FTX’s Sam Bankman-Fried arrested in the Bahamas after U.S. files charges

Yahoo Finance’s Alexis Keenan joins the Live show to discuss reports that Sam Bankman-Fried was arrested in the Bahamas on Monday.

Video Transcript

[AUDIO LOGO]

- Disgraced founder of crypto trading platform FTX Sam Bankman-Fried has been arrested in the Bahamas after the US filed criminal charges. Prosecutors confirmed he has been charged and said an indictment will be unsealed today. For the latest, let's bring in Yahoo Finance's Legal Correspondent Alexis Keenan. Alexis, a lot to unpack here.

ALEXIS KEENAN: A lot to unpack. OK, here's what we have going on. It's a big landscape of lawsuits from three different US agencies. One is, of course, the Department of Justice that has confirmed that it has filed charges, though those were filed in a sealed indictment, so we haven't yet seen that. However, "The New York Times" reports that the charges are based on wire fraud, wire fraud conspiracy-- by the way, that means there's somebody else involved. So we could see some other charges coming down against another individual-- securities fraud, securities fraud conspiracy, and also money laundering. That's what "The New York Times" says.

Also, though, the SEC filing a complaint. This is a civil complaint, so very different from what the DOJ would be doing and also different reason why Sam Bankman-Fried would be arrested and brought back, extradited to the United States. That would be based on the Department of Justice's criminal charges, though we're seeing all the color come from this SEC complaint because that has already been made public.

And what this complaint says is that going all the way back to the beginning of FTX, back to May 2019, that Sam Bankman-Fried had raised $1.8 billion from equity investors. And the hook here, the jurisdictional hook for the SEC, they say $1.1 billion of those funds were raised from 90 US-based investors. They say that Bankman-Fried concealed from investors that he diverted customers' funds to Alameda, which we've talked a lot about, the suspicions about that, also commingled customer funds in Alameda to make venture investments.

It goes on to say that also these funds were used to make loans to himself, also to make loans to executives at the company, as well as to give an unlimited line of credit to Alameda via FTX. Also lavish real estate purchases, also political donations named here, and also, finally, overexposing FTX to illiquid assets, all while the SEC says Sam Bankman-Fried was holding out to its investors that they had tight risk-management controls in place.

- So pair this with some of the proceedings that we've also seen already legally. I mean, we just had one kind of conclude with Elizabeth Holmes with regard to defrauding investors. Are there any similarities that we see here in comparison to that, which many people had to wrap their minds around, many watching documentaries even over the span of the last year and a half?

ALEXIS KEENAN: Yeah, so it's a good comparison. And I think what's important to point out is that the Department of Justice's charges are like those-- if "The New York Times's" reporting is accurate here, are like those that came against Elizabeth Holmes and other Ponzi scheme, like a Bernie Madoff, let's say. So fraud is based here from the DOJ. They bring charges when there is a false or misleading statement or omission that induces investors to give up something of value. And they do it knowingly and with intention to defraud those investors.

So the DOJ needs much less than the SEC does, right, because we have the SEC problem where there's been so much fighting about whether these crypto assets are or are not securities. And the SEC's jurisdiction is about securities. That's what they are able to litigate over.

And, by the way, with those charges being civil charges, they are much less threatening than those coming from the DOJ. So in terms of it being like the case that we just saw play out against Elizabeth Holmes, the takeaway, I would say, is how serious these charges are, those charges against her and her coconspirator landed them between 11 years and 13, almost 13 years behind bars. So these are very, very serious charges.

- Just very quickly, Alexis, do the DOJ and the SEC typically share information?

ALEXIS KEENAN: They do. They do. Now, they're different entities. There are plenty of probably egos within both of those agencies that would like to take credit for what they are finding. But absolutely, they do share information.

And that has been the case in many fraud cases in the past, where the SEC comes in. They can assess fines if the defendant is found guilty of the charges. But then the DOJ, of course, has that much broader jurisdiction to put people behind bars. So also I should mention that the CFTC has also waged some claims against Sam Bankman-Fried.

So all of this, what it means is we won't be hearing from him today in the testimony that starts at 10:00 AM, where John Ray, the new CEO of FTX, is expected to testify. He gave some prepared statements yesterday, which laid out some of these. In some ways, it mirrors his very broad statements, mirror some of what is being reported about these complaints that are coming down in the indictment that we're expecting.

- All right, this is, indeed, just the beginning of what is really setting up to be a whirlwind of news that's still going to continue to come around--

ALEXIS KEENAN: A lot more to come today.

- --the FTX downfall. Thanks so much. We appreciate it, Alexis Keenan, Yahoo Finance's own--