US Prosecutors Investigating FTX Role in TerraUSD and Luna Fall

Prosecutors are reportedly investigating whether FTX was involved in the collapse of TerraUSD and Luna.

The New York Times reported Wednesday (Dec. 7) that U.S. prosecutors in Manhattan are looking into whether FTX Founder Sam Bankman-Fried manipulated the market for the two cryptocurrencies in the spring to benefit FTX and its sister trading firm Alameda Research.

TerraUSD and Luna were interlinked, with the former maintaining its value from the latter. When the price of TerraUSD fell, the supply of Luna would rise, according to the report.

Crypto market makers noticed in May that a flood of “sell” orders for TerraUSD came in, making it difficult to find matching “buy” orders. Normally that would force down the price of both TerraUSD and Luna, the report said.

The bulk of the “sell” orders for TerraUSD seemed to come from Alameda Research, which had also bet on a fall in the price of Luna, per the report.

Unexpectedly, however, the two cryptocurrencies collapsed, sending several firms into bankruptcy and setting into motion other events that ultimately took down FTX, Alameda Research and about 130 FTX-affiliated companies, according to the report.

Knowingly staging market activity to move the price of an asset is illegal, according to the report.

As PYMNTS reported May 11, the sudden collapse of TerraUSD — which had been the third largest stablecoin — cost investors more than $25 billion, lit a fire under the push to regulate the dollar-pegged cryptocurrencies and reignited a fight on Capitol Hill over which agency should have control.

TerraUSD’s partner coin, Luna, was valued at $80 at the start of May. By May 11, it was down to $1.18 — a drop of more than 96% that cost investors about $27.5 billion in that time, PYMNTS reported at the time.