US federal prosecutors have started to probe November's post-bankruptcy hack on the FTX exchange when over half a billion dollars in cryptocurrency went missing.
The FTX exchange was hacked between November 11 and the early hours of November 12, shortly after the prominent crypto exchange filed for bankruptcy and Sam Bankman-Fried stepped down as CEO.
Late on Friday night November 11, several wallets allegedly belonging to FTX were drained of hundreds of millions of dollars in cryptocurrencies.
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Pseudonymous blockchain investigator ZachXBT, widely trusted in the crypto-community, said that Etherscan analysis at the time of the hack priced the seizure at around $650m. An investigation by Chainalysis produced the same estimate.
However, FTX's bankruptcy filing notes claim that "at least $372m" was stolen.
Bloomberg report that federal prosecutors are now tracking the missing assets and have managed to freeze some, although these amount to only a "fraction" of the overall haul.
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The US Department of Justice has launched a criminal investigation into the hack, which is separate from the fraud investigation concerning FTX co-founder Sam Bankman-Fried.
Bankman-Fried was last week released from custody and allowed to go to his parents’ California home on a $250m bail package.
Read more: FTX bankruptcy sees 80,000 UK crypto investors lose funds
The co-founder of the FTX exchange was extradited to the US from the Bahamas in mid-December to face eight criminal charges, including wire fraud and conspiracy by misusing customer funds.
Bahaman government seizure
In mid-November US-based newly appointed FTX administrator John Ray, III claimed in court filings that he had “credible evidence” that officials in the Bahamas had directed FTX founder Sam Bankman-Fried to access FTX’s systems after the Chapter 11 filing, “for the purpose of obtaining digital assets of the debtors".
According to Market Watch, the Securities Commission of the Bahamas acknowledged that it was behind the removal of $477m in cryptocurrency from the bankrupt FTX exchange on November 12.
The Bahaman agency said in a statement: “The Securities Commission of the Bahamas, in the exercise of its powers as regulator acting under the authority of an order made by the Supreme Court of the Bahamas, took the action of directing the transfer of all the digital assets of FTX Digital Markets Ltd. to a digital wallet controlled by the commission, for safekeeping."
The collapse of the FTX exchange
The FTX exchange was set up on the offshore finance haven of the Bahamas in May 2019.
In early November, public reports began to circulate citing leaked, internal financial statements and questioning the health and liquidity of both FTX and its trading arm Alameda Research.
Coindesk journalist Ian Allison blew the lid on the irregularities in Alameda Research's balance sheet. Allison said a large proportion of the $14.6bn in assets held by Alameda Research was in FTX's own FTT (FTT-USD) token.
The coin that could be freely created by FTX dominated the reserves that Alameda Research used as collateral for loans.
With outstanding liabilities of an estimated $5.1bn at Alameda Research, holders of FTT experienced rising panic that margin calls on those loans might decimate the value of FTX's native token.
However, the collapse of FTX began in earnest when Binance CEO Changpeng 'ZC' Zhao stoked a bank run on the FTX exchange with a tweet stating that his exchange would liquidate its holdings in FTX's native FTT token.
Read more: FTX implosion sees $5bn crypto withdrawn from exchanges
After Binance’s announcement, many investors dumped their FTT bags and within two days, FTT tumbled from $22.06 to $3.38.
On 17 November, FTX filed for bankruptcy at a court in Delaware.
The new administrator of FTX, John J Ray III, said he had, “never in my career seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented".
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