FTX’s Sam Bankman-Fried faces SEC probe as his empire crumbles

By Lydia Beyoud, Olga Kharif / Bloomberg

13:57 JST, November 11, 2022

Sam Bankman-Fried is being investigated by the U.S. Securities and Exchange Commission for potential violations of securities rules as the regulator deepens its probe into his crumbling FTX crypto empire, according to a person familiar with the matter.

FTX, the American platform FTX US, and Bankman-Fried’s trading house Alameda Research are already under investigation by the SEC, Bloomberg News reported Wednesday. The Justice Department is also looking into the situation.

The SEC is scrutinizing Bankman-Fried’s involvement in recent moves that helped push FTX.com, one of the world’s largest exchanges, into a liquidity crisis, said the person, who asked not to be named discussing the confidential inquiry. As the crisis deepened on Thursday, the securities regulator for the Bahamas, where FTX.com is based, said it was freezing the firm’s assets and appointing a provisional liquidator.

Representatives for the SEC and FTX.com declined to comment. Bankman-Fried, 30, didn’t immediately respond to a request for comment, nor did the FTX US exchange.

U.S. regulators have been looking into whether FTX.com mishandled customer funds and reviewing the global trading platform’s relationships with other Bankman-Fried’s businesses. The SEC’s scrutiny started months ago as a probe into the FTX US platform and its crypto-lending activities, but in recent days has expanded.

The initiation of probes doesn’t necessarily mean that anyone will be accused of wrongdoing.

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– FTX US legal chief tells staff he’s working to preserve platform

FTX US general counsel Ryne Miller said in an internal memo he’s working with advisers to preserve “whatever is preservable” of the crypto exchange.

“We should not be optimistic for an outcome that is positive,” Miller wrote. “I’m working with outside advisers to be best prepared to navigate FTX entities to next steps.”

Miller’s message was sent to staff on a Slack channel Wednesday night and later deleted by a member of the founding team, according to a person familiar with the matter. The general counsel said he hasn’t received much clear information from the founders, and has advised U.S. regulators of his instruction to founders to turn off functionality of both the U.S. and global platforms.

“Folks should prepare to make their own choices as appropriate for their personal situation on next steps,” he wrote. “FTX US looks prepared to make payroll at least in the next cycle.”

FTX founder Sam Bankman-Fried said in a tweet Thursday that the firm is “100% liquid” and “not financially impacted” by FTX International’s problems. FTX US’s trading may be halted in a few days and users should close down any positions, according to a notice from the website. Withdrawals will remain open, it said.

The crisis engulfing FTX snowballed this week, after revelations that FTX.com can’t cover all customer funds due to a shortfall of as much as $8 billion.

FTX US, which shares similar owners and investors with FTX’s global exchange, was valued at $8 billion in a January round. In recent days, the Securities and Exchange Commission and the Commodity Futures Trading Commission have asked for details about the ownership structure of FTX US and FTX.com, and whether customer accounts were properly segregated, Bloomberg News has reported.

An FTX US representative didn’t immediately return a request for comment.

Sequoia Capital has written down the full value of its $214 million investment in FTX, including holdings of FTX US, a spokeswoman for the firm said.

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– Embattled crypto lender BlockFi pauses withdrawals

Troubled crypto lender BlockFi said in a statement on Twitter that the company can no longer operate business as usual, citing “a lack of clarity” on the status of FTX.com, FTX and Alameda Research.

The company said it is limiting platform activity and pausing client withdrawals. BlockFi asked customers not to deposit funds at this time.

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– Sponsor of key U.S. crypto bill that empowers CFTC is to review legislation

John Boozman, a lead co-sponsor on legislation that would give the Commodity Futures Trading Commission more power to oversee digital assets, said the bill’s backers are “taking a top-down look to ensure it establishes the necessary safeguards the digital commodities market desperately needs.”

“Chairwoman Stabenow and I remain committed to advancing a final version of the DCCPA that creates a regulatory framework that allows for international cooperation and gives consumers greater confidence that their investments are safe,” he added.

He was referring to Debbie Stabenow, a leader of the Senate Agriculture Committee along with Boozman. DCCPA refers to the bill, the Digital Commodities Consumer Protection Act of 2022.

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– Broker Genesis’ derivatives unit has about $175 million on FTX platform

Crypto broker Genesis said its derivatives business has about $175 million “in locked funds” in the company’s FTX trading account.

“This does not impact our market-making activities,” the firm said in a Twitter thread, adding “our operating capital and net positions in FTX are not material to our business.”

The fallout from the collapse of the FTX empire has left investors on edge about the risk of contagion.

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– White House is monitoring crypto markets

The Biden administration is aware of recent developments surrounding cryptocurrencies and will “continue to monitor the situation,” White House Press Secretary Karine Jean-Pierre told reporters .

Jean-Pierre said the White House believes cryptocurrency markets require “proper oversight,” but declined to comment on specific steps regulators can or should take.

“The most recent news further underscores these concerns and highlights why prudent regulation of cryptocurrencies is indeed needed,” Jean-Pierre said at her daily press briefing.

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