DOJ Investigating Post-Bankruptcy "Hack" at FTX that Siphoned $372 Million

FTX Bankruptcy: US DOJ Probes How $372 Million Vanished in Hack After Filing

Federal prosecutors are investigating an alleged cybercrime that drained more than $370 million out of FTX just hours after the cryptocurrency exchange filed for bankruptcy last month.

The Department of Justice has launched a criminal probe into the stolen assets that is separate from the fraud case against FTX co-founder Sam Bankman-Fried, according to a person familiar with the case who asked not to be identified as the investigations are still ongoing. US authorities have managed to freeze some of the stolen funds, the person confirmed. However the frozen assets only represent a fraction of the entire loot.

Sam Bankman-Fried met with ‘Big Short’ author Michael Lewis

Currently holed up at his parents’ home at Stanford University after being released on $250 million bail last week following being slapped with federal charges of financial fraud and money laundering, Bankman-Fried was visited by bestselling author Michael Lewis.

Sources exclusively told The Post Tuesday “Moneyball” writer Lewis spent several hours inside the residence just hours after Bankman-Fried had landed Friday, presumably talking about the latest twist in his crypto-downfall which has seen him go from a 30-year-old billionaire to facing up to 115 years in prison in a matter of weeks.

Bankman-Fried’s collaboration with Lewis is said to have been ongoing for around six months, long before financial irregularities were spotted, but it was first reported after FTX’s collapse in November, when entertainment newsletter The Ankler leaked a note from Lewis’ publishing agency pitching the book to potential movie rights buyers.

Sam Bankman-Fried’s Power Was Contingent on Belief

Theranos, WeWork, countless early dot-coms and pre-2008 financial instruments: Almost all began as exciting business stories about people and companies that seemed poised to remake their industries in innovative ways and had the capital, growth or returns to suggest they might be on to something. Those articles continued right until the businesses imploded amid revelations of fraud, incompetence or brazen recklessness. “Whom the gods would destroy,” Paul Krugman wrote in a 2001 Times column about Enron, “they first put on the cover of Businessweek.”

These sorts of seductively optimistic possibilities — promises like painless blood testing or office space that builds community — naturally draw attention, but they also sit at the heart of deception and fraud. The worst narrative implosions may be less about bad individuals than how easy it can be to hide consequential information that might help reveal the difference. Public companies based in the United States must regularly open their books to investors, but private ones have no such obligation — especially ones based offshore, as FTX was. Private wealth has soared over the past 20 years, and so has the number of private companies, leading one S.E.C. official to warn recently that a rapidly increasing portion of the economy is “going dark.” This can enable dangerous carelessness or fraud….

Divided appeals court rejects 4 insider trading convictionsA divided appeals court on Tuesday rejected the insider trading convictions of four men, including an ex-government employee turned consultant, prompting a sharp dissent from a judge who says the ruling may prompt insiders to sell confidential government information to the highest bidders.

The decision of the 2nd U.S. Circuit Court of Appeals came in a case in which a Washington consultant, David Blaszczak, was charged with converting government secrets into hedge fund profits.

In 2018, a jury convicted Blaszczak and three hedge fund employees in a scheme prosecutors said enabled the hedge fund workers to make over $3.5 million illegally for their company from 2012 through 2014. The Securities and Exchange Commission said the profits reached $3.9 million.

Before becoming a consultant, Blaszczak worked at the Centers for Medicare & Medicaid Services, part of the U.S. Department of Health and Human Services.

FTX customers file class action to lay claim to dwindling assets

FTX customers filed a class action lawsuit against the failed crypto exchange and its former top executives including Sam Bankman-Fried on Tuesday, seeking a declaration that the company’s holdings of digital assets belong to customers.

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FTX pledged to segregate customer accounts and instead allowed them to be misappropriated and therefore customers should be repaid first, according to the lawsuit filed in U.S. Bankruptcy Court in Delaware.

“Customer class members should not have to stand in line along with secured or general unsecured creditors in these bankruptcy proceedings just to share in the diminished estate assets of the FTX Group and Alameda,” said the complaint.

U.S. SEC Enforcement 2022 Year in Review

The U.S. Securities and Exchange Commission recently announced the Division of Enforcement’s results for fiscal year 2022, the first full year for the Division under the leadership of both Chair Gary Gensler and Director of Enforcement Gurbir Grewal.

Results were up from the year before, with a record $4.2 billion in civil penalties reflecting the agency’s goal to see penalties “recalibrated” upward across the board. With several blockbuster corporate settlements, the SEC continued to focus on traditional areas such as investment advisers, broker-dealers, and issuer accounting and disclosure, while also prioritizing individual accountability and suits against “gatekeepers” such as auditors and lawyers.

The past year has also been notable for the SEC’s willingness to impose third-party compliance consultants, often with broad mandates, to oversee entity-level improvements. Our analysis of the SEC’s enforcement results provides indications of where the agency may focus in the year to come.

Crypto Exchange Kraken to End Japan Operations

Cryptocurrency exchange Kraken said it will exit Japan and de-register from the Financial Services Agency (JFSA) as of Jan. 31.

The decision was prompted by “current market conditions in Japan in combination with a weak crypto market globally,” the company said in a blog post.

Kraken users in the country have until the end of next month to withdraw their fiat and crypto holdings, with the option of transferring crypto to another wallet or wiring Japanese yen to a local bank.