According to two people familiar with the situation, federal prosecutors are looking into whether Sam Bankman-Fried, founder of FTX, manipulated the market for two cryptocurrencies last spring, causing their demise and starting a chain reaction that eventually led to the collapse of the private cryptocurrency exchange. it last month.

The possibility that Bankman Fried price-gouged two interrelated currenciesAnd TerraUSD and Luna, in favor of entities it controls, such as FTX and Alameda Research, a hedge fund he co-founded and owned, are being considered by US prosecutors in Manhattan, the people said.

The investigation is still in its early stages, so it’s not clear if prosecutors have found evidence of this Bankman Fried violations Or when they started looking at Trade TerraUSD and Luna. The case is part of a larger investigation into the downfall of Bankman-Fred’s cryptocurrency empire, which was based in the Bahamas, and the alleged theft of billions of dollars in client funds.

The Securities and Exchange Commission and federal prosecutors are examining whether FTX’s transfer of client funds to Alameda was illegal. A run on deposits last month exposed an $8 billion hole in the stock exchange’s accounts, leading to the company’s demise. When FTX declared bankruptcy on November 11, Bankman-Fried stepped down as CEO.

According to three people familiar with the investigation, FTX is also being considered for possible violation of US money laundering laws, which require money transfer companies to know their customers and report any potential illegal activity to law enforcement. This investigation, first reported by Bloomberg News, began before FTX filed for bankruptcy. The activities of other cryptocurrency trading platforms abroad are also being investigated.

Bankman-Fried released a statement claiming,

I am not aware of any market manipulation and I certainly did not intend to engage in market manipulation.

To the best of his knowledge, all transactions were made for the purpose of hedging or investing.
Representatives for the attorney general for the Southern District of New York declined to comment. Requests for comment from FTX representatives did not immediately receive a response.

The legal controversy surrounding Bankman-Fried is increasing due to focus on potential market manipulation. The deliberate staging of market activity intended to manipulate the price of an asset is prohibited.

Although TerraUSD was a “stablecoin”, its value was not backed by the dollar in the same way that other stablecoins are. Instead, it relied on a second currency called Luna and a complex system of algorithms to maintain its value. These currencies, whose prices have changed depending on the number of coins in circulation, can be created by traders working in the digital ecosystem. The supply of Luna will rise as the price of TerraUSD falls because traders will produce more Luna to try to make up the difference.

A person familiar with the market activity claimed that in May, major cryptocurrency market makers — exchanges or individuals who coordinate matching buyers and sellers — noticed an influx of “sell” orders into TerraUSD. The person stated that although the orders were in small quantities, they were quickly filled.

The sudden increase in TerraUSD sell orders overburdened the system, making it difficult to locate a compatible site “He buys” orders to them. Normal operating procedures match any sell orders that have not been fulfilled for a long time with buy orders at a lower price. Because of the way the two lots are linked, the longer orders go without being filled, the further the price of TerraUSD will drop and thus the price of Luna.

The exact reasons for the demise of the two cryptocurrencies are still unknown. However, according to the person familiar with the market activity, the majority of sell orders for TerraUSD seem to come from a single source: Sam Bankman-Fried’s cryptocurrency trade, which also made a big bet on Luna’s price drop.

Luna’s lower prices might have resulted in a big profit if the trade went as planned. Instead, the entire TerraUSD-Luna ecosystem collapsed. Several companies known to have filed for bankruptcy as a result of the crash also wiped out nearly a trillion dollars in value from the rest of the world Cryptocurrency market.

The downfall of the Fried Corporation empire was ultimately affected by the fallout from Luna’s collapse. According to a person familiar with the situation, Alameda CEO Caroline Ellison told employees in November that loans to the company had been taken away because of the chaos the crash had created in the markets. However, Ellison informed the staff that Alameda’s borrowed funds were no longer easily accessible, so the company used FTX clients’ funds to cover the payments.

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