The U.S. Department of Justice (DOJ) is joining the Securities and Exchange Commission (SEC) in an investigation into FTX’s ongoing liquidity crisis.
A report from Bloomberg on Wednesday, citing sources familiar with the matter, disclosed the DOJ’s interest in the FTX-related turmoil and the exchange’s potential liquidity mismanagement.
The DOJ is the latest regulator to join an ongoing probe by the SEC and the Commodities and Futures Trading Commission (CFTC) in looking into whether FTX mishandled user funds. While enforcement actions by the SEC and CFTC incur civil penalties, those by the DOJ can also result in criminal convictions, which have more severe punishments.
The Texas Securities Board launched a separate investigation last month into FTX’s alleged unregistered securities offering.
The insolvent crypto exchange’s downward spiral began only last week, after panicked customers began withdrawing their assets from the platform fearing its potential insolvency. On-chain data that documented the exchange’s quickly depleting crypto reserves further enforced fears that FTX CEO Sam Bankman-Fried attempted to dispel.
“FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be,” wrote Bankman-Fried in a Nov. 7 tweet that has since been deleted.
According to a report from the Wall Street Journal, the FTX CEO told investors on Wednesday that the exchange needs an $8 billion emergency capital injunction to meet withdrawal requests.
Until recently, Bankman-Fried was largely in the CFTC’s good books, even making a case for directly clearing crypto swaps before a roundtable of CFTC regulators in Washington D.C, CoinDesk reported in May.
Ben Hunt, co-founder of the Epsilon Theory newsletter, revealed in a tweet that CFTC Commissioner Caroline Pham has now deleted all tweets and “chummy references” of herself with Bankman-Fried.
“CFTC and Democrats were palling around with SBF, suing DAOs and devs, decrying the scourge of DeFi and plotting to regulate websites and wallet APIs while FTX played with customer money,” wrote Gabriel Shapiro, general counsel at Delphi Labs, in another tweet.
“SEC could’ve gone after FTT as a security. Instead they sued a small under-resourced YouTube fork that gave tokens to video creators as rewards for their creativity,” he added.