US Feds put together ‘FTX task force’ to trace stolen user funds

January 4, 2023 Coin Telegraph

United States Attorney Damian Williams said the office is working “around the clock” to respond to the implosion of FTX.

The United States Attorney’s Office for the Southern District of New York (SDNY) has formed the FTX Task Force to “trace and recover” missing customer funds, as well as handle investigations and prosecutions related to the exchange’s collapse.

The announcement came in a statement from U.S. Attorney Damian Williams, who is the federal prosecutor in the FTX case involving founder Sam Bankman-Fried.

Charges from the Manhattan attorney’s office against Bankman-Fried include wire and securities fraud, conspiracy to commit wire and securities fraud, money laundering and violation of campaign finance laws.

“The Southern District of New York is working around the clock to respond to the implosion of FTX,” said Williams in the statement, adding:

“It’s an all-hands-on-deck-moment.”

“We are launching the SDNY FTX Task Force to ensure that this urgent work continues, powered by all of SDNY’s resources and expertise until justice is done.”

According to the SDNY, the task force’s team consists of senior prosecutors from its securities and commodities fraud, public corruption, money laundering and transnational crime enterprise units — which will be responsible for the “investigation and prosecution of matters related to the FTX collapse.”

Meanwhile, its “asset forfeiture and cyber capabilities” will be used to “trace and recover” the billions of dollars worth of missing customer funds, it added.

A similar effort had already been underway by FTX’s new management, which hired financial advisory company AlixPartners in December to conduct “asset-tracing” for FTX’s missing digital assets.

The Manhattan U.S. Attorney’s Office reportedly first began its probe of FTX’s collapse shortly after the firm filed for bankruptcy on Nov. 11.

According to its website, the U.S. Attorney's Office for the Southern District of New York is known for prosecuting cases involving the violation of federal laws and investigates a broad array of criminal conduct “even when the conduct arises in distant places.”

FTX and key executives including Bankman-Fried, co-founder Gary Wang and Alameda Research former CEO Caroline Ellison had since September 2021 been operating out of the Bahamas, where many of the alleged crimes are believed to have been perpetrated.

On Jan. 3, Bankman-Fried pleaded “not guilty” to all eight criminal charges related to FTX’s implosion — which carries a total of 115 years of prison for the FTX founder if he is convicted.

Last month, Wang and Ellison pleaded guilty to federal fraud charges relating to their role in the collapse of the FTX exchange.

Court Documents Say FTX Boss Ryan Salame Snitched on SBF 2 Days Before the Bankruptcy Filing

December 15, 2022 Bitcoin.com

FTX Co-Founder Indicted by Federal Grand Jury in Manhattan, Bahamian Magistrate Denies SBF’s Bail

December 14, 2022 Bitcoin.com

CFTC Follows SEC by Filing a Lawsuit Against Disgraced FTX Co-Founder Sam Bankman-Fried

December 13, 2022 Bitcoin.com

FTX hires forensics team to find lost customers’ billions: Report

December 8, 2022 Coin Telegraph

Alameda Research

Lawyers have claimed FTX assets are either stolen or missing and now a team of financial forensic experts is attempting to trace the money trail.

The new management for bankrupt crypto exchange FTX has reportedly hired a team of financial forensic investigators to track down the billions of dollars worth of missing customer crypto.

Financial advisory company AlixPartners was chosen for the task and is led by former Securities and Exchange Commission (SEC) chief accountant, Matt Jacques, according to a Dec. 7 report from the Wall Street Journal.

It is understood that the forensics firm will be tasked with conducting “asset-tracing” to identify and recover the missing digital assets and will complement the restructing work being undertaken by FTX.

On Nov. 11 hackers drained wallets owned by FTX and FTX.US of over $450 million worth of assets.

Former CEO Sam Bankman-Fried claimed in an interview recorded on Nov. 16 with crypto blogger Tiffany Fong that he was close to finding who the hacker was and that he had “narrowed it down to eight people” believing it was “either an ex-employee or somewhere someone installed malware on an ex-employee’s computer.”

On Nov. 22, a lawyer representing FTX debtors stated that “a substantial amount of assets have either been stolen or are missing” from FTX, and revealed at the time that blockchain analytics firms such as Chainalysis had been enlisted to help as part of the proceedings.

The stolen funds from FTX have since been on the move through various crypto mixers and exchanges to launder the funds.

The hacker transferred their Ether (ETH) holdings on Nov. 20 to a new wallet address and swapped some of the ETH for an ERC-20 version of Bitcoin (BTC) afterward bridging the funds to the BTC Network.

They then used a laundering technique called peel chaining that subdivides the holdings into increasingly smaller amounts across multiple wallets and sent the BTC through a crypto mixer then to the OKX exchange on Nov. 29.

The hacker also attempted more peel chaining by splitting 180,000 ETH across 12 newly created wallets on Nov. 21.

Former CEO Sam Bankman-Fried has also previously claimed to have “unknowingly commingled” customer funds at FTX and its sister trading firm Alameda Research with customer funds at FTX loaned to Alameda.

FTX’s new CEO and chief restructuring officer, John Ray III, was scalding in his initial bankruptcy filing saying that “never” in his 40-year career had he “seen such a complete failure of corporate controls.”

He claimed Bankman-Fried and his closest colleagues are “potentially compromised” and used “software to conceal the misuse of customer funds.”

