FTX founder Sam Bankman-Fried was arrested on Monday in the Bahamas for what the Royal Bahamas Police Force terms “various financial offences against the laws of the United States.” The arrest could have sizable ramifications for the sports industry, especially for the celebrity athletes who are tied to Bankman-Fried and the stunning implosion of his cryptocurrency empire.
Bankman-Fried, 30, was arrested shortly after 6 p.m. at his apartment complex and was taken into custody “without incident,” according to the Royal Bahamas Police Force. He’s expected to appear before a magistrate judge on Tuesday.
The U.S. Government requested Bankman-Fried’s arrest following the filing of a sealed indictment by the Southern District of New York. Sportico has obtained the indictment, which was unsealed on Tuesday. It contains eight charges that include wire fraud, wire fraud conspiracy on customers and lenders, securities fraud conspiracy, money laundering and conspiracy to defraud the U.S. and violate the campaign finance laws. Those charges collectively carry maximum prison sentences in the decades. Bankman-Fried, prosecutors assert, engineered a scheme to “defraud customers of FTX.com by misappropriating those customers’ deposits.”
The timing of Bankman-Fried’s arrest has sparked curiosity given that the crypto magnate was set to testify, via Zoom from the Bahamas, before the House Financial Services Committee on Tuesday. U.S. Rep. Lee Zeldin (R-NY) tweeted that House Republicans were “ready to grill him six ways to Sunday” and questioned, “Why not allow him to 1st testify tomorrow and answer our many questions?” According to campaign finance tracker Open Secrets, SBF contributed nearly $40 million to political candidates and outside groups in the 2022 election cycle and had pledged to spend up to $1 billion in the 2024 election. Bankman-Fried had been worth as much as $16 billion before his company collapsed.
Defendants charged with federal crimes face daunting odds. According to Pew Research data, 90% of those charged plead guilty and of the 2% who go to trial, 83% are convicted (Former Theranos executives Elizabeth Holmes and Sunny Balwani, sentenced to more than 11 and nearly 13 years, respectively, for conspiracy and fraud, are two recent high-profile examples of defendants who took their chances with a trial.) Sentences for financial crimes also usually reflect the magnitude of harm, a worrisome point for Bankman-Fried given the considerable losses.
Bankman-Fried’s legal troubles don’t end with the Justice Department. On Tuesday the Securities and Exchange Commission charged him with securities fraud, and the Commodity Futures Trading Commission also brought charges.
“We allege,” SEC Chair Gary Gensler said, that Bankman-Fried “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.” Bankman-Fried allegedly schemed to defraud equity investors in FTX, with his company raising $1.1 billion from about 90 U.S.-based investors. Those investors, the SEC maintains, were not informed that their funds were transferred to Alameda Research, Bankman-Fried’s “privately-held crypto hedge fund” through which he is accused of making “undisclosed venture investments, lavish real estate purchases, and large political donations.” The SEC seeks disgorgement of Bankman-Fried’s ill-gotten gains, a civil penalty and multiple injunctions that would block him from engaging in the sale of any securities.
Last month, an FTX investor sued Bankman-Fried and a dozen celebrities who promoted FTX, including Tom Brady, David Ortiz, Naomi Osaka, Shohei Ohtani, Steph Curry, Shaquille O’Neal, Udonis Haslem and Trevor Lawrence. The celebrities are portrayed in the suit as co-owners and conspirators who duped their fans and unwitting consumers into buying FTX yield-bearing digital currency accounts. While courts are often skeptical of lawsuits against endorsers when they’re blamed for the endorsed company’s unlawful acts, here the endorsers are depicted as partners. As such, a court might find they had greater access to company information and a higher duty to speak accurately about FTX.
Curry’s involvement with FTX is also subject to a lawsuit filed last Friday against the point guard, the makers of the Bored Ape Yacht Club NFT series and 36 other defendants. The Golden State Warriors, who partnered with FTX and unveiled an FTX logo on the court of Chase Center, are also a defendant in FTX-related litigation. Meanwhile, the Miami Heat, who play at the FTX Arena, have a stake in whether the arena’s owner, Miami-Dade County, succeeds in convincing the judge overseeing FTX’s bankruptcy to terminate the naming rights deal.
The civil litigation and now criminal prosecution could make FTX’s celebrity endorsers and various team officials key witnesses for plaintiffs and prosecutors. They could be required to answer questions about their discussions with Bankman-Fried and other FTX executives and asked whether they inquired about potential risks to consumers. The celebrities could also be required to participate in depositions where they answer questions in person, or if any of the legal controversies goes to trial, appear on the witness stand. If any sent emails or texts, those could surface in filings that are accessible to the public and media.
Both plaintiffs’ attorneys and prosecutors seek to establish that Bankman-Fried possessed intent and knowledge in committing fraudulent acts. Unlike many accused, Bankman-Fried has maintained a robust public profile, arguing his mistakes were borne from ignorance, which may foreshadow his likely legal defense: he didn’t know what he was doing and so didn’t try to hurt anyone. That narrative is arguably belied by Bankman-Fried’s involvement in forums in which he appeared as a crypto expert. He also may have relied on company counsel and the advice of his parents, Stanford Law professors Joseph Bankman and Barbara Fried.
It has also been speculated that Caroline Ellison, the former CEO of Alameda and ex-partner of Bankman-Fried, might be cooperating with the Justice Department and therefore sharing evidence and testimony that could implicate Bankman-Fried in exchange for a lighter punishment. She reportedly hired former SEC enforcement director Stephanie Avakian as counsel.
The United States would need to extradite Bankman-Fried unless he agreed to return voluntarily. Bahamas Attorney General Ryan Pinder issued a statement on Monday saying it “intends to process [an extradition request] promptly” once it is made. The U.S. and Bahamas have an extradition treaty which authorizes extradition for acts that would be classified as crimes in both countries; Bankman-Fried is expected to face similar charges in the Bahamas, making extradition likely.