Federal prosecutors are forming a joint task force to “trace and recover” missing FTX funds.
That’s as the exchange’s former CEO and founder, Sam Bankman-Fried, pleaded “not guilty” during his federal arraignment to the eight criminal counts ranging from fraud to conspiracy levied against him by the U.S. Department of Justice (DOJ).
Established Tuesday (Jan. 3) by the United States Attorney’s Office for the Southern District of New York (SDNY), the task force will also be charged with managing investigations related to the cryptocurrency exchange’s dramatic collapse in November of last year.
The crypto collection team will reportedly be led by Andrea Griswold, U.S. Attorney Damian Williams’ top deputy for the SDNY, and will draw its team of prosecutors from the Securities and Commodities Fraud, Public Corruption, and Money Laundering and Transnational Criminal Enterprises units.
“This investigation is very much ongoing, and it’s moving very quickly,” Damian Williams said in a public statement, adding that further agency announcements will follow.
A spokesperson for the SDNY has not yet replied to a request for comment by PYMNTs.
The Securities and Exchange Commission (SEC) has alleged in their own complaint that FTX customers lost an estimated more than $8 billion due to fraudulent operations across the FTX enterprise and its sister hedge fund, Alameda Research.
The SEC filing refers to Bankman-Fried’s former empire as a “house of cards” that was “fraudulent from the start,” a description that is in stark contrast with the company’s previous self-description as having the “best brand in crypto.”
The SDNY-led task force will leverage the agency’s asset forfeiture and cyber capabilities to track down and reclaim those billions of dollars of allegedly misappropriated customer funds.
Two of Bankman-Fried’s top internal allies, Caroline Ellison — who ran Alameda Research — and Gary Wang, the company’s chief technology officer and one of FTX’s founders, have flipped on him and are cooperating with federal authorities in their investigation.
Creditors Want Their Money Back
As previously reported by PYMNTs, the bankrupt cryptocurrency exchange FTX owes its 50 largest creditors more than $3 billion, with claims that range from a “mere” $21 million to more than a quarter-billion dollars.
“Based on our review, we are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside of the United States, have solvent balance sheets, responsible management, and valuable franchises,” John J. Ray III, FTX’s current CEO in charge of the enterprise’s bankruptcy and restructuring, said.
In the lead-up to FTX’s first-day motions in November of last year, $1.24 billion in cash was able to be recovered by advisory firm Alvarez & Marsal.
Altogether, the collapsed crypto platform counts over a million creditors spread around the globe. The bankrupt company has been able to make “ordinary course” final payments of salary and benefits to its one-time employees.
A Zero-Sum Game
While newly formed, the SDNY task force is entering choppy waters.
With multiple billions of dollars at stake, tensions are growing between the many parties who trusted FTX with their funds and even between the national governments tasked with recovering those assets.
As reported by PYMNTS, the Bahamas’ Security Commission seized $3.5 billion of FTX digital assets without alleged prior authorization. Now, FTX debtors want that money back.
“We do not trust the Bahamian government,” lawyer James Bromley, representing FTX, said.
Separately, an ad-hoc committee representing non-U.S. FTX customers is seeking to establish that funds moved from customer accounts to other firms affiliated with FTX are not part of the FTX bankruptcy estate and should instead be returned to the possession of those customers.
“There cannot be a fair or value-maximizing outcome in these cases if the only parties with a seat at the table are conflicted in the interests they are obligated to represent,” the committee alleged in a recent public statement.
In December, FTX’s newly installed management team hired its own team of forensic investigators to help track down the company’s missing billions of cryptocurrencies.
It remains unclear whether the SDNY task force will work with the private team from the financial advisory company AlixPartners and is led by Matt Jacques, a former chief accountant for the SEC’s enforcement division.
This past weekend (Dec. 30, 2022), more than $1 million in crypto assets were moved between wallets once associated with Bankman-Fried.
The fallen FTX founder has denied making the transfers, and prosecutors are working to determine who was responsible — but the casually anonymous movement of seven-figure sums gives insight into the sheer scale and difficulty federal actors face in tracing and reclaiming the former exchange’s missing assets.
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