Bahamas authorities learned of possible fraud by FTX in November

Ryan Salame, head of FTX’s Bahamas operation, warned the local regulator about potential fraud by the cryptocurrency exchange two days before the bankruptcy filing, according to court documents.

On November 9, Salame told the Securities and Exchange Commission that FTX was sending customer funds to the affiliated firm Alameda Research ‘to cover its financial losses’.

According to him, such transactions could only have been authorised by three people: the exchange’s co-founders Sam Bankman-Fried and Gary Wang, and Chief Technology Officer Nishad Singh.

Salame, in a phone call with regulator head Kristina Rolle, noted that ‘such transfers are not permitted, and may amount to misappropriation, theft, fraud or some other wrongdoing’.

Rolle allegedly immediately referred the matter to the police for investigation. On November 10, the Commission took measures to the freezing of assets at FTX Digital Markets. The court granted the regulator’s petition to appoint a temporary liquidator for the firm.

On November 11, the FTX Group filed for bankruptcy. The filing covered the parent company FTX Trading, Alameda Research and about 130 other affiliated firms. Several subsidiary structures, including FTX Digital Markets, were not included in the filing.

According to court documents, Bankman-Fried had been actively communicating with Rolle and the Bahamas Attorney-General Ryan Pinder. To the latter, in one of the emails, he stated that FTX had ‘segregated funds for all Bahamian clients’, which would allow withdrawals to be fully restored for them.

On December 13, Bahamian authorities arrested Bankman-Fried at the request of the U.S. government. The court denied him release on bail of $250,000; he will remain in custody at least until February 8, 2023.

In the United States, lawsuits have been filed against the founder of FTX by the SEC, CFTC and Department of Justice.

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