Crypto trading site FTX under federal investigation amid bankruptcy

(NEW YORK) — The collapse of cryptocurrency exchange FTX is now the subject of an investigation by federal prosecutors in New York, sources familiar with the matter told ABC News.

Prosecutors join regulators from the Securities and Exchange Commission and the Commodity Futures Trading Commission in investigating the circumstances of FTX’s bankruptcy.

At issue, the sources said, is whether FTX violated securities laws when it reportedly gave customer funds to Alameda Research, the trading firm of FTX founder Sam Bankman-Fried.

A spokesman for the U.S. Attorney’s Office for the Southern District of New York declined to comment.

Authorities in the Bahamas, where FTX was located, have also launched a criminal investigation, according to a statement from the Royal Bahamas Police.

Earlier this month, concerns of financial instability at FTX — a top platform where users buy and sell crypto — triggered a wave of customer withdrawals totaling billions of dollars. But FTX lacked sufficient funds to pay sellers, instead imposing a halt on withdrawals altogether.

On Friday, FTX began bankruptcy proceedings in the U.S., as it assesses the value of its remaining assets, a company announcement said.

Bankman-Fried, 30, a prominent crypto entrepreneur and the CEO of FTX, resigned on Friday, the announcement added.

The fall of FTX centers in part on the cryptocurrency exchange’s close relationship with Alameda Research, a crypto hedge fund also founded by Bankman-Fried.

FTX lent customer deposits to Alameda Research to help it meet its liabilities, and top executives at Alameda Research were aware of it, The Wall Street Journal reported.

FTX did not immediately respond to a request for comment from ABC News.

FTX faced a sudden selloff last week of a native cryptocurrency called FTT after news outlet CoinDesk reported that a significant portion of Alameda Research’s assets consisted of the token, calling into question the financial independence of FTX.

Changpeng Zhao, the CEO of rival crypto exchange Binance, announced that he would sell $580 million worth of the token, causing a further spike in customer withdrawals that totaled $5 billion in a single day.

The selloff, akin to a bank run, put FTX in a difficult position of meeting the sudden demand for customer funds.

Some crypto traders on the platform have said they cannot access their money and may never get it back. The debacle coincides with a rough year for crypto, as the value of bitcoin has fallen more than 60%.

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