Lawmakers want the ex-leadership of FTX to be held fully responsible
•US Senators Elizabeth Warren and Sheldon Whitehouse have called on the Justice Department to investigate the collapse of FTX.
• The lawmakers cited the impact the collapse of a major firm in the crypto space had had on related companies, including Genesis and BlockFi halting trading, as well as potential loss of funds for FTX retail investors.
• They specifically called out former FTX CEO Sam Bankman-Fried for his role in the controversy, including his deleted tweet that funds were “fine” at the exchange and attempts to downplay concerns about the firm’s liquidity issues.
FTX, a major cryptocurrency exchange, recently collapsed. This has caused lawmakers to raise concerns about the impact it could have on related companies and investors. In a letter sent to the Justice Department, Senators Elizabeth Warren and Sheldon Whitehouse called for an investigation into the firm’s collapse. They cited its impact on Genesis and BlockFi halting trading, as well as the potential loss of funds for FTX retail investors. The senators specifically called out former FTX CEO Sam Bankman-Fried for his role in the controversy.
The DOJ has yet to respond to the senators’ request for an investigation. However, this is just the latest example of how the crypto world is facing increasing scrutiny from regulators. It will be interesting to see how the DOJ responds to this request and what action, if any, is taken against FTX. In the meantime, here is a breakdown of what happened leading up to FTX’s collapse.
FTX was founded in 2019 by Sam Bankman-Fried and Gary Wang. The company quickly grew in popularity due to its aggressive marketing tactics and low fees. However, behind the scenes, FTX was facing liquidity issues. In November 2020, FTX acquired another crypto exchange, Binance Jersey. This increased its customer base and added more pressure to an already strained system.
In December 2020, FTX applied for a broker-dealer license with the SEC. This led to concerns among some customers that the company was not being transparent about its financial situation. On December 22, 2020, Bankman-Fried tweeted that FTX was “fine” and that there was no need to worry about its liquidity issues. The next day, he deleted the tweet.
Genesis Global Trading halted all trading on FTX due to concerns about its liquidity. The following day, BlockFi also halted trading on FTX. FTX announced that it would be halting withdrawals for 24 hours due to “unexpectedly high” Withdrawal Volume requests. Customers were concerned about losing access to their funds. However, Bankman-Fried downplayed these concerns and said that customer funds were safe.
FTX soon after announced that it would be suspending withdrawals indefinitely due to “continued heavy Withdrawal Volume requests.” Later that day, it was revealed that Oracle had invested $100 million in FTX in return for a minority stake in the company. This news reassured some customers but did not quell all concerns about FTX’s liquidity issues.
Cointelegraph reported that FTX was insolvent and could not meet customer withdrawal requests. That same day, FTX announced that it would be filing for bankruptcy protection in the Cayman Islands. Customer funds are currently being held by Grant Thornton Ltd., which has been appointed as provisional liquidators by the Cayman Islands court system. It is unclear at this time when or if customers will be able to access their funds again.
The recent collapse of FTX has put cryptocurrency exchanges under increased scrutiny from lawmakers and regulators alike. It remains to be seen how this will play out in the coming days and weeks but one thing is for sure: the crypto world is facing increasing scrutiny from those in positions of power.