FTX Runs into More Trouble as DoJ, SEC Launch Investigations

FTX is facing one trouble after another. The cash-strapped cryptocurrency exchange has been going through some rough times. Not only did Binance pull out of a proposed takeover deal but is the company now facing an investigation by the Department of Justice and the US Securities and Exchange Commission over criminal activity and securities offenses.

FTX Runs into Further Trouble with Authorities

In fact, these investigations may have been part of the reason why Binance has decided against coming to FTX’s rescue and buying the exchange as it tentatively promised a few days back. However, Binance is now determined that bad actors will be “weeded out by the free market,” an ominous phrasing given FTX’s current predicament.

FTX’s downfall has triggered a fresh cryptocurrency market rout, which has already cost Coinbase 60 employees in the past days, and has elicited a rare apology by Sam Bankman-Friend who succinctly summed up the situation as “I have —ed up.”

The investigations do not necessarily allege that such offenses were committed, a person familiar with the matter told The Associated Press, preferring to remain anonymous. This fresh debacle is particularly painful to the cryptocurrency community as Bankman-Fried has been largely hailed as a model chief executive and even dubbed “savior of crypto” for his tendency to muster capital and rescue troubled companies.

Now, his company is found in the same predicament as the ones he has been avidly lapping up, with no rescue in sight. FTX came under heavy criticism after it transpired that Bankman-Fred may have used funds to Alameda Research, his hedge fund, to stake out positions. Commenting on this allegation, Binance CEO Changpeng Zhao said that the misuse of consumer funds was unacceptable, but it’s not as if Binance is not in trouble of its own.

Binance is said to have helped and facilitated cryptocurrency transactions in Iran after 2018, when sanctions were reintroduced. Admittedly, though, this patchy record did not stop people from hoping that Binance would come to FTX’s rescue, with the rival exchange even promising that protecting consumers was the most important thing here, but not anymore – apparently.

Black Hole of Accountancy Practices

A person who examined the books for FTX, though, offered an insight, arguing that the cryptocurrency exchange has done a poor job of keeping liabilities and assets clearly delineated, and in fact referring to FTX’s accountancy practices as “black holes.” It was the “ultimate sin,” what Bankman-Fried did, that same person noted, which is most likely has prompted Binance to back out so quickly.

Whether Binance’s own accountancy would sustain this level of scrutiny and walk away scot-free is another matter altogether. However, the focus is now on FTX which is simply too big to fail, which is worrying law enforcement agencies who are rushing to make sure they get in early and perhaps stop the wobbly giant from crashing violently into the ground and taking billions more of value along with it.