Senate Banking Committee Chair Sherrod Brown, D-OH, and ranking member Pat Toomey, R-PA, will subpoena former FTX CEO Sam Bankman-Fried to testify on the collapse of the crypto exchange in person next week if he doesn’t voluntarily show up.
The senators extended an invite to a Dec. 14 hearing titled “Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers.” At that hearing, they plan to discuss the November downfall of Bankman-Fried’s crypto empire, which, according to bankruptcy filings, has affected more than 1 million creditors.
“As the Founder and CEO of FTX Trading Ltd. at the time of its collapse and the founder, principal owner, and former CEO of [sister company] Alameda Research, you must answer for the failure of both entities that was caused, at least in part, by the clear misuse of client funds and wiped out billions of dollars owed,” the senators wrote. “There are still significant unanswered questions about how client funds were misappropriated, how clients were blocked from withdrawing their own money, and how you orchestrated a cover-up.”
House Financial Services Committee Chair Maxine Waters, D-CA, who has also invited Bankman-Fried to testify, tweeted Wednesday that “a subpoena is definitely on the table” if he doesn’t honor her request.
Federal prosecutors in New York are reportedly looking into whether market manipulation by Bankman-Fried triggered the collapse of the TerraUSD stablecoin in May.
The investigation, originally reported by The New York Times on Wednesday, focuses on whether Bankman-Fried’s empire of companies intentionally caused a deluge of “sell” orders on Terra, making it difficult to match them with corresponding “buy” orders and de-pegging it from the 1:1 ratio with the U.S. dollar.
The Times report, citing an unnamed source, said FTX shorted the price of Luna in an attempt to yield “a fat profit.”
“Instead, the bottom fell out of the entire TerraUSD-Luna ecosystem,” the outlet reported.
Bank-crypto ties
Sens. Elizabeth Warren, D-MA, and Tina Smith, D-MN, meanwhile, penned letters Wednesday to the figureheads of the Federal Reserve, Federal Deposit Insurance Corp. (FDIC) and Office of the Comptroller of the Currency (OCC), calling on the regulators to investigate ties banks have to the crypto industry following FTX’s collapse.
“While the banking system has so far [been] relatively unscathed by the latest crypto crash, FTX’s collapse shows that crypto may be more integrated into the banking system than regulators are aware,” Warren and Smith wrote.
The letter focuses on FTX and Alameda Research’s ties to Bellevue, Washington-based Moonstone Bank and Bahamas-based Deltec Bank. Citing a New York Times report, Warren and Smith wrote that Alameda made an $11.5 million investment in Moonstone, more than doubling the bank’s worth, and it made a sizable investment in bank service provider FBH Corp., owned by Deltec Chair Jean Chalopin, after FBH received Federal Reserve approval.
“‘The fact that an offshore hedge fund that was basically a crypto firm was buying a stake in [Moonstone] for multiples of its stated book value should have raised massive red flags for the F.D.I.C., state regulators and the Federal Reserve … It’s just astonishing that all of this got approved,’” Warren and Smith wrote, citing a former president of the Independent Community Bankers of America.
Several other banks’ ties to FTX are also under scrutiny, the senators wrote, imploring regulators to dig deeper into such connections and to answer their questions by Dec. 21.
