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FTX reaches agreement over U.S. and Bahamas bankruptcy proceedings

(Reuters) – FTX and its affiliated debtors said the cryptocurrency exchange’s U.S. bankruptcy estate and the liquidators of its affiliated operations in the Bahamas reached an agreement to coordinate their operations.

The two sides will work to share information, secure property and coordinate litigation against third parties, according to a mutual statement.

Legal teams for the U.S. and Bahamian operations had been locked in a dispute over access to internal records and value of holdings of their operations.

FTX collapsed into bankruptcy in November and its founder Sam Bankman-Fried has been charged with fraud by U.S. prosecutors. He has pleaded not guilty.

(Reporting by Akash Sriram in Bengaluru; Editing by Chizu Nomiyama)

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U.S. prosecutors launch website for Bankman-Fried alleged fraud victims

By Luc Cohen

NEW YORK (Reuters) – The U.S. government plans to launch a website for victims of FTX cryptocurrency exchange founder Sam Bankman-Fried’s alleged fraud to communicate with law enforcement.

In court papers filed on Friday, federal prosecutors in Manhattan asked U.S. District Judge Lewis Kaplan for permission to use the website to notify victims, rather than contacting each individually.

FTX could owe money to more than 1 million people, making it “impracticable” to contact each, the papers said.

Federal law requires prosecutors to contact possible crime victims to inform them of their rights, including the rights to obtain restitution, be heard in court and be protected from defendants.

Kaplan has yet to rule on the request, but the website had gone live by Friday afternoon.

“If you believe that you may have been a victim of fraud by Samuel Bankman-Fried, A/K/A/ ‘SBF,’ please contact the victim/witness coordinator at the United States Attorney’s office,” the website read.

The U.S. Attorney’s office in Manhattan did not immediately respond to a request for comment.

Bankman-Fried, 30, has pleaded not guilty to eight counts of wire fraud and conspiracy over November’s collapse of FTX.

Prosecutors have said he stole billions in FTX customer deposits to pay debts for his hedge fund, Alameda Research, and lied to investors about FTX’s financial condition.

The onetime billionaire has acknowledged risk management shortcomings, but said he did not consider himself criminally liable.

Bankman-Fried’s lawyers did not immediately respond to a request for comment on Friday.

(Reporting by Luc Cohen in New York Editing by Leslie Adler)

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U.S. securities regulator probes FTX investors’ due diligence -sources

By Chris Prentice

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission (SEC) is seeking details about FTX investors’ due diligence, according to two sources familiar with the inquiry, as fallout from the crypto firm’s collapse spreads.

The SEC has so far brought charges against three of FTX’s top executives, accusing them defrauding investors in the crypto trading platform that has since filed for bankruptcy.

The SEC is now asking financial firms what diligence policies and procedures they have in place, if any, and whether they followed them when choosing to invest in FTX, the sources said.

The sources declined to be identified as the inquiries are not public.

Reuters was not able to determine how many firms were fielding such queries from the regulator. The SEC has alleged the Bahamas-based crypto exchange raised more than $1.8 billion from equity investors, including 90 U.S.-based investors, since May 2019.

The SEC inquiries do not indicate wrongdoing and Reuters could not ascertain if the firms are targets of the probe. But the sources said the SEC inquiries may mean the venture capital firms and investment funds that invested in FTX could face regulatory scrutiny even if they are considered victims of Bankman-Fried’s alleged scheme. At issue would be whether the firms met their fiduciary duties to their own investors, they said.

Reuters and others previously reported that U.S. authorities sent document requests to investors and potential investors in FTX, seeking details on their communications with FTX officials.

Those inquiries predated last month’s SEC charges against FTX founder Sam Bankman-Fried for allegedly defrauding such investors. The SEC’s inquiries to investors have continued after SEC filed those charges, and the agency has now shifted its focus to the firms’ diligence, the sources said.

A spokesperson for the SEC declined to comment.

FTX, once deemed a white knight for the crypto industry, crumbled in less than a fortnight due to a liquidity crunch. FTX filed for bankruptcy in November amid what its new CEO later described as a “complete failure of corporate controls”.

The SEC as well as the Justice Department and Commodity Futures Trading Commission have filed fraud charges against FTX founder and former CEO Sam Bankman-Fried. On Tuesday, he pleaded not guilty to criminal charges including wire fraud and money laundering on Tuesday.

Two former top associates, former Alameda chief executive Caroline Ellison and former FTX chief technology officer Gary Wang, have both pleaded guilty.

(Reporting by Chris Prentice and Krystal Hu; editing by Megan Davies and Anna Driver)

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Crypto firms off to rocky start in 2023 with outflows, layoffs and a lawsuit

By Hannah Lang

(Reuters) – The crypto industry’s woes continued on Thursday as plunging deposits, layoffs and a lawsuit added to the tumult of 2022, which was dominated by sinking prices and high-profile bankruptcies.

The fallout from the collapse of crypto exchange FTX and criminal charges leveled against its founder Sam Bankman-Fried weighed heavily on the sector this week. Among those hit were Genesis Global Capital, which laid off staff, and crypto-focused Silvergate Bank, which reported a large fall in deposits.

Bankman-Fried on Tuesday pleaded not guilty to eight criminal counts including wire fraud and money laundering conspiracy. The 30-year-old is accused of looting FTX customers’ deposits to support his Alameda Research hedge fund, buy real estate and donate millions of dollars to political causes.

Another crypto entrepreneur, Alex Mashinsky, the founder and former CEO of Celsius Network, also encountered a legal battle on Thursday. A new lawsuit filed by New York’s attorney general alleges Mashinsky defrauded investors by concealing the failing health of his now-bankrupt cryptocurrency lending platform.

