U.S. prosecutors probing FTX founder Sam Bankman-Fried in potential fraud case: Bloomberg

Quick Take

  • U.S. prosecutors are reportedly laying the groundwork for a potential fraud case against FTX founder Sam Bankman-Fried.
  • Prosecutors are said to be examining whether FTX broke the law by transferring funds to Alameda Research.

U.S. prosecutors are probing Sam Bankman-Fried, the disgraced founder of now-bankrupt crypto group FTX, for a potential fraud case against him, Bloomberg reported Friday, citing a person familiar with the matter. Prosecutors are reportedly examining whether hundreds of millions of dollars were improperly transferred to the Bahamas around the time of FTX’s bankruptcy protection filing on Nov. 11 in the U.S.

U.S. Justice Department officials are said to have met with FTX’s court-appointed supervisors this week to investigate how FTX handled customer funds. They are reportedly studying whether FTX broke the law by transferring funds to Alameda Research, FTX’s sister trading and investment firm that also filed for bankruptcy protection with FTX last month.

Prosecutors in the Southern District of New York, including Assistant U.S. Attorney Nicolas Roos, met for about two hours this week with dozens of people investigating FTX’s collapse, according to the report. The meeting included officials from the SDNY, the Justice Department in Washington, the Federal Bureau of Investigation and the bankruptcy team led by John J. Ray III, FTX’s new CEO, the report said. Lawyers for FTX from Sullivan & Cromwell, including former Securities and Exchange Commission enforcement director Steve Peikin and former Manhattan federal prosecutor Nicole Friedlander, were also present.

Earlier this week, the New York Times reported that U.S. prosecutors are probing into whether Bankman-Fried manipulated the prices of TerraUSD and Luna earlier this year to benefit his businesses. The report cited a statement from Bankman-Fried saying he was “not aware of any market manipulation and certainly never intended to engage in market manipulation.”

Bankman-Fried, in several media interviews, has also denied that he ever knowingly misused customers’ funds. Bankman-Fried said this week he is willing to testify in front of the House Committee on Financial Services in Washington, D.C., on Dec. 13.

Meanwhile, attorneys in the Bahamas, where FTX was headquartered, filed an emergency motion on Friday asking a Delaware bankruptcy judge to compel U.S. leaders of FTX to give them access to databases as part of the proceedings, CNBC reported. The motion claims that despite “many attempts to obtain access,” FTX employees and counsel have obstructed Bahamian regulators in their effort to get critical financial information located in Amazon Web Services and Google Cloud Portal databases.

FTX filed for chapter 11 bankruptcy protection last month following a liquidity crunch. The crypto exchange reportedly tapped customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting up its demise.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from former FTX and Alameda founder Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.
 

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