FTX Faces Criminal Investigation In Bahamas After Crypto Exchange Collapses, Police Say

Forbes
Published 2 months ago
FTX Crypto Bankruptcy

TOPLINE

The Royal Bahamas Police Force is investigating Sam Bankman-Fried’s now-bankrupt cryptocurrency exchange FTX for possible criminal misconduct, the department said in a statement Sunday, marking the latest development in the crypto giant’s implosion and Bankman-Fried’s fall from grace.

KEY FACTS

Financial investigators from the Royal Bahamas Police Force in Nassau are working with the Bahamas Securities Commission to probe FTX Digital Markets Ltd., which is based in the island country, RBPF spokesperson Chrislyn Skippings said in a statement. 

The announcement comes after the Securities Commission of the Bahamas suspended FTX’s registration and froze its assets on Thursday in an effort to “preserve assets and stabilize the company,” the commission said in a statement.

While it’s unclear what specific possible crimes the commission is probing, the commission said previously it “is aware of public statements ​​suggesting that (FTX) clients’ assets were mishandled, mismanaged and/or transferred to (Bankman-Fried’s crypto trading firm) Alameda Research,” according to a statement that noted the actions would be “potentially unlawful.”

The commission last week also denied FTX’s suggestion that it ordered the company to allow users to withdraw funds, tweeting that it “does not condone the preferential treatment of any investor or client of FTX Digital Markets Ltd.”

Forbes has reached out to FTX for comment.

WHAT TO WATCH FOR

The U.S. Securities and Exchange Commission and Justice Department are also investigating FTX, including whether the company should have registered some of its securities with the SEC before selling them to investors, the Wall Street Journal reported.

KEY BACKGROUND

Bankman-Fried resigned as CEO of FTX last week and the company—along with over 100 affiliated entities—commenced Chapter 11 bankruptcy proceedings, in the wake of a liquidity crisis that led to the collapse of one of the world’s largest crypto exchanges. Bankman-Fried said the company saw about $5 billion of withdrawals in one day after Changpeng Zhao, CEO of rival Binance, announced that his firm would sell all of its holdings in the FTX crypto token. Binance’s decision came days after Coindesk reportedthat Alameda held a large share of its assets in a token issued by FTX (Bankman-Fried initially called the concerns about FTX’s financial health “unfounded rumors”). Multiple news outlets later reported that FTX lent billions of dollars to Alameda, including some customer funds. The price of FTX’s token fell 86% in three days following the withdrawals and sent bitcoin, ethereum and shares of exchange Coinbase tumbling 20% or more. Binance briefly moved to acquire FTX on Tuesday to “help cover the liquidity crunch,” but the company later pulled out of the agreement, citing due diligence and “news reports regarding mishandled customer funds and alleged US agency investigations,” setting the stage for FTX to declare bankruptcy.

BIG NUMBER

$32 billion. That was FTX’s valuation at the end of last year. Bankman-Fried, who was worth $26 billion at the time, has admitted he is no longer a billionaire in the wake of the company’s collapse.

By Sara Dorn, Forbes Staff