Bahamian authorities were tipped off by top Bankman-Fried associate

Sam Bankman-Fried is accused of defrauding FTX customers by funnelling billions of dollars to his Alameda trading firm and spending the money as if it was his own. Photo / 123RF

One of Sam Bankman-Fried’s close associates told Bahamian regulators in the days before FTX collapsed that the now-disgraced founder had likely funnelled customer money to his hedge fund, a move that helped accelerate the 30-year-old’s downfall.

Ryan Salame, co-chief executive of FTX’s Bahamas operating entity, informed the country’s securities commission on November 9 that FTX customer funds had been used to cover losses at Alameda Research, according to Bahamian court records.

Salame identified Bankman-Fried and two other FTX executives as potentially being responsible, an allegation that triggered a referral to the Bahamas police and ultimately the appointment of liquidators.

The previously unreported contact between Salame and the Securities Commission of The Bahamas is the first known instance of a top associate to Bankman-Fried assisting government authorities to bring down an alleged years-long, massive fraud.

The fact that only Bankman-Fried has been charged so far has fuelled speculation that several business associates may be co-operating with prosecutors.

Bankman-Fried has been indicted by the US Department of Justice and was arrested by Bahamian police on Monday pending possible extradition to the US. Prosecutors have called his case “one of the biggest financial frauds in American history”.

Now in a Bahamas jail after being denied bail, Bankman-Fried is accused of defrauding FTX customers by funnelling billions of dollars to his Alameda trading firm and spending the money as if it was his own. He has denied intentional wrongdoing.

The charges include a claim Bankman-Fried conspired to violate US campaign finance laws by making donations through unnamed co-conspirators. He was one of the biggest Democratic donors in the 2021-22 election cycle with US$39 million ($61.2m) of known donations. Salame was a big Republican donor, giving more than US$20m.

The Bahamas securities commission did not immediately respond to a request for comment. An attorney for Salame declined to comment.

FTX was once valued at US$32 billion and had backing from blue-chip investors such as Sequoia Capital. The business came crashing down in just a week at the start of November as customers tried to pull their money off the exchange.

Once the third-largest cryptocurrency exchange, FTX along with its US business and Alameda were placed into Delaware bankruptcy proceedings on November 11 after Bankman-Fried relinquished control to restructuring specialist John Ray.

Securities regulators in the Bahamas, where FTX was headquartered, applied to place its local operating business FTX Digital Markets into provisional liquidation on November 10.

The two competing insolvency processes have since clashed, with Ray’s team alleging the Bahamas improperly transferred FTX assets, a claim the liquidators have strenuously denied.

Salame’s disclosures to the Bahamas securities commission were revealed in a US court filing made by the Bahamas liquidators on Wednesday. The liquidators submitted a copy of the commission’s application to the Bahamas Supreme Court to put FTX Digital Markets into liquidation.

The application shows that Salame spoke with the director of the Bahamas securities commission, Christina Rolle, on November 9. That same day Rolle sent a referral to the Royal Bahamas Police Force citing the information from Salame.

Written by: Kadhim Shubber and Caitlin Gilbert

© Financial Times