The Royal Bahamas Police Force and the Bahamas Securities Commission have opened a criminal investigation into FTX, the now-defunct crypto exchange giant.
The investigation follows prior statements from the securities regulator about the alleged mismanagement of client cash. On Sunday, RBPF spokesman Chrislyn Skippings announced the investigation without elaborating on the specific offenses being examined.
However, in a statement issued on Thursday, the Bahamas Securities Commission stated that it was “aware of public statements suggesting that (FTX) clients’ assets were mishandled, mismanaged and/or transferred to Alameda Research,”
“Based on the Commission’s information, any such actions would have been contrary to normal governance, without client consent, and potentially unlawful,” it said at the time.
Following a bank-run-style wave of withdrawal demands earlier in the week, FTX, FTX US, and Alameda Research – a trading desk also controlled by Sam Bankman-Fried – all declared bankruptcy on Friday. On Tuesday, FTX was forced to halt user withdrawals, followed by FTX US on Friday.
On Thursday, FTX appeared to start allowing withdrawals for certain users in the Bahamas, the territory where Bankman-Fried and the company are based. The exchange said at the time that regulators had requested that Bahamian withdrawals be unfrozen, but the Securities Commission refuted this in a separate statement on Saturday.
“The Commission wishes to advise that it has not directed, authorized, or suggested to FTX Digital Markets the prioritization of withdrawals for Bahamian clients,” it said.
Financial regulators in the United States, notably the Commodities and Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), are apparently looking into FTX with the Justice Department. They are also investigating whether customer assets were correctly managed before their insolvency.
Other crypto exchange CEOs, like Coinbase’s Brian Armstrong, suspect the same. “This event appears to be the result of risky business practices, including conflicts of interest between deeply intertwined entities, and misuse of customer funds (lending user assets),” he said last week on Twitter.
Armstrong said that because he is backing client assets 1:1, his exchange does not pose the same risk of insolvency. Since the bankruptcy, numerous exchanges, including Binance, have planned to introduce “proof of reserves” mechanisms to help ensure users’ assets are safe at all times.
