Bankman-Fried to appear in Bahamas court; U.S. to unveil charges

© Reuters. FILE PHOTO: The logo of FTX is seen at the entrance of the FTX Arena in Miami, Florida, U.S., November 12, 2022. REUTERS/Marco Bello/File Photo/File Photo/File Photo

By Luc Cohen

NEW YORK (Reuters) - FTX founder Sam Bankman-Fried was expected to appear before a magistrate in the Bahamas on Tuesday as U.S. authorities prepared to unveil criminal and civil charges against the former CEO of the bankrupt cryptocurrency exchange.

The hearing in the Bahamas a day after his arrest there would be Bankman-Fried's first in-person public appearance since the stunning collapse of FTX, which filed for bankruptcy in November after struggling to raise money as traders rushed to withdraw $6 billion from the platform in just 72 hours.

Police in the Bahamas, where FTX was based, said the 30-year-old was arrested after 6 p.m. on Monday (2300 GMT) at his luxury gated community called the Albany in the capital, Nassau.

Damian Williams, the U.S. Attorney for the Southern District of New York, said in a statement on Monday evening the arrest came at the request of the U.S. government, and an indictment against Bankman-Fried would be unsealed on Tuesday.

A lawyer for Bankman-Fried did not respond to requests for comment.

The Bahamas' attorney general's office said it expects him to be extradited to the United States.

It was not immediately clear what would take place at the hearing or whether Bankman-Fried would decide to fight extradition, potentially setting up a high-stakes battle.

Police in the Bahamas said in a statement he was arrested due to "various Financial Offences against laws of the United States, which are also offences" in the Bahamas.

The U.S. charges include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering, the New York Times reported on Monday, citing a person familiar with the matter.

Bankman-Fried has apologized to customers and acknowledged oversight failings at FTX, but said he doesn't personally think he has any criminal liability.

The charges are expected to come just hours before Bankman-Fried was previously scheduled to testify before Congress about the collapse of the exchange.

He said he was pressured into nominating John Ray as the new chief executive by the lawyers advising his firm at the time, according to a draft of his prepared remarks seen by Reuters.

Bankman-Fried founded FTX in 2019 and rode a cryptocurrency boom to build it into one of the world's largest exchanges of the digital tokens. Forbes pegged his net worth a year ago at $26.5 billion, and he became a substantial funder of U.S. political campaigns, media outlets and other causes.

FTX's liquidity crunch came after Bankman-Fried secretly used $10 billion in customer funds to his proprietary trading firm, Alameda Research, Reuters reported, citing two people familiar with the matter. At least $1 billion in customer funds had vanished, the people said.

Bankman-Fried resigned as FTX's chief executive officer the same day as the bankruptcy filing.

The U.S. Attorney's Office in Manhattan, led by veteran securities fraud prosecutor Williams, in mid-November began investigating how FTX handled customer funds, a source with knowledge of the probe told Reuters.

The U.S. Securities and Exchange Commission separately authorized charges against Bankman-Fried, which will also be filed publicly on Tuesday, SEC official Gurbir Grewal said in a statement.

Ray is expected to tell members of the U.S. House Financial Services Committee that the cryptocurrency exchange had "unacceptable management practices" including the commingling of assets and lack of internal controls, according to prepared remarks.