Regulators surround FTX as rival exchanges try to placate investors

  • US Department of Justice, SEC and CFTC investigating FTX, sources say
  • Fed’s Brainard, Barr Signal Tighter Crypto Regulation
  • CEO Says He Will Release Proof of Reserves
  • Bitcoin stabilizes around $16,590

NEW YORK, Nov 14 (Reuters) – Regulators have opened investigations following the dramatic collapse of crypto exchange FTX last week and rival exchanges have sought to reassure nervous investors of their own stability, weighing on cryptocurrencies on Monday.

The implosion of FTX, once a crypto industry darling with a $32 billion valuation in January, has spurred investigations by the US Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission, said a source with knowledge of the investigations.

The SEC investigation also targets FTX executives, their knowledge of handling client funds and any potential violations of securities laws, said a second source with knowledge of the investigation.

While the crypto industry has presented digital assets as fundamentally different from traditional finance, the sector has proven susceptible to the same risks and should be subject to the same rules, the Federal Reserve Vice Chairman said on Monday. , Lael Brainard.

“Crypto finance, because it is no different from traditional finance in the risks it exposes, needs to be under the regulatory perimeter,” she told Bloomberg in an interview, repeating a view from long time.

Separately, Michael Barr, the Fed’s top regulator, signaled on Monday that tougher oversight of cryptocurrencies is coming. This includes “safeguards” to ensure that crypto firms are subject to similar rules as other financial firms, Barr said in written testimony released ahead of an appearance before the Senate Banking Committee on Tuesday.

U.S. Senator Sherrod Brown, a Democrat who chairs the committee, also weighed in.

“I have always focused on fraud, scams, volatility and outright theft in the crypto industry,” he said. “The FTX bankruptcy and the many other recent instances of instability have proven why we need a comprehensive regulatory approach that protects consumers.”

FTX filed for bankruptcy protection on Friday in one of crypto’s most publicized explosions after frantic traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance quit. a bailout deal.

Sam Bankman-Fried, former CEO of FTX, says his company grew too quickly, according to a interview with the New York Times published on Monday.

Bitcoin, which hit a record high of $69,000 a year ago, fell back below $16,000 early Monday before recovering to trade at $16,401, up 0.56% to 17 1:56 p.m. EST (10:56 p.m. GMT).


The rapid fall of FTX, once a white knight of struggling crypto firms, has sent shockwaves through the crypto industry, which is bracing for further fallout.

FTX’s logo is seen at the entrance to the FTX Arena in Miami, Florida, U.S., November 12, 2022. REUTERS/Marco Bello

LedgerX LLC, a subsidiary of FTX, on Monday withdrew its December application to the U.S. Commodity Futures Trading Commission to allow it to offer products that are not fully collateralised.

Cryptocurrency lender BlockFi, which signed an agreement with FTX to provide it with a $400 million revolving credit facility with an option to purchase up to $240 million, said it has exposure important to FTX.

Other crypto exchanges have released details of their reserves and promised further disclosures in a bid to soothe investors’ nerves amid unverified rumors.

Kris Marszalek, chief executive of, a Singapore-based crypto exchange, which hit the headlines in 2021 with a $700 million deal to rename the Staples Center in Los Angeles as the Arena, has refuted suggestions that he was in trouble.

In an “ask me anything” YouTube live stream, Marszalek said the exchange still maintains reserves matching all coin clients held on its platform and that audited proof of Crypto reserves .com would be released in a few weeks.

The move came after investors took to Twitter over the weekend to question a $400 million transfer of ether tokens to the exchange on October 21.

Marszalek tweeted on Sunday that the ether had been recovered and returned to the exchange, but the Wall Street Journal reported that withdrawals at increased over the weekend.

A spokesperson for did not respond to a request for comment on whether exits from the platform continued on Monday. is among the top 10 such exchanges by revenue globally, but smaller than FTX and market leader Binance.

Another crypto exchange, Kraken, said on Twitter on Sunday that it had frozen the accounts of FTX, the crypto trading affiliate Alameda Research, and their executives.

“We have been actively monitoring recent developments with the FTX domain, are in contact with law enforcement, and have frozen Kraken account access to certain funds that we suspect are associated with ‘fraud, negligence or misconduct’. “linked to FTX,” a Kraken spokesperson said. .

Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange, said he would seek to establish an industry recovery fund to help “otherwise strong but cash-crunched” projects.

Binance signed a non-binding letter of intent last week to buy FTX’s non-US assets, but later abandoned the deal, precipitating its bankruptcy. Zhao has since warned of a “cascading” crypto crisis.

Reporting by John McCrank in New York, Vidya Ranganathan in Singapore and Alun John in London Additional reporting by Chris Prentice in Washington, Ann Saphir in San Francisco, Lindsay Dunsmuir in Edinburgh, Xinghui Kok in Singapore and Elizabeth Howcroft in London Editing by Lananh Nguyen, Jonathan Oatis and Matthew Lewis

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Robert D. Coleman