NASSAU, Bahamas, Nov 13 (Reuters) – The collapse of cryptocurrency exchange FTX is the subject of scrutiny from government investigators in the Bahamas, who are looking at whether any “criminal misconduct occurred,” the Royal Bahamas Police said on Sunday.
FTX filed for bankruptcy on Friday, one of the highest profile crypto blowups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.
In a statement on Sunday, the Royal Bahamas Police said: “In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd, a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred.”
FTX did not respond to Reuters’ request for comment.
FTX’s newly appointed Chief Executive John J. Ray III, a restructuring expert who took over after the bankruptcy filing, said on Saturday that the company was working with law enforcement and regulators to mitigate the problem, and was making “every effort to secure all assets, wherever located.”
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The exchange’s dramatic fall from grace has seen its 30-year-old founder Sam Bankman-Fried, known for his shorts and T-shirt attire, morph from being the poster child of crypto’s successes to the protagonist of the industry’s biggest crash.
Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about his whereabouts and he denied rumors on Twitter that he had flown to South America. When asked by Reuters on Saturday whether he had flown to Argentina, he responded in a text message: “Nope”. He told Reuters he was in the Bahamas.
The turmoil at FTX has seen at least $1 billion of customer funds vanish from the platform, sources told Reuters on Friday. Bankman-Fried had transferred $10 billion of customer funds to his trading company, Alameda Research, the sources said.
New problems emerged on Saturday when FTX’s U.S. general counsel Ryne Miller said in a Twitter post that the firm’s digital assets were being moved into so-called cold storage “to mitigate damage upon observing unauthorized transactions.”
Cold storage refers to crypto wallets that are not connected to the internet to guard against hackers.
Blockchain analytics firm Nansen said on Saturday it saw $659 million in outflows from FTX International and FTX U.S. in the preceding 24 hours.
Crypto exchange Kraken said on Twitter on Sunday that it froze the accounts of FTX, Alameda Research and their executives in order “to protect its creditors.”
The exchange did not immediately reply to a request for comment on the holdings of those accounts.
In its bankruptcy petition, FTX Trading said it has $10 billion to $50 billion in assets, $10 billion to $50 billion in liabilities, and more than 100,000 creditors.
A document that Bankman-Fried shared with investors on Thursday and was reviewed by Reuters showed FTX had $13.86 billion in liabilities and $14.6 billion in assets. However, only $900 million of those assets were liquid, leading to the cash crunch that ended with the company filing for bankruptcy.
The collapse shocked investors and prompted fresh calls to regulate the cryptoasset sector, which has seen losses stack up this year as cryptocurrency prices collapsed.
Bitcoin fell below $16,000 for the first time since 2020 on Wednesday, after Binance abandoned its rescue deal for FTX.
On Sunday it was trading around $16,400, down by more than 75% from the all-time high of $69,000 it reached in November last year.
(This story has been refiled to fix the byline)
The fall of the FTX ‘King of Crypto’ Sam Bankman-Fried
It took fewer than eight days for Sam Bankman-Fried to go from being nicknamed the “King Of Crypto” to his company filing for bankruptcy and him stepping down as chief executive, facing federal investigations into how he handled the company’s finances.
Over the last few years, the internet has been flooded with long interviews with him, speaking over video chat from his office desk in the Bahamas.
In some of them, there’s a distracting clicking noise.
As his interviewees listen intently to his incredible story of how he became a multibillionaire in five years, the sound is persistent and clearly coming from the American entrepreneur’s mouse.
“Click, click, click,” it goes, in rapid, on-off bursts.
Meanwhile, Mr Bankman-Fried’s eyes dart around the screen.
It’s not clear from the videos what he’s doing on his computer, but his tweets can give us a pretty good clue.
“I’m (in)famous for playing League of Legends while on phone calls,” he tweeted in February 2021.
Mr Bankman-Fried – the former boss of embattled cryptocurrency exchange FTX – is an avid gamer. And in a series of tweets to his nearly one million followers, he explained why. Playing the team fantasy battle game was his way to get his mind to switch off from running two companies trading billions of dollars a day.
“Some people drink too much; some gamble. I play League,” he said.
Since the 30-year-old’s cryptocurrency empire collapsed this week in dramatic fashion, another anecdote about his gaming has resurfaced online.
According to a blog post from venture capital giant Sequoia Capital, Mr Bankman-Fried played an intense League of Legends battle during a high-level video call with their investment team.
It didn’t seem to put off them off at all, though. The group proceeded to invest $210m in Mr Bankman-Fried’s company FTX.
This week, Sequoia Capital deleted that gushing blog post and announced it is now writing off their FTX investment as a loss.
The firm is not the only investor to have lost eye-watering amounts of money since Mr Bankman-Fried’s $32bn empire collapsed.
