New York prosecutors opened compliance investigation into FTX MONTHS before it filed for bankruptcy

New York prosecutors opened compliance investigation into crumbling FTX MONTHS before it filed for bankruptcy

  • The US Attorney’s Office for the Southern District of New York spearheaded the investigation, which saw agents spend months surveilling the digital exchange
  • Once valued as high as $32 billion, the Bahama-based company filed for bankruptcy Nov. 11, leaving a million creditors in the red billions of dollars
  • Questions have since surfaced regarding what led to the the sudden downfall of one of the most powerful players in the crypto industry
  • t is currently unclear whether prosecutors reached any conclusion in their probe in the months leading up to the digital exchange’s sudden fall from grace 

US prosecutors opened a probe into FTX months before it filed for bankruptcy, it has been revealed – suspecting the failed crypto exchange and its embattled founder, Sam Bankman-Fried, of engaging in federal fraud. 

The US Attorney’s Office for the Southern District of New York spearheaded the investigation, which saw agents spend months surveilling the digital exchange.

Recently valued as high as $32 billion, the Bahama-based company filed for bankruptcy in Delaware on November 11, leaving more than a million creditors in the red billions of dollars.

One of the biggest crypto blowups of all time, questions have since surfaced regarding what led to the the sudden downfall of one of the most powerful players in the crypto industry.

It is currently unclear whether prosecutors reached any conclusion in their probe in the months leading up to the digital exchange’s sudden fall from grace. The investigation, Bloomberg reported, was led by US attorney Damian Williams.

The investigation, Bloomberg reported, was led by US attorney Damian Williams (pictured)

Meanwhile, the company's booted founder Sam Bankman-Fried has tried to broker a multibillion dollar bailout from his upscale home in the Bahamas

US prosecutors, led by New York State Attorney Damian Williams opened a probe into FTX months before it filed for bankruptcy – suspecting the failed crypto exchange and ousted 30-year-old founder Sam Bankman-Fried (right), of engaging in fraud

The probe’s focus, Bloomberg reported, was primarily on compliance with the Bank Secrecy Act, which enforces record-keeping requirements on agencies such as banks and financial exchanges.

Meanwhile, the company’s booted founder Bankman-Fried, 30, has tried to broker a multibillion dollar bailout from his upscale home in the Bahamas, despite relinquishing his position as CEO when filing for Chapter 11. 

A hearing on FTX’s so-called first-day motions is set for Tuesday, where the company’s legal team will appear before a judge in Delaware Bankruptcy Court, according to a recent court filing.

FTX issued this statement on Thursday announcing it has filed for Chapter 11. The probe's focus, Bloomberg reported, was primarily on compliance with the Bank Secrecy Act, which enforces record-keeping requirements on agencies such as banks and financial exchanges

FTX issued this statement on Thursday announcing it has filed for Chapter 11. The probe’s focus, Bloomberg reported, was primarily on compliance with the Bank Secrecy Act, which enforces record-keeping requirements on agencies such as banks and financial exchanges

Nassau-based FTX, one of the world’s largest crypto exchanges before its downfall this month, seemingly skates on the outskirts of compliance with such laws s, as it operates out of the Bahamas but also out of the US, albeit to a much more limited extent, with its platform FTX US

Nassau-based FTX, one of the world’s largest crypto exchanges before its downfall this month, seemingly skates on the outskirts of compliance with such laws s, as it operates out of the Bahamas but also out of the US, albeit to a much more limited extent, with its platform FTX US 

According to Bloomberg’s report, published Monday evening, Williams’s monthlong sweep into Nassau-based FTX’s finances raised questions even before billions of dollars evaporated from the exchange seemingly in the blink of an eye.

Those inconsistencies, while not specified, saw Williams’ team to question the trustworthy of FTX’s financial information, people familiar with the investigation told the outlet.

The focus of the probe, the insiders said, was on compliance with federal laws meant to prevent money laundering and terrorism financing. 

