FTX Inquiry Expands as Prosecutors Reach Out to Former Executives

Federal prosecutors are examining a growing range of people with ties to Sam Bankman-Fried's collapsing cryptocurrency empire, including his father, brother and former colleagues, as part of a rapidly expanding investigation into one of the world's biggest financial crime cases. largest in the United States in more than a decade. , according to 13 people with knowledge of the investigation.

The US attorney's office in Manhattan has created a special task force to continue its investigation into the collapse of FTX, the crypto exchange founded by Mr. Bankman-Fried.

More than half a dozen prosecutors, led by Damian Williams, the US Attorney for the Southern District of New York, are building the criminal case and tracking the billions of dollars in client money that Bankman-Fried has been accused of misappropriating.

In recent weeks, prosecutors have had conversations with lawyers representing a dozen former executives and employees of FTX and Alameda Research, the hedge fund that Bankman-Fried also founded, said 11 people with knowledge of the investigation. Prosecutors have also looked into the role of Bankman-Fried's family members in his business empire, six people with knowledge of the matter said.

FTX's collapse has forced virtually everyone in Bankman-Fried's immediate orbit to seek legal counsel as the investigation intensifies and prosecutors consider filing more charges. Defense attorneys from the law firms of Mayer Brown, Steptoe & Johnson, and Covington & Burling represent several former FTX executives who may have information to contribute.

“As people start to change or cooperate with the government, it can lead to new lines of inquiry and new persons of interest,” said Daniel Hawke, a lawyer at the firm Arnold & Porter, who was a former director of the Securities Commission market. and Values. abuse unit

The FTX investigation could also catch companies that received money from the exchange or lent funds to it. The FTX collapse last year triggered a crisis at crypto lending firm Genesis, which was recently loaded with securities law violations by the SEC And in late January, a bipartisan group of senators sent a letter to Silvergate, a bank that did business with FTX, asking company officials if they were aware of the exchange's misuse of client money.

In addition to tracing client funds, prosecutors are trying to recover hundreds of millions of dollars that a hacker stole from the exchange when FTX filed for bankruptcy in November. And they are examining the more than $90 million in campaign contributions that FTX employees and others close to the company gave to congressional candidates and political action committees.

Much of the criminal case against Bankman-Fried could hinge on the testimony of her former colleagues. Two of his closest advisers, Caroline Ellison and Gary Wang, pleaded guilty to fraud in December and cooperated with prosecutors for months. Now, investigators turn their attention to other former FTX executives.

Prosecutors have had discussions with a lawyer for Sam Trabucco, a former co-chief executive of Alameda Investigation, according to three people with knowledge of the matter. They also met in person with Daniel Friedberg, who was one of FTX's main in-house lawyers, two people said.

And in court records, Prosecutors have said they are in contact with Ryne Miller, the general counsel for FTX's US subsidiary who helped manage the crisis in the hectic final days before FTX's bankruptcy.

Authorities have also been in talks with a lawyer for Nishad Singh, a former senior FTX engineer who had a minority stake in the exchange, about whether he would cooperate as part of a possible plea deal, according to three people with knowledge of the talks. . Mr Singh, a major donor to Democratic politicians, has not been charged with any crime but government document claim that he knew that FTX was embezzling money from customers and that he had received a $543 million loan from Alameda.

The conversations between prosecutors and Mr Singh were first reported by Bloombergand Mr Friedberg'S's contact with prosecutors was previously reported by Reuters.

While speaking with witnesses and lawyers, prosecutors also asked questions about ryan salamea former FTX executive who donated tens of millions of dollars to Republican politicians, according to three people with knowledge of the matter.

Conversations between defense attorneys and prosecutors do not necessarily indicate that a person is under investigation. It is common for authorities to engage in these types of conversations to determine if people have information that would make them useful to the case as witnesses.

Mr. Bankman-Fried, 30, pleaded not guilty to charges of fraud, money laundering and campaign finance violations. A federal judge granted him bail under strict conditions, requiring him to remain confined to his parents' home in Palo Alto, California, while he awaits a criminal trial scheduled for October.

A spokesman for the US attorney's office in Manhattan declined to comment.

One aspect of the investigation that could soon be expanded is the probe into FTX's campaign finance activities. Prosecutors are particularly interested in whether FTX engaged in an illegal scheme to funnel tens of millions of dollars to so-called fictitious donors who made covert campaign contributions on the company's behalf, while seeking political influence in Washington.

Shortly after Mr. Bankman-Fried was arrested in December, federal prosecutors began reach by email to some of the campaigns and political action committees that had received donations from FTX employees to seek information about those contributions, The New York Times previously reported.

Authorities are also investigating whether Bankman-Fried's younger brother, Gabe Bankman-Fried, played any role in the alleged campaign finance scheme, four people briefed on the investigation said.

In a bankruptcy court filing on January 25, lawyers for FTX's new leadership claimed the townhouse was "purchased with embezzled client funds." FTX's lawyers also said Bankman-Fried's brother had largely ignored requests for information from him.

Another person under scrutiny by prosecutors is Mr. Bankman-Fried's father, Joe Bankman, a Stanford Law School professor who was a salaried FTX employee and a enthusiastic public cheerleader to the company.

Federal investigators have asked about Mr. Bankman's role in his son's sprawling business empire, according to four people with knowledge of the investigation. Bankman and his wife, Barbara Fried, often stayed at a $16.4 million house in the Bahamas that Bankman-Fried said was "intended for company ownership."

They received a $10 million gift from their son about a year ago, according to four people familiar with the matter. One of those people said that prosecutors were investigating that transaction. A spokeswoman for the Bankman-Fried family declined to comment.

John P. Fishwick Jr., a former US attorney for the Western District of Virginia, said prosecutors often put pressure on a criminal defendant by going after family members who may bear their own legal liability.

“The greatest amount of pressure DOJ puts on criminal defendants is the threat to prosecute family members,” said Mr. Fishwick. “It does not guarantee that the relatives of the defendants will not be prosecuted, but it often means that they can get a more lenient sentence if the defendant pleads guilty sooner rather than later.”

Kenneth P. Vogel contributed reporting from Washington.