The Royal Bahamas Police Force and Bahamas Securities Commission have launched a criminal investigation into the now-bankrupt crypto exchange giant FTX.
The probe follows previous statements from the securities regulator noting potential mishandling of client funds.
Bahamas Regulators VS FTX
RBPF spokesperson Chrislyn Skippings announced the probe on Sunday, without offering any details on exactly what crimes were being investigated.
However, the Bahamas Securities Commission previously said it was “aware of public statements suggesting that (FTX) clients’ assets were mishandled, mismanaged and/or transferred to Alameda Research,” in a statement on Thursday, in which the regulator froze the exchange’s assets.
“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.
FTX, FTX US, and Alameda Research – a trading desk also owned by Sam Bankman-Fried – all filed for bankruptcy on Friday following a bank-run style wave of withdrawal requests earlier in the week. FTX was forced to freeze user withdrawals on Tuesday, followed by FTX US on Friday.
FTX seemingly began to allow withdrawals for certain users in the Bahamas on Thursday – the region in which Bankman-Fried and the company are based. The exchange claimed at the time that regulators requested it to unfreeze Bahamian withdrawals, but the Securities Commission denied this in another 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.
Mismanagement of Funds
United States financial regulators – including the Commodities and Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) – are also reportedly investigating FTX, alongside the Justice Department. They too are examining whether customer assets were properly handled leading up to their insolvency.
Other crypto exchange CEOs, including Brian Armstrong of Coinbase, suspect that this was the case. “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 explained over Twitter last week.
Armstrong argued that his exchange does not risk insolvency in the same fashion due to backing customer assets 1:1. Ever since the bankruptcy, many exchanges including Binance are planning to implement “proof of reserves” systems to help assure users of the safety of their funds at all times.