Feds Expand Investigation Into FTX Collapse to Include Family and Friends

Federal prosecutors are reportedly widening the scope of their investigation into FTX.

The Department of Justice (DOJ) is scrutinizing a growing range of people with connections to the failed cryptocurrency company, including FTX founder Sam Bankman-Fried’s father, brother and former colleagues, The New York Times reported Saturday (Feb. 4).

The report, which cites interviews with 13 people, notes that the U.S. attorney’s office in Manhattan has launched a task force to pursue its investigation into the downfall of FTX.

Prosecutors have recently begun talking with lawyers representing a dozen former executives and employees at FTX and its sister firm Alameda Research, the sources said. They also tell the Times investigators are looking at the role Bankman-Fried’s family members played in the accused founder’s business.

“As people begin flipping or cooperating with the government, it can lead to new lines of inquiry and new people of interest,” Daniel Hawke, an attorney for the firm Arnold & Porter and former Securities and Exchange Commission (SEC) official, told the Times.

Bankman-Fried, 30, was charged last year with stealing billions from FTX’s customers and misleading his investors. He pleaded not guilty at his arraignment in December and has maintained his innocence in a series of public statements.

The investigation has since grown to involve other members of Bankman-Fried’s inner circle. Two of them — former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang — pleaded guilty in December to charges against them for their roles in the collapse of FTX and its companies and are reportedly cooperating with the investigation.

“The two will likely be key witnesses in the trial of Bankman-Fried, given their proximity to him, knowledge of the inner workings of FTX, admissions of guilt and their stated willingness to cooperate with the prosecution,” PYMNTS wrote last month.

Another former FTX official, Director of Engineering Nishad Singh, has also been investigated to see if he played a role in the fraud.

The government’s efforts have now also expanded to include other companies beyond the ones launched by Bankman-Fried, as PYMNTS reported last week. Prosecutors are looking into crypto-focused bank Silvergate Capital’s hosting of accounts for FTX and Alameda Research.

The investigation apparently centers around what banks and intermediaries knew about the now-bankrupt cryptocurrency companies. Silvergate has not been accused of wrongdoing in the investigation, which is still in its early stages, a report by Bloomberg News said.

As PYMNTS wrote recently a key reason behind the DOJ probe is that Silvergate took out billions in short-term Federal Home Loan Bank (FHLB) advances as it sank further into distress to boost its balance sheet amid crypto market volatility.

“By using the FHLB as its functional ‘lender of last resort,’ Silvergate has further introduced crypto market risk into the traditional banking system,” a trio of U.S. senators wrote to the bank last month. “If Silvergate were to fail — as have banks facing a fraction of the withdrawal rates Silvergate has faced — it could leave the FDIC — and therefore the American taxpayer — holding the bag.”