Sam Bankman-Fried's Arrest May Have Blocked Incriminating FTX Testimony

FTX founder Sam Bankman-Fried's sudden arrest on Monday night halted a scheduled testimony that legal experts say could have been damning for the crypto industry and its former golden boy.

A day before Bankman-Fried was expected to appear remotely before the House Financial Services Committee in a hearing about the collapse of crypto giant FTX, the 30-year-old was arrested in the Bahamas after U.S. prosecutors filed criminal charges.

FTX, a digital currency exchange, was one of the most powerful firms in the industry until it imploded almost overnight in what some have called crypto's "Lehman moment."

Although Tuesday's congressional hearing went on as planned, the absence of the disgraced founder, who was also a major donor to the Democratic Party, was criticized by Republican lawmakers who hinted that federal authorities purposely blocked his testimony. Even progressive congresswoman Maxine Waters, who chairs the committee, expressed her upset with Monday's development, saying, "the timing of this arrest denies the public" the opportunity to hear directly from Bankman-Fried while he was under oath.

Legal experts say that while the arrest was made by Bahamian authorities, rather than U.S. law enforcement, such a move should have waited until after Bankman-Fried's scheduled testimony.

Former federal prosecutor and elected state attorney Michael McAuliffe told Newsweek that federal officials might have actually gained valuable information from the testimony, which would have been under oath and addressed the very issues being investigated by the Justice Department.

Former federal prosecutor Neama Rahmani also told Newsweek that because Bankman-Fried is known to ignore legal advice, the FTX founder would have likely incriminated himself before the House committee, increasing the chances that he would plead guilty after an arrest.

"Most people would have refused to testify before Congress when there is a pending criminal investigation, but Bankman-Fried is not most people. He marches to the beat of his own drum, and also ignores legal advice," Rahmani said. "Testimony would have been helpful for a number of reasons, and prosecutors should have waited to arrest Bankman-Fried."

Rahmani said because the U.S. Attorney's Office had control over the timing of the arrest, the "only good reason" to make the decision before Bankman-Fried's congressional testimony is if there was concern that the 30-year-old would flee the country. "Otherwise, prosecutors jumped the gun," he said.

Ion Meyn, an associate law professor at the University of Wisconsin, agreed, telling Newsweek that sometimes arrests are initiated over concerns that a suspect is planning to escape to a non-extradition country or there is risk evidence will be destroyed.

The urgency with which authorities acted on the arrest seemed unusual for such a complex white-collar fraud case, but McAuliffe said the indictment suggests that the investigation was likely ongoing for "quite a while."

"The federal investigation could have long pre-dated the actual collapse of FTX," he said.

Bankman-Fried's decision to testify in front of Congress on his company's failings surprised many, especially crypto proponents who scrambled to distance themselves from FTX after its collapse.

Ahead of the arrest, GOP Senator Cynthia Lummis said she would definitely encourage Bankman-Fried against testifying if she were his lawyer. "It's amazing that he's going to one of the committees. I think that's a big mistake," she told Semafor's Joseph Zeballos-Roig.

Zeballos-Roig also reported that Bankman-Fried's arrest was a relief for top crypto executives and investors who were "bracing for a disastrous hearing that would have further tarred the entire industry."

"[Sam Bankman-Fried's] arrest is a positive step for the crypto industry and FTX customers everywhere," Alex McCurry, CEO of blockchain development firm Solidity.io, told Newsweek. "SBF's arrest is a step in the right direction towards accountability and justice for FTX victims, and will hopefully push regulators to support proper regulation of centralized exchanges."

Although the FTX founder did not appear before the committee, James Thurber, a professor of government and founder of the Congressional and Presidential Studies at American University, said Tuesday's hearing would still be important to regulating the crypto sector.

Thurber told Newsweek that because the majority of lawmakers remain anxious to introduce legislation that would do so, "The FTX collapse remains one of the best examples so far of what can happen to customer funds in the absence of clear rules and direct U.S. government oversight."