According to the New York Times, federal prosecutors in the U.S. are investigating whether FTX’s founder, Sam Bankman-Fried (SBF), manipulated the market for TerraUSD and Luna this past spring, leading to their collapse and created a domino effect that eventually caused the implosion of his own cryptocurrency exchange last month. In a statement, SBF said he was “not aware of any market manipulation and certainly never intended to engage in market manipulation.”
TerraUSD (UST), produced by Terraform Labs, is an algorithmic stablecoin. TerraUSD lost its peg to the U.S. dollar in May 2022 after Terraform Labs flooded the market with Luna tokens to prop up the 1:1 UST-to-dollar peg. TerraUSD and Luna finally collapsed, triggering the Crypto Contagion, and, finally, the bankruptcy of FTX. Allegedly, SBF’s group had shorted the price of Luna in an apparent attempt to yield “a fat profit.”
Federal prosecutors are investigating whether SBF, FTX, or Alameda orchestrated trades in a way that led to the collapse of two cryptocurrencies in May. The investigation is in its early stages, and it is not clear whether prosecutors have determined any wrongdoing by SBF, or when they began looking at the TerraUSD and Luna trades. The matter is part of a broadening inquiry into the collapse of Bankman-Fried’s Bahamas-based crypto conglomerate and the potential misappropriation of billions of dollars in customer funds.
FTX is also under investigation for violating U.S. money-laundering laws that require money transfer businesses to know who their customers are and flag any potentially illegal activity to law enforcement authorities. That investigation began several months before the bankruptcy of FTX.
