and “disappointed” that he would therefore not attend the hearing.

SEC Awards More Than $20 Million to WhistleblowerThe Securities and Exchange Commission today announced an award of more than $20 million to a whistleblower who provided information and assistance that significantly contributed to a successful enforcement action. The whistleblower provided new information, met with Enforcement Division staff multiple times, and remained cooperative throughout the investigation.

“Whistleblowers may lead to the success of an enforcement matter by providing information that causes an investigation or examination to open or that meaningfully advances an existing investigation,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower.

Latham, McDermott, Squire and Others Stock Up on Govt Talent in White-Collar Defense Practices

Big Law firms within the nation’s capital and beyond have continued to bolster their white-collar defense practices through the final weeks of the year, as increased enforcement actions are anticipated on the horizon.

Latham & Watkins, Squire Patton Boggs, McDermott Will & Emery, King & Spalding, Winston & Strawn, Jones Day and Quinn Emanuel Urquhart & Sullivan are all among the law firms adding government talent in the last few weeks in their white-collar and investigations practices.

Bahamas Told Bankman-Fried to Mint New Crypto as FTX Collapsed, Lawyers Say

Bahamas government officials worked closely with Sam Bankman-Fried and tried to help him regain access to key computer systems of bankrupt FTX Trading, lawyers for FTX said in a court filing before the failed crypto magnate was arrested on Monday.

Before Bankman-Fried was blocked from FTX systems, the Bahamas asked him to mint new digital coins worth hundreds of millions of dollars and then transfer those tokens to the control of island officials, according to the legal team in control of FTX.

FTX’s inner circle – including Sam Bankman-Fried – had chat group called ‘Wirefraud’

Members of the inner circle of power at collapsed cryptocurrency exchange FTX formed a chat group called “Wirefraud” and were using it to send secret information about operations in the lead up to the company’s spectacular failure.

On the eve of the first big hearing in the US Congress this week that will investigate FTX’s collapse, The Australian Financial Review has learnt that FTX founders Sam Bankman-Fried and Zixiao “Gary” Wang, along with FTX engineer Nishad Singh and former Alameda Research chief executive Caroline Ellison, used a chat group on Signal in the hope that the information would remain hidden.

On Monday (Tuesday AEDT) Mr Bankman-Fried denied being part of the chat saying, “If this is true then I wasn’t a member of that inner circle (I’m quite sure it’s just false; I have never heard of such a group).

SEC Strikes Back in Grayscale Suit Over GBTC ETF Conversion

In its lawsuit, Grayscale pointed to the SEC’s approval of several bitcoin futures ETFs to argue that greenlighting one type (futures ETFs) of instrument while rejecting the other (spot, or bitcoin-holding ETFs) was arbitrary, and thus a violation of the Administrative Procedure Act (APA).

The SEC pushed back in its filing, arguing that “the two products are not the same” and have “fundamental differences in the ability to detect and deter fraud and manipulation,” that “reasonably support treating the two products differently.”

Futures ETFs, unlike spot ETFs, are tradable only on the Chicago Mercantile Exchange, which the SEC pointed out is overseen by federal regulators and performs “extensive surveillance of the trading activity on its market.”

The SEC also pointed to prior statements made by the Commodity Futures Trading Commission (CFTC) that its permission to trade bitcoin futures “does NOT provide for … value judgements about the underlying spot market.”