The FTX investigation widens as prosecutors contact former executives

According to a dozen people with knowledge of the investigation, federal prosecutors are closely looking at an expanding number of individuals connected to Sam Bankman-Fried‘s dismantled cryptocurrency empire, including his father, brother, and former coworkers. The investigation is one of the largest financial crime cases to be investigated in the United States in more than a decade.

A special task force has been established by the Manhattan office of the U.S. attorney to carry out the inquiry into the demise of FTX, the crypto exchange Bankman-Fried founded.

More than a dozen prosecutors are constructing the criminal case and locating the billions of dollars in client funds that Bankman-Fried is accused of misappropriating, under the direction of Damian Williams, the U.S. attorney for the Southern District of New York.

According to several sources with knowledge of the investigation, prosecutors have recently spoken with the attorneys for a dozen former executives and workers at FTX and Alameda Research, the hedge fund Bankman-Fried also founded. It has been revealed that prosecutors have also looked into how Bankman-Fried’s family members contributed to his business empire.

Nearly everyone in Bankman-Fried’s inner circle has been compelled to seek legal counsel as a result of FTX’s failure as the investigation deepens and prosecutors consider filing further charges. Several former FTX executives who might have relevant information are each represented by defense attorneys from the law firms Mayer Brown, Steptoe & Johnson, and Covington & Burling.

According to Daniel Hawke, a former director of the Securities and Exchange Commission’s market abuse unit and currently a lawyer for the firm Arnold & Porter:

When people begin flipping or collaborating with the authorities, it might lead to new lines of inquiry and new people of interest.

The FTX probe may also target businesses that lent money to or received payments from the exchange. The issue at Genesis, a cryptocurrency loan company that the SEC just accused of breaking securities laws, began when FTX collapsed last year. A bipartisan group of senators also wrote to Silvergate, a bank that did business with FTX, in late January to inquire about the company’s knowledge of the exchange’s misappropriation of customer funds.

Prosecutors are attempting to collect hundreds of millions of dollars that were stolen from the exchange by a hacker around the time FTX filed for bankruptcy in November, in addition to finding lost customer monies. Additionally, they are investigating the more than $90 million in campaign donations made to political action organizations and congressional candidates by FTX employees and other firm associates.

The evidence of Bankman-Fried’s former coworkers may be crucial to the prosecution’s case in the criminal case against him. Caroline Ellison and Gary Wang, two of his closest advisors, pled guilty to fraud in December and have been working with prosecutors for months. The investigators are currently concentrating their efforts on additional former FTX executives.

Three people with knowledge of the case claim that prosecutors had spoken with the counsel for Sam Trabucco, a former co-president of Alameda Research. Additionally, according to several sources, Daniel Friedberg, a distinguished in-house attorney at FTX, has personally met with them.

Prosecutors have also stated in court documents that they are in touch with Ryne Miller, the general attorney of FTX’s U.S. subsidiary who assisted in handling the situation in the tumultuous days leading up to FTX’s bankruptcy.

Through the collaboration of several persons with knowledge of the exchanges, it has also been revealed that the authorities have spoken with the attorney for Nishad Singh, a former top engineer at FTX who owned a small position in the exchange, regarding whether or not he would collaborate as part of a potential plea bargain. Mr. Singh, a significant supporter of Democratic politicians, has not been accused of any crime, but according to government records, he was aware that FTX had misappropriated customers’ funds and had gotten a $543 million loan from Alameda.

Bloomberg was the first to publish on the discussions between the prosecution and Mr. Singh, while Reuters was the first to report on Mr. Friedberg’s contact with the prosecution.

It has also been recently revealed that prosecutors have questioned Ryan Salame, a former FTX executive who gave tens of millions of dollars to Republican lawmakers, while they have met with witnesses and attorneys.

A person may not necessarily be under investigation just because defense attorneys and prosecutors speak. The authorities frequently have these discussions to find out whether anyone has knowledge that could make them useful to the case as witnesses.

The 30-year-old Bankman-Fried has entered a not guilty plea to the allegations of fraud, money laundering, and improper campaign financing. He is now restricted to his parents’ Palo Alto, California, home while awaiting his October criminal trial after a federal judge granted him bail under stringent terms.

The investigation into FTX’s campaign fundraising practices is one area that might soon grow. As the corporation pursued political power in Washington, prosecutors are particularly interested in whether FTX engaged in a nefarious conspiracy to funnel millions of dollars to “straw contributors” who made phony campaign contributions on its behalf.

Federal prosecutors started emailing some of the campaigns and political action organizations that had received donations from FTX workers shortly after Bankman-Fried was detained in December to inquire about those funds, as The New York Times previously reported.

Bankman-Fried’s family under investigation

According to several sources briefed on the investigation, the authorities are also investigating whether Bankman-yFried’s ounger brother, Gabe Bankman-Fried, was involved in the alleged campaign fundraising fraud.

Guarding Against Pandemics, an advocacy organization run by Gabe Bankman-Fried, received funding from FTX. In addition to building a headquarters in a nearly $3.3 million townhouse in Washington, D.C., the organization made donations to other organizations. A few blocks from the Capitol, the townhouse is currently up for sale.

Attorneys for FTX’s new management asserted that the townhouse was “bought using plundered client funds” in a document filed in bankruptcy court on January 25. The FTX attorneys added that Bankman-Fried’s brother had mostly disregarded their information demands.

Prosecutors are also looking at Bankman-Fried’s father, Joe Bankman, a professor at Stanford Law School who worked for FTX and was a vocal supporter of the business in the public.

Four persons with knowledge of the investigation claim that federal investigators have asked about Bankman’s involvement in his son’s extensive business empire. The Bahamas villa valued at $16.4 million that Bankman and his wife, Barbara Fried, frequently resided in was “supposed to be the company’s property,” according to Bankman-Fried.

Several persons who are familiar with the situation claim that their son gave them $10 million around a year ago. Prosecutors were looking into that transaction, according to one of those individuals. The Bankman-Fried family’s representative declined to respond.

Former U.S. attorney for the Western District of Virginia John P. Fishwick Jr. claimed that prosecutors frequently put pressure on a criminal defendant by pursuing family members who would be subject to their own legal culpability.

The threat to prosecute family members is “the highest pressure D.O.J. brings to criminal defendants,” according to Mr. Fishwick. If the criminal enters a guilty plea sooner rather than later, it frequently signifies that the defendant’s family members will receive a more favorable punishment. However, this is not a guarantee.

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