FTX founder Sam Bankman-Fried, once hailed as the 'poster boy' for crypto, faces bankruptcy after the company's meltdown

FTX founder Sam Bankman-Fried, once hailed as the ‘poster boy’ for crypto, faces bankruptcy after the company’s meltdown

More recently, authorities have used those laws to go after crypto platforms that have fraudulently claimed that they do not serve US customers for tax reasons.

Nassau-based FTX, one of the world’s largest crypto exchanges before its downfall this month, seemingly skates on the outskirts of compliance with such laws s, as it operates out of the Bahamas but also out of the US, albeit to a much more limited extent, with its planform FTX US.

Meanwhile, authorities in the Bahamas are also investigating the company, regarding any potential criminal misconduct related to its implosion, the Royal Bahamas Police Force said in a statement Sunday. 

FTX’s 30-year-old founder Bankman-Fried, meanwhile, whose net worth allegedly plummeted from $16 billion to $0 as a result of the crash, has sought to explain his company’s fall in the press and on social media, while slamming federal regulators.

In a conversation with a Vox, Bankman-Fried, who is from Stanford, California, blamed FTX’s collapse in part on ‘messy accounting,’ and expressed regret at his decision to file for bankruptcy.

He would also denigrated U.S. regulators, using profane terms, as partially responsible, but said he did not intend for those talks to be made public just yet.

Despite being removed from the CEO position, Bankman-Fried, like the company he founded, is the subject of investigations from the U.S. Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission. 

He is also facing class action suit filed by investors affected by FTX’s collapse, with who promoted the platform also named. 

FTX was valued at around $25 billion during the meme fundraiser and investors included BlackRock and the Singapore sovereign wealth fund. As the cash poured in, Bankman-Fried sold a $300 million stake in FTX

FTX was valued at around $25 billion during the meme fundraiser and investors included BlackRock and the Singapore sovereign wealth fund. As the cash poured in, Bankman-Fried sold a $300 million stake in FTX

The probe puts the FTX founder, meanwhile, under threat of charges including wire fraud

The probe puts the FTX founder, meanwhile, under threat of charges including wire fraud 

The New York Attorney’s investigation comes as the latest addition to this litany of inquiries into the legality of the company’s practices, but is unique in that it predates FTX’s fall in value by several months.

Despite this, the fruits of the federal investigation have yet to be revealed.

SBF: Hoodie-wearing vegan son of Stanford Law professors who sleeps four hours a night

Sam Bankman-Fried, a vegan who sleeps four hours a night, had become a public face of cryptocurrency, with a personal fortune once estimated at nearly $25 billion.

The success of FTX allowed the platform to forge prestigious partnerships, notably with American football legend Tom Brady and former supermodel Gisele Bundchen, and it featured comedian Larry David in a Super Bowl television advertisement.

Almost always appearing with a hoodie and a dark T-shirt, Bankman-Fried has pledged to donate almost all of his fortune to his favored causes, like animal welfare and the fight against global warming.

The son of Stanford Law School professors and a graduate of the elite Massachusetts Institute of Technology (MIT), he was born on the Stanford campus and raised in California.

FTX CEO Sam Bankman-Fried

 Sam Bankman-Fried, 30

He worked as a broker on Wall Street before turning to cryptocurrencies in 2017.

Bankman-Fried moved the company to the Bahamas, where taxes are almost nonexistent, saying the Caribbean nation is ‘one of the few countries that has a comprehensive licensing regime for cryptocurrencies and cryptocurrency exchanges.’

He has been a vocal advocate for smoother access to the crypto market for the general public, particularly in the United States.

Advertisement

According to Bloomberg, Williams’ team and agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission are in talks with Bankman-Fried’s replacement John J. Ray III, who took over as part of its bankruptcy proceeding and is now navigating the rapidly unfolding crisis. 

Ray, a seasoned expert brought in to salvage any semblance of profit following the company’s collapse, is billing $1,300 per hour for his work, court documents filed on Sunday show.

Standing in the way of this effort, is a freeze on company funds – as well as a lack of clear records about who is owed what.

Ray and his team have since said that they seeking to carry on paying senior staff wages, as they circumnavigate the insolvency proceedings.

