While FTX founder Sam Bankman-Fried continues to make lawyers cringe every time he opens his mouth, US authorities are seeking information from investors and trading firms that worked closely with the company.
According to Bloomberg, the US Attorney's Office for the Southern District of New York (SDNY) has recently sent out a flood of requests seeking information on a list of FTX employees and associates.
Recipients include firms that frequently traded on FTX and may have had conversations with platform executives or hold other information that might help the criminal investigation, the people said. Such requests are often used to start tapping into potential sources of information held by witnesses, investors or customers without seeking grand jury subpoenas. -Bloomberg
In a parallel investigation, attorneys from the US Securities and Exchange Commission's enforcement division have sent similar requests for information to companies which traded or invested in the crypto platform in an attempt to learn more about the relationships they had with the imploded cryptocurrency exchange - as well as communications with top officials from FTX and Alameda Research, SBF's investment arm headed by Caroline Ellison - who Sam was banging.
The SEC also wants to know what FTX representatives told investors, and whether they misrepresented anything that would violate securities laws, according to the report, which suggests that "The moves show authorities are casting a wide net as they embark on their investigations into FTX’s collapse."
In a Thursday interview with Bloomberg Television, Galaxy Digital Chief Executive Officer Mike Novogratz - whose firm had a $76.8 million exposure to FTX, said that authorities have been contacting firms which had relationships.
"Broadly, yes," he said when asked if the SEC, CFTC or DOJ had been reaching out to FTX clients.
"Regulators have some egg on their face," he said. "Sam was very far along at pitching to be the cash Bitcoin market here in the US, both with the SEC and CFTC."
FTX, Alameda or any of its former top executives haven’t been accused of any wrongdoing by US authorities. The opening of criminal or civil investigations doesn’t necessarily mean that they will press charges or take other actions.
The probe would start wide, focusing on customers and trading partners that had a lot of contact with FTX before narrowing down onto the crypto platform’s key figures. -Bloomberg
According to former prosecutors who spoke with Bloomberg anonymously, investigators will look for material false statements by SBF and his allies.
And in what should be a surprise to nobody, the investigation will likely take a very long time.
"While the crypto industry is evolving, the statutory enforcement tools really aren’t," said former acting US Attorney in Brookly, Seth DuCharme, who added that investigators will use "blunt, well-established powers to determine the extent of any criminal wrongdoing," such as laws that govern wire fraud, money laundering and conspiracy.
"You can lose a lot of money and no one may have done anything intentionally wrong," he continued, adding "Mistake is a defense to a crime.
The fact FTX was run out of the Bahamas and its founder still lives there adds a layer of complexity to the investigation.
If they need to act fast, prosecutors can seek a provisional warrant and request that Bahamian authorities arrest Bankman-Fried. The US then has 60 days, according to an agreement between the two countries, to file a formal extradition request through diplomatic channels.
Raise your hand if you think nobody of import will see the inside of a prison cell.
There it is pic.twitter.com/BRhQD9XMWz— Merissa Hansen🇺🇸 (@MerissaHansen17) December 1, 2022