FTX's new chief executive and bankruptcy lawyers met with Manhattan federal prosecutors investigating the cryptocurrency exchange's collapse and allegations that it misused customer funds and lost billions of dollars, according to people familiar with the matter.
John J. Ray III, who was appointed the exchange's CEO last month, met this week with the U.S. attorney's office for the Southern District of New York. Lawyers for FTX from Sullivan & Cromwell, including former Securities and Exchange Commission enforcement director Steve Peikin and former Manhattan federal prosecutor Nicole Friedlander, were also present, the people said.
A spokesman for the U.S. Attorney's Office did not immediately respond to requests for comment. FTX did not respond to email requests.
Though details of the meeting weren't immediately available, it suggests potential overlap between the criminal investigation and bankruptcy probe, which has unearthed FTX's chaotic corporate governance under founder and former CEO Sam Bankman-Fried, who resigned before the exchange's various units filed for bankruptcy protection on Nov. 11, as well as allegations about the commingling of digital assets between the platform and sister trading house Alameda Research.
Ray, a restructuring expert who oversaw the liquidation of Enron, has been vocal in his criticism of the lack of controls at FTX. His team is sifting through the wreckage of the company to salvage cash, assets and cryptocurrency to potentially repay creditors and explain how it was left with $8 billion hole in its balance sheet.
Southern District prosecutors, who have a reputation for spearheading complex financial crime probes, have recently been sending voluntary production requests to crypto firms that traded heavily on FTX. Investigators want to know what FTX Group executives, including Bankman-Fried and Alameda CEO Caroline Ellison, told customers about how their funds would be handled.
Bankman-Fried hasn't been accused of any crime. In recent media interviews, he has acknowledged managerial missteps at FTX but has claimed he wasn't aware of any improper use or commingling of customer funds. "I didn't try to commit fraud on anyone," he said in an interview during the
Bankman-Fried has sought to cast blame on Alameda, which Ellison ran from Hong Kong. In the DealBook interview, he said he was surprised at how big Alameda's position was, though he added that it "points to another failure of oversight on my part."
Bankruptcy proceedings can often be a blessing for prosecutors, offering a source of financial records and potential victim accounts that can be time-consuming to gather otherwise. Prosecutions of executives over the collapses of both Enron and WorldCom followed bankruptcy filings.
— With assistance from Gillian Tan.
