Authorities are likely to conduct a lengthy investigation into former FTX CEO Sam Bankman-Fried before potentially making an arrest for any illegal actions involving his now-bankrupt companies, legal experts told the Daily Caller News Foundation.
The cryptocurrency exchange platform FTX, which filed bankruptcy along with the Bankman-Fried-founded trading house Alameda Research in November, has been accused of “fraud, dishonesty, incompetence, misconduct, and mismanagement,” according to bankruptcy court records, but he has denied knowing of “any improper use of customer funds.”
“Authorities are likely “investigating various possible charges” against Bankman-Fried, who has lived in the Bahamas where both companies are based, “ranging from wire fraud and bank fraud, to embezzlement and securities violations,” Loyola Marymount University Law Professor Laurie Levenson told the DCNF.
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“I would not expect Bankman–Fried to be arrested at this point. It will be a lengthy investigation, and they need to get through it before they file the charges,” Levenson said. “Then, they can arrest him or if necessary, seek extradition. The authorities are not ready at this point to arrest him and begin a trial in the near future.”
FTX loaned billions of dollars in customers’ assets to Alameda Research to finance risky bets, an anonymous source indicated, according to The Wall Street Journal. FTX reportedly amassed $16 billion in customer assets before falling $3.1 billion in debt to creditors in the wake of its downfall, CBS News reported.
The U.S. Securities and Exchange Commission had begun probing Bankman-Fried by Nov. 10 for possible securities law-breaking, an anonymous source told Bloomberg.
A class-action lawsuit was filed in Florida against Bankman-Fried and multiple celebrities in November, claiming the celebrities’ reputations were used to trick people into an FTX “Ponzi scheme.”
The cryptocurrency business BlockFi, which has since filed for bankruptcy itself, sued a holding company for Bankman-Fried to retake Robinhood shares that had been pledged as collateral, according to USA Today.
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Bankman-Fried has not confessed to any legal wrongdoing, in contrast to infamous Ponzi scheme perpetrator Bernie Madoff, according to CNBC. Madoff quickly confessed to his crime and was arrested within a day of federal authorities discovering the scheme.
“From what has been reported, it would seem that for FTX, the files ranged from sloppy to non-existent,” Governors State University Associate Accounting Professor William Kresse, a fraud and identity theft expert, told the DCNF. “As such, the investigation period may be extensive. However, it appears that Mr. Bankman-Fried is comfortably ensconced in the Bahamas. With Bahamian officials reportedly conducting their own investigations, Mr. Bankman-Fried may not be going anywhere for a while.”
Castle Island Ventures partner Nic Carter labelled it “a travesty” that Bankman-Fried was “still walking free and unencumbered, presumably able to cover his tracks and destroy evidence,” according to CNBC.
“The Bahamas clearly lack the institutional infrastructure to tackle a fraud this complex and have been completely derelict in their duty,” Carter told the outlet. “U.S. courts have obvious access points here and numerous parts of Sam’s empire touched the U.S. Every day the U.S. leaves this in the hands of the Bahamas is a lost opportunity.”