ABC News has learned from reliable sources that federal prosecutors in New York are looking into the circumstances behind the collapse of cryptocurrency exchange FTX.
The Securities and Exchange Commission and the Commodity Futures Trading Commission aren’t the only agencies looking into FTX’s bankruptcy filing; prosecutors have joined the probe.
According to the sources, the dispute centers on whether or not FTX’s transfer of client cash to Sam Bankman-trading Fried’s business, Alameda Research, constitutes a violation of securities regulations.
U.S. Attorney’s Office for the Southern District of New York spokeswoman would not comment.
According to a statement released by the Royal Bahamas Police, criminal proceedings have also been initiated in the Bahamas, where FTX is headquartered.
Earlier this month, a flood of consumer withdrawals worth billions of dollars was caused by worries of financial instability at FTX, a leading platform where users purchase and trade crypto. With no money to compensate vendors, FTX has temporarily suspended withdrawals.
According to a business notice released on Friday, FTX has initiated bankruptcy procedures in the United States in order to determine the worth of its remaining assets.
The release also noted that Bankman-Fried, who is just 30 years old, is a well-known crypto entrepreneur and the former CEO of FTX.
The collapse of FTX may be traced back in part to the cryptocurrency exchange’s ties to Alameda Research, a crypto hedge fund that Bankman-Fried also established.
According to The Wall Street Journal, FTX loaned client deposits to Alameda Research to assist it fulfill its responsibilities, and senior officials at Alameda Research knew about it.
However, when ABC News reached out to FTX for comment, the company was silent.
Last week, FTX was hit by a dramatic selloff of its native cryptocurrency, FTT, when news source CoinDesk revealed that a large percentage of Alameda Research’s assets comprised of the token, casting doubt on FTX’s ability to operate independently financially.
Customer withdrawals spiked to a record $5 billion in a single day after rival crypto exchange Binance CEO Changpeng Zhao said he would sell $580 million worth of the coin.
Similar to a bank run, the selloff left FTX scrambling to fulfill the unexpected demand for client money.
Some cryptocurrency traders on the site have expressed concern that they may never be able to retrieve their funds. Bitcoin’s value has dropped by almost 60% this year, coinciding with the disaster.