Federal prosecutors have launched a criminal probe into the alleged hack worth millions that occurred on crypto exchange FTX. The exploit took place on November 11, the same day Sam Bankman-Fried’s crypto company filed for bankruptcy. The hacker is claimed to be a former employee of the company.
The United States Department of Justice (DOJ) has launched an investigation into the alleged $372 million hack that occurred on the now insolvent crypto exchange FTX. The probe is separate from the federal fraud case against disgraced former CEO of the company, Sam Bankman-Fried.
However, Bankman-Fried is not a primary suspect in the case that occurred shortly after his crypto exchange filed for bankruptcy on November 11. The attacker syphoned hundreds of millions of dollars worth of cryptocurrencies from FTX, which the founder claims was an inside job executed by an employee at the company as soon as it collapsed. According to bankruptcy filings made by the exchange at the Bankruptcy Court of Delaware, the stolen amount is estimated to be around $372 million.
To date, no suspects have been identified in the case, and sources have not confirmed Bankman-Fried’s suspicion of it being an inside job. Some theories making rounds say that the funds were transferred to a wallet maintained by the Bahamas government, where FTX’s international division was headquartered. In an interview given before his arrest, Bankman-Fried said that he narrowed down the suspect to eight people, but did not know who it was.
On December 12, the former billionaire was arrested at the request of the federal government at his home in the Bahamas. He was extradited to the U.S on December 21 to face charges imposed on him. Federal prosecutors charged the disgraced former billionaire founder with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering, which if convicted would lead to him serving anywhere between 20 years and life sentence. On December 23, Judge Gabriel Gorenstein of the U.S Attorney’s Office for the Southern District of New York released him on bail for $250 million, in what officials believe was the largest-ever pretrial bond for any defendant in the United States. Bankman-Fried’s parents had agreed to provide a portion of the money with equity from their $4 million dollar home in California, where he will live with them under the terms of his release.
According to reports, U.S authorities have managed to freeze some of the stolen assets with the help of blockchain auditing platforms that worked alongside law enforcement officials. The agencies are in the process of tracking both the culprit and the rest of the funds. Blockchain data analytics firm Chainalysis has warned crypto exchanges to watch out for any attempts by the hacker to cash out the assets. The company is confident that with the transparency of a publicly available blockchain ledger, the criminal cannot hide forever.
“The transparency of this data set actually allows us to see how much crime is happening in real time. Every transaction that ever occurs on the blockchain is available forever. It’s always going to be there. And that is devastating for criminals who don’t want the evidence of their crime to be preserved for all time,” said Kim Grauer, Head of Research at Chainalysis.
The 29-year old crypto mogul was once valued at $23 billion, while his crypto empire including FTX exchange and hedge fund Alameda Research were valued at $32 billion. However, in November, FTX, which was once the world’s second largest cryptocurrency exchange by trading volume, started to face liquidity issues. The exchange had a very complicated and highly speculative business relationship with sister firm Alameda. FTX was transferring customer assets to the market maker who was using the funds to make speculative investments, most of which failed.
On December 22, Bankman-Fried’s partners Gary Wang – co-founder and CTO of FTX, and Caroline Ellison – CEO of Alameda Research, pleaded guilty to federal charges. Both Wang and Ellison were charged with wire fraud, securities fraud and commodities fraud in exchange for leniency, and if convicted, the pair was looking at decades behind bars. However, in a plea deal, both of them agreed to cooperate with prosecutors in the investigation into FTX and its founder. Ellison said in court that FTX executives including Bankman-Fried were fully aware of the decision to lend more than half of customers’ assets for trading and laundering purposes to Alameda, which led to the liquidity crunch.
Sam Bankman-Fried also faces charges from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) of the United States.