A PYMNTS Company

DOJ Investigates FTX Collapse: Report

 |  November 14, 2022

The U.S. Attorney’s Office for the Southern District of New York is reportedly investigating the collapse of cryptocurrency exchange FTX as well as the firm’s handling of its customers’ funds.

The prosecutors at this office of the U.S. Department of Justice (DOJ) have joined officials from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in looking into how FTX handled customer funds while attempting to prop up its sister trading company, Alameda Research, Reuters reported Monday (Nov. 14).

The U.S. Attorney’s Office for the Southern District of New York did not immediately respond to a PYMNTS phone call requesting comment.

Related: FTX Searching For $9.4 Billion Investment To Avoid Bankruptcy

FTX did not immediately reply to an emailed request for comment.

Global regulators are reportedly moving in as well. Regulators in several countries — among them Australia, Japan and the Bahamas, where FTX is headquartered — have all taken action against the company.

As PYMNTS reported Monday, the stunning implosion of FTX came about after it was revealed that the crypto exchange used customer funds to bail out Alameda Research to the tune of $10 billion after Alameda itself suffered heavy losses due to trading strategies dating back to April 2021.

Exchanges must back their customer funds 1:1 to ensure and insure liquidity.

By Friday (Nov. 11), Sam Bankman-Fried had resigned as CEO (although he remains with FTX) and the company had paused all customer withdrawals, filing for bankruptcyprotection alongside more than 130 other affiliated companies.

It is not clear whether investors who trusted the platform to manage their cryptocurrency investments will get any of their money back, and there is growing speculation that Bankman-Fried and other members of the FTX leadership team may face criminal charges for their role in the exchange’s collapse.