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Democrat megadonor Sam Bankman-Fried under criminal investigation for market manipulation, which may have helped wipe $1 trillion from crypto market

Erika P. Rodriguez/Chicago Tribune/Tribune News Service via Getty Images

Disgraced Democrat megadonor Sam Bankman-Fried is in hot water, and not just for running his crypto exchange FTX into the ground or for admitting that he masqueraded as a "woke westerner."

Federal prosecutors have reportedly launched a criminal investigation into whether SBF manipulated prices of two cryptocurrencies in order to benefit his companies.

Fixing to win

The New York Times reported that U.S. prosecutors in Manhattan are looking into whether SBF manipulated and drove down the prices of two interlinked cryptocurrencies — TerraUSD and Luna — in order to benefit his companies FTX and Alameda Research.

SBF, called "one of the greatest fraudsters in history" by former rival and Binance CEO Changpeng Zhao, claimed in a statement that he was "not aware of any market manipulation and certainly never intended to engage in market manipulation."

The Democrat benefactor did not, however, expressly state that he had not engaged in market manipulation.

SBF said, "To the best of my knowledge, all transactions were for investment or for hedging."

The fall

TerraUSD is a so-called "stablecoin" whose value was supposed to be tied to the U.S. dollar. It operates on the Terra blockchain.

According to Investopedia, the currency was always intended to be worth exactly one dollar, "enabling transactions to process with predictable results and giving cryptocurrency investors and traders an option to store their assets in cryptocurrency without the risk and volatility associated with typical digital currencies."

Luna was the sister cryptocurrency of TerraUSD.

KRON reported that the idea behind Luna was that it was interchangeable with Terra, helpful if either traded under the desired price.

Both currencies became virtually worthless in May, with TerraUSD hitting a low of roughly $0.30 on May 11 and Luna dropping from $85 the previous week to about 4 cents, together wiping away over $50 billion in market value.

The New York Post reported that the crash of these currencies cleaned out billionaires and retail investors alike, resulting in bankruptcies and suicide attempts.

The resultant financial outlook became so bleak for so many investors that national suicide hotlines for various nations were reportedly pinned to the top of the Terra/Luna subreddit.

The consequence of this incident was not isolated. Instead, it sent ripples throughout the crypto world, bankrupting various prominent companies and, according to the Times, helping erase $1 trillion in value from the crypto market.

The push

The Times reported that prior to the crash, there were reports of a "flood of sell orders" for TerraUSD that "overwhelmed the system" and sent the currencies' prices plummeting. Luna prices also began to rapidly drop, owing to the incestuous linkage between the two currencies.

These sell orders for Terra USD just happened to originate from SBF's trading firm Alameda Research, a source told the Times. Alameda Research reportedly had also bet against Luna's price at the time of the crash.

Perhaps in a karmic twist, SBF's empire would ultimately reap the whirlwind he allegedly kicked up. The resultant market chaos reportedly led to loans conferred on Alameda getting recalled.

The Times indicated that SBF's ex-lover and Alameda chief executive Caroline Ellison told staff that Alameda, unable to get its hands on the borrowed funds, ended up using FTX customer funds to pay back the loans.

When panic set in about the crypto exchange's viability, customers tried to withdraw their money en masse. Unable to meet the demands, FTX eventually imploded.

The investigations

While SBF has yet to be charged with a crime, Richard Levin, a partner and financial technology lawyer at Nelson Mullins Riley & Scarborough, told CNBC that the former FTX CEO presently faces three different legal threats in the U.S. alone:

  • criminal action from the Department of Justice for "criminal violations of securities laws, bank fraud laws, and wire fraud laws";
  • civil enforcement action, brought "by the Securities Exchange Commission, and the Commodity Futures Trading Commission, and by state banking and securities regulators"; and
  • class action lawsuits.

CNBC noted that wire fraud is the most likely criminal charge SBF would face.

With hundreds of thousands of potential victims and billions in losses, Levin suggested the Democrat megadonor could be looking at "potential incarceration for decades" as well as heavy monetary penalties.

Bloomberg first reported — and the Times has confirmed — that the U.S. attorney’s office for the Southern District of New York began investigating FTX for money laundering prior to its collapse. The focus of the investigation was initially on the company's apparent noncompliance with the Bank Secrecy Act.

The Wall Street Journal reported in November that the Securities and Exchange Commission was investigating FTX after its sudden implosion.

The Commodity Futures Trading Commission is reportedly also looking into the circumstances of FTX's bankruptcy.

Bahamas Attorney General and Minister of Legal Affairs Ryan Pinder confirmed late last month that FTX is the focus of an "active and ongoing" investigation by Caribbean authorities. According to Pinder, the "affairs of FTX Digital Markets" are being examined by both "civil and criminal authorities."

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