New Revelation: US Prosecutors Were Looking Into FTX Long Before Exchange Collapsed

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Jaroslaw Adamowski

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Jaroslaw Adamowski

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June 26, 2023

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The unexpected collapse of major crypto exchange FTX has drawn significant attention in the media but recently revealed documents suggest that Sam Bankman-Fried’s company was on the radar of federal prosecutors long before FTX filed for bankruptcy. 

The US Attorney’s Office for the Southern District of New York, led by U.S. attorney Damian Williams, devoted several months to an examination of crypto exchanges that maintain U.S. and foreign-based branches. As part of these proceedings, Manhattan prosecutors had started to look into FTX’s massive exchange operations, persons familiar with the investigation told Bloomberg. 

The probe, which was reportedly initiated months before the exchange’s collapse, indicates that FTX’s operations were viewed with suspicion by some American prosecutors. The available information from unnamed sources with ties to the investigation suggests that prosecutors were particularly interested in probing FTX’s compliance with the country’s Bank Secrecy Act. 

Passed by Congress in 1970, the legislation introduced anti-money laundering measures in the U.S. by obliging financial industry players to maintain records and file reports for the purpose of tax, criminal, and regulatory matters.

Meanwhile, in the aftermath of his empire’s meltdown, Bankman-Fried, FTX’s founder and former CEO, is making efforts to raise fresh capital to make customers whole despite bankruptcy filings. 

The entrepreneur has announced he is “meeting in person” with both potential investors and regulators to do what they can for customers. “And after that, investors. But first, customers,” Bankman-Fried said in a tweet. 

At the same time, as FTX is advancing through its voluntary Chapter 11 bankruptcy proceedings, some industry observers are worried about the risk of a broader contagion spreading across the crypto ecosystem. 

Among others, Joseph Ayoub, an analyst at international financial industry player Citi, recently said that he believes that the overall crypto industry was facing a “serious risk of broader contagion to the ecosystem itself” but that it was also unlikely that such a contagion would be further spread to the legacy finance markets.

“Within cryptocurrency, it is unclear as to how far and how deep this goes. Contagion can last for a significant amount of time,” the bank’s analyst said. 

This said, the ongoing market woes could “also provide opportunity for other exchanges to potentially take a larger share of the market as the second-largest derivatives and spot exchange has filed for Chapter 11,” according to Ayoub.