FTX probed by US prosecutors months before its collapse in examination of offshore crypto operations
- The investigation focused on compliance with the Bank Secrecy Act, which requires financial institutions to take steps to prevent money laundering
- The move shows FTX’s sprawling operations were raising questions even before its financial ties with Alameda Research led it to unravel
Long before Sam Bankman-Fried’s FTX cryptocurrency empire collapsed this month, it already was on the radar of federal prosecutors in Manhattan.
The US Attorney’s Office for the Southern District of New York, led by Damian Williams, spent several months working on a sweeping examination of cryptocurrency platforms with US and offshore arms and had started poking into FTX’s massive exchange operations, according to people familiar with the investigation.
The focus was on compliance with the Bank Secrecy Act, the people said. Authorities have used the law, requiring financial institutions take steps to prevent money laundering and terrorism financing, to go after crypto platforms that allegedly falsely claimed that they don’t serve US customers. Bahamas-based FTX operated one of the world’s largest international crypto exchanges, as well as a separate and much more limited venue called FTX US that said it complies with the act.
It’s unclear whether prosecutors in Manhattan reached any conclusion in their probe before FTX – valued at nearly US$32 billion in a January financing – collapsed, sending the crypto market into a dive and raising questions about the accuracy of its pledges to safeguard customer assets. That put the federal investigation into a new trajectory, the people said.
Representatives for the US attorney’s office and FTX declined to comment.
The months-long sweep shows FTX’s sprawling operations were raising questions even before billions of dollars in financial ties between the exchange operator and Bankman-Fried’s Alameda Research Ltd investment arm alarmed investors and led his empire to unravel.
Prosecutors and regulators including the Securities and Exchange Commission and Commodity Futures Trading Commission are now seeking help from new FTX Chief Executive Officer John J. Ray III, who took over as part of its bankruptcy proceeding and is navigating what he described as “a complete absence of trustworthy financial information”.
Last week, Ray told the bankruptcy court in a filing that his team had found loans of more than US$1 billion made by Alameda to Bankman-Fried and other executives. The filing also alleged software was used to conceal the use of customer funds. Whether any such conduct broke laws will be left to prosecutors. So far, they haven’t accused anyone of wrongdoing.