The United States Attorney for the Southern District of New York shared a sealed indictment with the Bahamian government, which led to the arrest of Sam Bankman- Fried.
The first concrete move by regulators to hold individuals accountable is his arrest.
Bankman-Fried was supposed to testify before the House Financial Services Committee on Tuesday but his attorneys told CNBC that he wouldn't show up. The chair of that committee said that she was surprised at his arrest, and that Congress would not hear from him on Tuesday.
The federal government expected to unseal the indictment in the morning, according to Damian Williams, the U.S. attorney for the Southern District of New York. The charges against Bankman- Fried include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundered.
The Securities and Exchange Commission will file a set of charges against Bankman-Fried tomorrow in the Southern District of New York.
The United States is likely to request his deportation, according to the Attorney General of the Bahamas. He will appear in a Nassau court on Tuesday.
The Prime Minister of the Bahamas, Philip Davis, said in a statement that his country and the United States wanted to hold accountable all individuals associated with FTX who may have betrayed the public trust and broken the law.
The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere.
In the court of public opinion, the battle between FTX and the regulators had been intense. FTX attorneys accused the government of the Bahamas of working with Bankman-Fried to spirit away FTX assets from company control and into virtual currency.
The arrest of Bankman-Fried by the law enforcement of the Bahamas suggests that close cooperation between the two countries will continue. Since the early 20th century, the United States and the Bahamas have had an agreement to extradite each others' citizens. A judge or other competent authority is required to issue an arrest warrant for the requesting party.
Bankman- Fried stepped down as CEO after FTX and its affiliates filed for Chapter 11. A run of assets similar to a bank run caused the firm to collapse.
The collapse of FTX was caused when it was revealed that Bankman-Fried's hedge fund used as collateral billions of dollars in criptocurrency loans. A huge withdrawal of funds was caused by a rival exchange selling its stake in FTT. Assets were frozen and the company declared bankruptcy. Billions of dollars in customer deposits were lost along the way as a result of FTX commingling customer funds with Bankman- Fried's Alameda Research.
Bankman- Fried was replaced by John J. Ray. This week, Ray is going to testify. Ray said that FTX spent $5 billion buying businesses and investments, many of which may be worth less than what was paid for them.
The media reported that FTX customer funds were commingled. Ray said that Alameda exposed themselves to huge losses by using client funds to do margin trading.
If the federal government pursues wire or bank fraud charges, Bankman- Fried could face life in prison without the possibility of supervised release according to legal experts. It would be unusual, but not extraordinary. An effective life sentence was given to the mastermind of the Ponzi scheme. The entire space has been thrown into disarray by FTX's collapse.
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