FTX had an estimated 1.2 million registered users who were using the exchange to buy cryptocurrency tokens such as Bitcoin and thousands of others.
From large traders to everyday crypto fans, many are left wondering if they will ever get back their savings trapped in FTX’s digital wallets.
It’s a dizzying downfall and the rise of Mr Bankman-Fried is also its own dramatic story of risks, rewards and beanbags.
Mr Bankman-Fried went to Massachusetts Institute of Technology (MIT) – a prestigious US research university where he studied physics and maths.
But the young bright undergraduate says it was lessons learned in the student dorms that led him on his path to getting rich.
In a BBC radio interview last month, he recalled being swept up in the “effective altruism” movement. Effective altruism is a community of people “trying to figure out what practical things you can do with your life to have as much positive impact as you can on the world”, he said.
So, as Mr Bankman-Fried recalls, he decided to get into banking to make as much money as he could to give it back to good causes.
He learned to trade stocks during a short stint at trading firm Jane Street in New York before he got bored and decided to experiment with Bitcoin.
He noticed the variations in the value of Bitcoin across different cryptocurrency exchanges and started arbitraging – buying Bitcoin from places selling it cheap and selling to other places where it was trading for more.
After a month of making modest profits, he got together with some college friends and started a trading business called Alameda Research.
Mr Bankman-Fried says it wasn’t easy and took months of perfecting techniques about how to move money in and out of banks and across borders. But after around three months, he and his small team hit the jackpot.
“We were super-dogged,” he said to the Jax Jones and Martin Warner Show podcast a year ago. “We just kept going. If someone throws another roadblock, we would be creative, and if our system couldn’t handle that, we would just build a new system to get us through that hoop.”
By January 2018, his team were making $1m every day.
A business reporter at CNBC asked him recently how that felt.
Intellectually and according to his methodology, he said, “it made perfect” sense. “But viscerally, it surprised me every day,” he said.
Sam Bankman-Fried became an official billionaire in 2021, thanks to his secondary and more high-profile business, FTX. The crypto exchange grew to be the second largest in the world and a titan of the industry, seeing $10-$15bn traded a day.
In early 2022, FTX was valued at $32bn and a household name, with an NBA stadium named after the company and endorsements from celebrity backers such as the NFL’s Tom Brady.
All the while, Mr Bankman-Fried seemingly delighted in giving his Twitter followers an insight into his lifestyle. He mainly sleeps on a beanbag next to his desk in the office, he said, with a picture of him lying next to his staff at their trading terminals.
In another, he posted in the early hours of the morning. “Couldn’t sleep. Back to the office,” he wrote.
Mr Bankman-Fried’s dream of giving away vast amounts of money to charity was also well under way. In the BBC radio interview last month, he claimed he had given away “a few hundred million as of now”.
And his generosity didn’t just extend to charities. In the last six months, the “King of Crypto” was given another nickname – “Crypto’s White Knight”.
With the price of cryptocurrencies falling in 2022, the so-called “Crypto Winter” is in full swing. While other companies in the industry faltered, Mr Bankman-Fried was handing out bailout cash in the hundreds of millions.
Asked why he was trying to prop up failing crypto firms, he told CNBC: “It’s not going to be good long-term if we have real pain and real blow outs. And it’s not fair to customers.”
He also claimed, in the same interview, to have $2bn in reserve that he could use to help failing crypto companies.
But last week, he was going around the same industry himself, trying to raise money to save his own company and customers.
Questions about the real financial stability of FTX began swirling after an article on the CoinDesk website suggested that much of Mr Bankman-Fried’s trading giant Alameda Research rests on a foundation largely made up of a coin that a sister company of FTX invented, not an independent asset.
Further accusations that Alameda Research used FTX’s customer deposits as loans for trading were made in the Wall Street Journal.
The beginning of the end came though when FTX’s main competitor – Binance – publicly sold off all its crypto tokens linked to FTX a few days later.
Binance chief executive Changpeng Zhao told his 7.5 million followers his company would be selling off the holdings “in light of recent revelations”.
It sparked a run on FTX, with panicked customers withdrawing billions of dollars from the cryptocurrency exchange.
Withdrawals were halted and Mr Bankman-Fried tried to get a bailout, with Binance at one stage publicly considering a buyout before walking away.
Binance said reports of “mishandled customer funds and alleged US agency investigations” had swayed its decision.
A day later, FTX was declared bankrupt.
Mr Bankman-Fried apologised in a series of tweets saying: “I’m really sorry, again, that we ended up here.
“Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust and governance to them.”
He also said he “was shocked to see things unravel the way they did”.
So was, and is, the crypto world. The price of Bitcoin has fallen to a two-year low and many are wondering – if FTX can go down along with its talismanic leader, what could fall next?