A Bahamian police investigation and inquiries by US authorities are just the tip of FTX's current woes.
A half-billion-dollar hack, the unexplained and premature movement of $400 million worth of FTX-issued FTT tokens and a Bahamian police investigation shows law enforcement’s growing interest in the exchange’s collapse into bankruptcy.
The bad news just keeps coming from the ruins of Sam Bankman-Fried’s bankrupt FTX Group empire.
Sunday saw the unexpected and unexplained release of 192 million of the FTX exchange’s crashing-but-not zeroed FTT tokens that were at the heart of the implosion of FTX, FTX US, and trading firm Alameda Research.
The weekend also saw news that Bahaman police are investigating the collapse of FTX, which is based there, and unconfirmed reports said Bankman-Fried and several other executives were “under supervision” by police.
The premature movement of all remaining FTT tokens, which were supposed to be deployed on a fixed schedule, has not been explained. The move was noted at around 2 a.m. ET on Nov. 13 by Binance CEO Changpeng “CZ” Zhao on Twitter, who tweeted the news, adding “not too sure what’s going on.”
But both Binance and Huobi Global have blocked FTT deposits as a result.
At the time, those tokens were worth about $400 million. But by 11 p.m. ET that same day, those FTT tokens — already down 90% this week — were worth less than $300 million. This price drop is bad news for FTX Group creditors, as those tokens appear to make up a huge chunk of its assets.
FTX’s collapse began when it was revealed that the majority of Bankman-Fried’s trading firm’s balance sheet consisted of FTT. A run on FTX quickly left it insolvent, and further reports allegedly revealed that it had loaned Alameda $10 billion, a large amount of which was the exchange’s customers’ funds.
More allegations emerged that Bankman-Fried had moved the funds via a software “backdoor” that kept transfers secret from the firm’s legal and regulatory team, who promptly resigned.
And there are a growing number of reports that investigations of the collapse are moving from financial regulators to criminal investigators in at least the U.S. as well as the Bahamas, where Bankman-Fried resides and his companies are based.
Police Involvement
On Nov. 13, the Royal Bahamas Police Force’s Twitter account released a statement saying that investigators from its “Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred.”
A Cointelegraph report, citing unnamed sources, said that former FTX CEO Bankman-Fried, co-founder Gary Wang and director of engineering Nishad Singh are “under supervision” by authorities in the Bahamas, where they live and the companies are based.
Beyond that, the U.S. Justice Department, Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are all investigating FTX’s collapse.
Then there’s the hack. On Nov. 12, the exchange was hacked in allegedly suspicious circumstances to the tune of $477 million, leading its new leadership — including a CEO with experience unwinding Enron — to announce they were working with law enforcement.
Kraken added to the rumor mill when its chief security officer, Nick Percoco, said on Twitter on Nov. 12 that “[w]e know the identity of the user” that hacked FTX as the transaction used crypto in a customer’s account.
That’s not Kraken’s only legal involvement.
While it’s unclear if it’s related to earlier news that some Bahamas-based accounts were allowed to withdraw funds from FTX after withdrawals had been halted, crypto exchange Kraken revealed on Nov. 13 that:
“Kraken has spoken with law enforcement regarding a handful of accounts owned by the bankrupt FTX Group, Alameda Research and their executives. Those accounts have been frozen to protect their creditors. Other Kraken clients are not affected. Kraken maintains full reserves.”
But certainly rumors are flying of criminal investigations. On Nov. 12, Reuters reported that Bankman-Fried had denied that he had fled to Argentina.
