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FTX accused of ‘fraud, dishonesty and incompetence’

FTX
FTX

US authorities have called for an independent investigation into FTX’s bankruptcy to examine claims of “fraud, dishonesty and incompetence” at the failed cryptocurrency exchange.

In a court filing, the US Department of Justice called for the appointment of a government examiner to work on FTX’s bankruptcy case and “investigate the substantial and serious allegations of fraud”.

The request from the Department of Justice comes amid multiple regulatory and police inquiries into the collapse of the company, a $32bn (£25bn) digital currency exchange founded by 30-year-old Sam Bankman-Fried.

Mr Bankman-Fried has faced allegations customer funds were misused, admitting this week he was “vaguely aware” client money was used to pay off debts at a sister business. FTX executives have been accused of syphoning off customer deposits to prop up losses at a high-risk hedge fund, Alameda Research.

Andrew Vara, of the Office of the United States Trustee, said an official investigation would address “larger questions about the fundamentals of these cases. Was this an unsuccessful business or a successful fraud”?

On Thursday, Mr Bankman-Fried undertook a series of interviews where he denied wrongdoing. He tried to wave away comparisons to Bernie Madoff’s $65bn Ponzi scheme and sought to pass off the failure of FTX as a mix of incompetence and inattention.

He said on Thursday “I wasn’t spending any time or effort trying to manage risk on FTX”.

The implosion of FTX has sent shockwaves across the cryptocurrency space and caused panicked investors to try and withdraw their funds from other exchanges.

FTX, and a web of 130 related companies, collapsed on November 11 with an $8bn black hole in its accounts. Its restructuring is being handled by John Ray, a veteran who handled the bankruptcy of scandal-hit energy giant Enron in 2001.

In a court filing, Mr Ray said FTX had been run by “a very small group of inexperienced, unsophisticated and potentially compromised individuals”. Mr Ray suggested the case was worse than Enron, saying: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”