US senators call for DOJ action on FTX

United States (US) senators Elizabeth Warren and Sheldon Whitehouse are calling on the US Department of Justice (DOJ) to hold the executives of Bahamas-headquartered FTX accountable “to the fullest extent of the law” following the company’s collapse.

“We write to express deep concern over the disturbing allegations of fraud and illicit behavior that led to the collapse of cryptocurrency firm FTX Trading Ltd. (FTX) and to urge to the Department of Justice (DOJ or ‘the department’) to hold the company’s executives accountable to the fullest extent of the law,” the senators wrote in a letter to Merrick Garland, the US attorney general, and Kenneth Polite Jr., the assistant attorney general for the criminal division.

“We were glad to see you both announce the DOJ’s renewed commitment to investigating and prosecuting white-collar crime earlier this year. In speeches at the American Bar Association’s White Collar Crime National Institute, you affirmed the department’s intent to ‘[hold] individuals accountable for white-collar crime, as opposed to only levying fines on companies’ and ‘to increase its focus on the flesh-and-blood victims of white-collar wrongdoing’.

“We have long urged regulators to hold corporate executives personally accountable when their businesses break the law, and one of us has introduced legislation to ensure that this happens.

“Given the department’s commitment to holding perpetrators of white-collar crime personally accountable, we expect DOJ to investigate the actions leading to the collapse of FTX with the utmost scrutiny.”

After facing a liquidity crisis earlier this month, the Securities Commission of The Bahamas froze the assets of FTX and put the company into liquidation.

The next day, Sam Bankman-Fried announced that FTX and over 100 affiliate companies had filed for Chapter 11 bankruptcy protection in the US and that he stepped down as CEO.

Warren and Whitehouse noted that FTX was once valued at $32 billion and was one of the world’s largest cryptocurrency exchanges before its collapse.

They said the company’s “swift collapse” has created shockwaves across the industry.

“Genesis, a crypto trading firm, said $175 million were locked within the firm’s FTX trading account; Galois Capital, a crypto hedge fund, reported that half of its capital, an estimated $100 million, was tied up in its FTX account; and BlockFi, a crypto lender, halted withdrawals and is reportedly preparing a bankruptcy filing – and the contagion continues to spread,” the senators wrote.

“The impact of FTX’s collapse on retail investors has been even more alarming. In its Chapter 11 filings, FTX announced that it would seek to discharge its debts, which could amount to as much as $8 billion that it owes to over one million customers, many of which are retail investors.”

They said FTX created “a false sense of safety and legitimacy” through high-dollar advertisement placements and celebrity endorsements.

Warren and Whitehouse said the company encouraged consumers “to pour their hard-earned money” into investments on the exchange.

Now, working and middle-class retail investors from around the world are unable to access money they held on FTX, according to the senators.

“The fall of FTX was not simply a result of sloppy business and management practices, but rather appears to have been caused by intentional and fraudulent tactics employed by Mr. Bankman-Fried and other FTX executives to enrich themselves,” Warren and Whitehouse wrote.

“In fact, Mr. Bankman-Fried had already revealed his true interests of self-enrichment last year when he siphoned $300 million to his own wallet, an investment that was intended to ‘help grow [FTX], improve user experience and allow it to engage more with regulators.’”

They pointed to a recent court filing in which FTX’s new CEO, John Ray III, described the company’s state of affairs as “a complete failure of corporate control”.

The senators quoted Ray on the unprecedented situation which was spurred by “compromised systems, integrity and faulty regulatory oversight abroad” and “the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals”.

“He described ‘the use of software to ‘conceal the misuse of customer funds,’ and told the court the financial statements produced under Bankman-Fried could not be trusted, given that ‘[FTX] did not keep appropriate books and records, or security controls, with respect to its digital assets,’” Warren and Whitehouse noted.

“As this situation unfolds, new facts will undoubtedly shed more light on how Bankman-Fried and his associates’ deception has harmed FTX’s customers, and customers of any company that was exposed to the contagion – and may reveal that the problems with the crypto industry extend well beyond FTX.

“We urge the department to center these ‘flesh-and-blood victims’ as it investigates, and, if it deems necessary, prosecute the individuals responsible for their harm.”

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Jasper Ward

Jasper Ward started at The Nassau Guardian in September 2018. Ward covers a wide range of national and social issues. Education: Goldsmiths, University of London, MA in Race, Media and Social Justice

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