FTX’s sudden collapse came after a revelation by competing exchange CoinDesk that the company had blurred financial lines by mixing FTX funds with that of its supposedly independent trading arm Alameda Research, to hide massive losses and thus, the exchange’s true value.

The exchange may have left as many as 1 million creditors, including users still unable to withdraw funds from their accounts, out of billions of dollars in investments.

Bankman-Fried, who did not respond to questions about his legal team this week, has hired Gregory Joseph, a criminal defense lawyer at law firm Joseph Hage Aaronson in New York, and Stanford University law professor David Mills as members of his legal team, according to a report from Semafor. 

Both of Bankman-Fried’s parents are on the faculty of Stanford Law School.

Joseph is a former president of the American College of Trial Lawyers who has written about racketeering law and rules of evidence. Mills specializes in criminal law and white-collar crime.

Neither Joseph nor Mills replied to requests for comment.

Bankman-Fried, a vegan who sleeps four hours a night, had become a public face of cryptocurrency before his exchange’s collapse, with a personal fortune once estimated at nearly $25 billion.

The success of FTX allowed the platform to forge prestigious partnerships, notably with American football legend Tom Brady and former supermodel Gisele Bundchen, and widely seen Super Bowl television advertisement featuring Larry David.

Its subsequent meltdown follows a year of intense pressure for crypto markets, as rising interest rates prompted investors to ditch risky or speculative assets. 

Representatives for the US attorney’s office and FTX have declined to comment on the contents of their probe, due to its still being underway.

The probe puts the FTX founder, meanwhile, under threat of charges including wire fraud. 

The first day of Bankruptcy motions will commence Tuesday.

Timeline of the rapid rise and swift downfall of crypto exchange FTX

Cryptocurrency exchange FTX has collapsed.

Here is a history of FTX since its foundation in 2019:

2019:

May – Former Wall Street trader Sam Bankman-Fried and ex-Google employee Gary Wang founded FTX, the owner and operator of FTX.COM cryptocurrency exchange.

2020:

August – FTX acquired mobile portfolio tracking application, Blockfolio for $150 million.

2021:

July – A $900 million funding round valued FTX at $18 billion.

September – FTX signed a sponsorship deal with Mercedes’ Formula 1 team.

October – FTX raised capital at a valuation of $25 billion from investors including Singapore’s Temasek and Tiger Global.

2022:

Jan. 27 – FTX’s U.S. arm said it was valued at $8 billion after raising $400 million in its first funding round from investors including SoftBank and Temasek.

Jan. 31 – FTX raised $400 million from investors including SoftBank at a valuation of $32 billion.

Feb. 13 – Larry David stars in Super Bowl commercial for FTX

June 4 – FTX signed a reportedly $135 million sponsorship deal for naming rights of the Miami Heat’s home court.

July 1 – FTX signed a deal with an option to buy embattled crypto lender BlockFi for up to $240 million.

July 22 – FTX offered a partial bailout of bankrupt crypto lender Voyager Digital. Voyager called it a ‘low-ball bid’.

July 29 – FTX said it won full approval to operate its exchange and clearing house in Dubai.

Aug. 19 – A U.S. bank regulator ordered crypto exchange FTX to halt ‘false and misleading’ claims it had made about whether funds at the company are insured by the government.

Sept. 9 – FTX’s venture capital fund said it would buy a 30% stake in SkyBridge Capital.

Nov. 2 – Crypto news website CoinDesk reported a leaked balance sheet that showed Alameda Research, Bankman-Fried’s crypto trading firm, was heavily dependent on FTX’s native token, FTT. 

Nov. 6 – Binance CEO Changpeng Zhao said his firm would liquidate its holdings of FTT due to unspecified ‘recent revelations’.

Nov. 7 – Bankman-Fried said ‘FTX is fine. Assets are fine’.

Nov. 8 – FTT collapses by 72% as clients swamp the exchange with withdrawal requests. Binance offers a potential bailout in a non-binding deal.

Nov. 9 – Binance backs out of the rescue plan, saying: ‘As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.’ 

Nov. 11 – Bankman-Fried resigns as CEO and FTX files for Chapter 11 bankruptcy 

Source

Related posts