January 29, 2023

Federal prosecutors are investigating whether FTX founder Sam Bankman-Fried manipulated the markets for two cryptocurrencies last spring, causing them to crash and creating a domino effect that eventually led to his own cryptocurrency trading, according to two people familiar with the matter. Knowledge of what happened last month.

U.S. Attorneys in Manhattan are looking into whether Mr. Bankman-Fried may have manipulated the prices of two interrelated currencies, TerraUSD and Luna, to benefit entities he controls, including FTX and Alameda Research, a hedge fund he co-founded and owns, People Say.

The investigation is in its early stages, and it’s unclear whether prosecutors have established any wrongdoing by Mr. Bankman-Fried, or when they began reviewing the TerraUSD and Luna transactions. The matter is part of a wider investigation into the collapse of Mr. Bankman-Fried’s Bahamian cryptocurrency empire and the possible misappropriation of billions of dollars in client funds.

Federal prosecutors and the Securities and Exchange Commission have been examining whether FTX broke the law by moving its client funds to Alameda. Last month, a deposit run exposed an $8 billion hole in the exchange’s accounts, leading to the company’s collapse. When FTX filed for bankruptcy on November 11, Mr. Bankman-Fried resigned as FTX’s CEO.

FTX is also under investigation for violating U.S. anti-money laundering laws, which require money transfer businesses to know who their customers are and to report any potentially illegal activity to law enforcement authorities, according to three people familiar with the matter.that survey, first Report As reported by Bloomberg, it began months before FTX’s bankruptcy. Investigators are also probing the activities of other offshore cryptocurrency trading platforms.

In a statement, Mr Bankman Fried said he was “not aware of any market manipulation and certainly never intended to participate in it.”

“As far as I know, all transactions are for investment or hedging,” he added.

A representative for the U.S. Attorney for the Southern District of New York declined to comment. Representatives for FTX did not immediately respond to a request for comment.

Concerns over possible market manipulation have fueled a legal firestorm brewing over Mr Bankman-Fried. It is against the law for an individual to knowingly engage in market activity designed to increase or decrease the price of an asset.

TerraUSD is a so-called stablecoin, but unlike other stablecoins, its value is not directly backed by U.S. dollars. Instead, it maintains its value from a second token called Luna through a complex set of algorithms. Traders within the digital ecosystem can mint these coins, whose price fluctuates based on how much is in circulation. Anytime the price of TerraUSD falls, the supply of Luna increases as traders create more Luna in an attempt to capitalize on the difference.

In May, major cryptocurrency market makers — exchanges or individuals who match buyers and sellers — noticed a flood of “sell” orders pouring into TerraUSD, according to a person familiar with market activity. The orders were small in value but placed quickly, the person said.

The sudden increase in TerraUSD’s sell orders overwhelmed the system, making it difficult to find matching “buy” orders for them. Under normal circumstances, any long outstanding sell order would be matched with a lower priced buy order. The longer the orders linger without a match, the more they can drive down the price of TerraUSD and a corresponding drop in the price of Luna due to the way the two tokens are correlated.

The exact reasons for the collapse of the two cryptocurrencies are unclear. However, most of TerraUSD’s sell orders appear to be coming from one place, according to people with knowledge of market activity: Sam Bankman-Fried’s cryptocurrency trading firm, which is also betting on a drop in Luna’s price.

If the deal plays out as expected, Luna’s price drop could turn out to be lucrative. Instead, the bottom of the entire TerraUSD-Luna ecosystem fell off. The crash spelled more trouble for the cryptocurrency industry, bankrupting several high-profile companies and wiping around $1 trillion in value from the crypto market.

The chain reaction of the moon crash eventually led to the collapse of Mr. Bankman-Fried’s business empire. In November, Alameda Chief Executive Officer Caroline Ellison told employees that loans to Alameda had been called back because of the market disruption caused by the accident, according to a person familiar with the matter. But Ms. Ellison told employees that the funds Alameda had borrowed were no longer readily available, so the company used FTX client funds to make the payments.

Ms. Ellison’s attorney did not respond to a request for comment.

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