Despite endless media appearances, SBF unlikely to testify on 13th

December 5, 2022 Coin Telegraph

accounting

One observer suggested Bankman-Fried may be reluctant to discuss FTX due to the legal implication of lying under oath to the U.S. Congress.

Former CEO of FTX, Sam Bankman-Fried, has signaled he's unwilling to testify before the United States Congress until he’s “finished learning and reviewing what happened.”

Bankman-Fried was responding to a Dec. 2 tweet from U.S. Representative Maxine Waters inviting him to testify in a scheduled U.S. House Committee on Financial Services hearing on Dec. 13 to discuss "what happened" at FTX.

In a Dec. 4 response on Twitter, the former FTX CEO said he feels it is his “duty to appear before the committee and explain,” but only once he's “finished learning and reviewing what happened," adding he wasn't “sure” whether it would happen by the 13th.

Rep. Waters, and the House Committee on Financial Services:

Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain.

I'm not sure that will happen by the 13th. But when it does, I will testify. https://t.co/c0P8yKlyQt
— SBF (@SBF_FTX) December 4, 2022

Some in the community pointed out the response appears out of line with his recent actions, including taking part in several media interviews and posting endless tweets about what led to the fall of FTX in November.

Blockchain Association Head of Policy and U.S. Attorney Jake Chervinsky suggested to his 120,500 Twitter followers that Bankman-Fried was reluctant to take part in the Dec. 13 hearing because '"lying to Congress under oath is less appealing."

Translation: he doesn't mind lying to Andrew Ross Sorkin or George Stephanopoulos, but lying to Congress under oath is less appealing. https://t.co/DZTyzMwn9s
— Jake Chervinsky (@jchervinsky) December 4, 2022

On Nov. 30, Bankman-Fried made his first live public appearance since the collapse of FTX during the New York Times' DealBook Summit where he was questioned over the circumstances behind the crypto exchange's demise. A day later, he appeared in a Good Morning America interview, and also in a Twitter space hosted by IBC Group founder and CEO Mario Nawfal.

Most recently, Bankman-Fried was questioned by Coffeezilla in a Twitter Spaces interview on Dec. 3, which saw him leaving the interview around 20 minutes in.

Meanwhile, Coinbase CEO Brian Armstrong has called out Bankman-Fried's purported narrative in recent days, stating on Dec. 3 that “even the most gullible person” should not believe Bankman-Fried's claim that FTX's transfer of billions of dollars of customer funds to its trading firm Alameda Research came from the result of an unintentional “accounting error.”

I don't care how messy your accounting is (or how rich you are) - you're definitely going to notice if you find an extra $8B to spend.

Even the most gullible person should not believe Sam's claim that this was an accounting error.
— Brian Armstrong (@brian_armstrong) December 3, 2022

As for SBF’s recent media antics, Tesla and Twitter CEO Elon Musk “agreed” with a member of the crypto community SBF doesn’t deserve any more media attention until his court date, with Musk adding he needs an “adult timeout.”

Agreed. Let’s just give him an adult timeout in the big house & move on.
— Elon Musk (@elonmusk) December 3, 2022

EmpiresX ‘head trader’ to face 4 years of prison over $100M crypto ‘Ponzi’

December 1, 2022 Coin Telegraph

<div>EmpiresX 'head trader' to face 4 years of prison over 0M crypto 'Ponzi'</div>

CFTC

Two other associates that helped run the U.S.-based fraudulent crypto platform EmpiresX left the country early this year and are believed to be in Brazil.

One of the leading figures convicted of being behind the $100 million crypto “Ponzi” scheme, EmpiresX, has just been handed an over four-year jail sentence by a United States court.

The sentencing was handed to Joshua David Nicholas, the “head trader” of purported crypto platform EmpiresX, who is nowset to serve a 51-month prison sentence along with three years of supervised release for his role in the fraudulent scheme.

It follows a Sept. 8 guilty plea from Nicholas for conspiracy to commit securities fraud.

According to the Department of Justice (DOJ), over a two-year period, Nicholas made claims the platform would make daily “guaranteed” returns using a trading bot that utilized “artificial and human intelligence” to maximize returns.

In reality, the “bot” was fake, and Nicolas and his associates, Emerson Pires and Flavio Goncalves, operated a "Ponzi" scheme that paid earlier investors with money from later investors. The DOJ alleges blockchain analytics shows Pires and Goncalves, both Brazilian nationals, laundered investors’ funds through a “foreign-based” crypto exchange.

Only around $1 million of investor funds were sent to a futures trading account for EmpiresX with the majority of funds either lost or misappropriated according to the Commodity Futures Trading Commission (CFTC) which filed civil actions against the three in June.

At the same time, fraud charges were leveled against the trio by the Securities and Exchange Commission (SEC) which said investor money was used to “lease a Lamborghini, shop at Tiffany & Co., make a payment on a second home, and more.”

Investors were also told EmpiresX was registered with the SEC as a hedge fund and that Nicholas was a licensed trader.

The SEC said the platform was never registered with the Commission and Nicholas’ was suspended from trading by the National Futures Association for misappropriating customer funds.

The scheme ran for two years, from around September 2020 until early 2022 when it fell apart as the platform refused to honor customer withdrawals who were likely wanting to leave the crypto market due to significant price drawdowns that began at the time.

Pires and Goncalves, who were residing in Florida, allegedly began winding down the operations of EmpiresX in early 2022 and left the U.S., they are now believed to be in Brazil.

customer funds

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