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According to dozens of people with knowledge of the investigation, federal prosecutors are taking a closer look at a growing number of individuals connected to Sam Bankman-Fried’s disbanded cryptocurrency empire, including his father, brother and former co-workers. The investigation is one of the largest financial crime investigations in the United States in more than a decade.
A special task force was established by the US Attorney’s Manhattan office to conduct an investigation into the death of FTX, the established crypto exchange Bankman-Fried.
More than a dozen prosecutors are building a criminal case, led by Damian Williams, the U.S. attorney for the Southern District of New York, to recover billions of dollars in client funds that Banman-Fried is accused of defrauding.
According to several sources with knowledge of the investigation, prosecutors recently spoke with attorneys for dozens of former executives and employees at FTX and Alameda Research, the hedge fund Bankman-Fried also founded. Prosecutors are also looking into how members of the banker Fried’s family contributed to the business empire.
The fallout from FTX forced nearly everyone in Bankman-Fried’s inner circle to seek legal counsel as the investigation intensified and prosecutors considered filing additional charges. Several former FTX executives who may have valuable information are each represented by defense attorneys from the law firms Meyer Brown, Steptoe & Johnson and Covington & Burling.
Daniel Hawke, former director of the Securities and Exchange Commission’s Market Abuse Division and now an attorney at Arnold & Porter, said:
As people begin to subvert or cooperate with authorities, it can lead to new lines of inquiry and new people of interest.
The FTX probe may also target businesses that lend money to or receive money from the exchange. The case for Genesis, which was accused of violating securities laws, was when FTX, a cryptocurrency lending company, collapsed last year. A bipartisan group of senators asked Silvergate, the bank that started doing business with FTX, in late January about whether the company knew the exchange was misappropriating customer funds.
When FTX filed for bankruptcy in November, in addition to recovering lost customer funds, prosecutors are trying to recover hundreds of millions of dollars stolen by the hackers. Additionally, they are investigating more than $90 million in campaign donations made by FTX employees and other firm associates to political organizations and congressional candidates.
The evidence of Bankman-Fried’s former colleagues may be crucial to the prosecution’s case in the criminal case against him. His closest advisers, Caroline Ellison and Gary Wang, pleaded guilty to fraud in December and have been working with prosecutors for months. Investigators are currently focusing their efforts on additional former FTX executives.
Three people familiar with the matter say prosecutors have spoken with counsel for former co-president Sam Trabuco of Alameda Research. Additionally, according to multiple sources, Daniel Friedberg, a prominent in-house attorney at FTX, has personally met with them.
Prosecutors said in court documents that they met with Ryan Miller, the attorney general of FTX’s US branch, who was handling the case in the tumultuous days before FTX’s collapse.
Along with several people with knowledge of the exchanges, it was also revealed whether the authorities had spoken to the lawyer, Nishad Singh, a former senior engineer at FTX. Cooperate as part of a potential plea bargain. Mr. Singh, a prominent supporter of Democratic politicians, has not been charged with any crime but, according to government records, knew that FTX had misappropriated customer funds and obtained $543 million in loans from Alameda.
Bloomberg first published the conversation between prosecutors and Mr. Singh, and Reuters first reported Mr. Friedberg’s contact with prosecutors.
It was also recently revealed that prosecutors interviewed witnesses and attorneys and questioned former FTX executive Ryan Salame, who gave tens of millions of dollars to Republican lawmakers.
A person may not necessarily be under investigation just because defense attorneys and prosecutors say so. Authorities conduct these interviews to determine if anyone has knowledge that could make them useful as a witness.
Bankman-Fried, 30, has pleaded not guilty to charges of fraud, money laundering and improper campaign financing. After a federal judge granted him bail with strict conditions, he is now confined to his parents’ home in Palo Alto, Calif., while he awaits his October arraignment.
One area likely to grow soon is the investigation into FTX’s campaign fundraising practices. As the corporation pursues political power in Washington, prosecutors are particularly interested in whether FTX is involved in a nefarious conspiracy to funnel millions of dollars to “straw contributors.”
Federal prosecutors began emailing some of the campaigns and political organizations that received donations from FTX employees after Bankman-Fried was arrested in December, The New York Times previously reported.
The Bankman-Fried family is under investigation
According to multiple sources briefed on the investigation, authorities are investigating whether Bankman-Fried Owinger’s brother, Gabe Bankman-Fried, was involved in campaign fundraising fraud.
Guarding Against Pandemics, an advocacy organization led by Gabe Bankman-Fried, received funding from FTX. In addition to building a headquarters in a $3.3 million townhouse in Washington, D.C., the organization has also supported other organizations. A few blocks from the Capitol, the townhouse is currently for sale.
Attorneys for FTX’s new management asserted in a January 25 bankruptcy court filing that the townhouse was purchased “using embezzled client funds.”
Prosecutors are also looking at Bankman-Fried’s father, Joe Bankman, a professor at Stanford Law School who worked for FTX and was a public supporter of the business.
Four people familiar with the investigation have asked federal investigators about Bankman’s involvement in his son’s vast business empire. The $16.4 million Bahamas villa Banman and his wife Barbara Fried frequently lived in is “considered to be company property,” Banman-Fried said.
Many people familiar with the situation say that their son gave them $10 million a year ago. Prosecutors were looking into that transaction, according to one of the individuals. A representative for the Bankman-Fried family declined to comment.
Former U.S. Attorney for the Western District of Virginia John P. Fishwick Jr. said prosecutors frequently put pressure on criminal defendants by prosecuting family members who are concerned about their own legal liability.
Mr. Fishwick said the threat to prosecute family members is “the greatest pressure the DOJ can put on criminal defendants.” It has frequently been shown that if the offender pleads guilty earlier, the accused’s family members receive a more favorable sentence. However, this is not a guarantee.
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