While Mashinsky was CEO between 2021 and 2022, Celsius made roughly a billion dollars in loans to Alameda Research, according to the lawsuit.

The civil lawsuit seeks to ban Mashinsky from doing business in New York and have him pay damages for violating state laws.

“It serves as a shot across the bow to other founders of entities like this,” said Todd Phillips, founder of Phillips Policy Consulting LLC.

Meanwhile, Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday as investors spooked by the FTX collapse pulled out more than $8 billion, sending shares of the bank down more than 43%.

A U.S. attorney told a bankruptcy court on Wednesday that prosecutors had seized U.S. bank accounts at Silvergate and Farmington State Bank affiliated with FTX’s Bahamas-based business, known as FTX Digital Markets.

The accounts at Silvergate Bank and Farmington State Bank, which does business as Moonstone Bank, held about $143 million, court records showed.

Silvergate also said it would cut its workforce by 40%, or about 200 employees, to rein in costs as the industry downturn deepened. Genesis also plans to slash 30% of its workforce in a second round of layoffs in less than six months, according to a person familiar with the matter.

Genesis, which brokers digital assets for financial institutions like hedge funds and asset managers, announced in November its crypto lending arm would stop making new loans and blocked customers from withdrawing funds, citing market turmoil caused by the failure of FTX.

The layoffs were first reported by the Wall Street Journal, which also said Genesis is considering filing for Chapter 11 bankruptcy. The firm is working with investment bank Moelis & Co to evaluate its options, the report said, citing people familiar with the matter.

Crypto exchange Gemini, which had a crypto lending product in partnership with Genesis, and other Genesis creditors have been agitating for a solution to avoid a situation similar to FTX’s rapid descent into bankruptcy.

Cameron Winklevoss, who founded Gemini with his twin brother, on Monday accused Barry Silbert, the CEO of Genesis’ parent company Digital Currency Group, of “bad faith stall tactics” and asked him to commit to resolving $900 million worth of disputed customer assets by Jan. 8.

(Reporting by Hannah Lang in Washington; Additional reporting by Jonathan Stempel in New York and Manya Saini, Niket Nishant and Anirban Chakroborti in Bengaluru; Editing by Lananh Nguyen and Matthew Lewis)

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U.S. authorities probe FTX engineer Singh -Bloomberg News

(Reuters) – U.S. authorities are investigating the chief engineer of bankrupt crypto exchange FTX, Nishad Singh, ratcheting up pressure on founder Sam Bankman-Fried’s inner circle, Bloomberg News reported on Thursday, citing people familiar with the matter.

Singh could be charged as soon as this month if federal prosecutors in Manhattan find he played a role in the alleged multiyear scheme at FTX and trading firm Alameda Research to defraud investors and clients, the report added.

Authorities have not accused Singh of wrongdoing. It was not clear if Singh was cooperating with U.S. officials, the report said.

A spokesman for the U.S. Attorney’s office in Manhattan declined to comment.

The Securities and Exchange Commission and the Commodity Futures Trading Commission are also probing Singh, the report said, citing a source.

A lawyer for Singh, Andrew D. Goldstein, did not immediately reply to a request for comment. The SEC and CFTC did not immediately respond to requests for comment. Lawyers for Bankman-Fried did not immediately respond to a request for comment.

In mid-2020, Singh had tweaked the cryptocurrency exchange’s software to exempt Alameda Research, a hedge fund owned by Bankman-Fried, from a feature on the trading platform that would have automatically sold off Alameda’s assets if it was losing too much borrowed money, Reuters reported last month.

(Reporting by Aishwarya Nair in Bengaluru; Editing by Matthew Lewis)

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Who is Alex Mashinsky, the man behind the alleged Celsius crypto fraud?

By John McCrank and Hannah Lang

(Reuters) – Alex Mashinsky, a co-founder of bankrupt crypto lender Celsius Network who prosecutors allege bilked investors out of billions, is a serial entrepreneur who has portrayed himself as a modern-day Robin Hood.

Mashinsky, 57, fraudulently promoted Celsius as a safe alternative to banks, while concealing that it was losing hundreds of millions of dollars in risky investments, according to a lawsuit filed on Thursday by New York Attorney General Letitia James.

The civil lawsuit seeks to ban Mashinsky from doing business in New York and have him pay damages, restitution and disgorgement.

James’ lawsuit is the latest black eye for the crypto sector, which has been rocked by accusations against FTX crypto exchange founder Sam Bankman-Fried. The former mogul, who has been accused of cheating investors and causing billions of dollars in losses, on Tuesday pleaded not guilty.

Mashinsky, a native of Ukraine whose family emigrated to Israel, decided to move to New York after he took a trip to the city in 1988, he told a Forbes podcast.

“I looked around and I’m like, I’m never going back,” he said.

Since then, he has founded eight companies, including Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi to the New York City subway.

Mashinsky claims to have created Voice over Internet Protocol (VoIP), a precursor to ride-sharing app Uber, as well as an idea for a cryptocurrency that preceded bitcoin.

Mashinsky became involved in crypto in 2017, when his venture fund Governing Dynamics brought on blockchain company MicroMoney as a strategic partner. He founded Celsius the same year.

In his teens, Mashinsky bought confiscated goods like hairdryers and VCRs from customs auctions at Israel’s Ben Gurion Airport and resold them for a profit, according to a 1999 article in the defunct tech publication Industry Standard.

Mashinsky had aspirations at the time to start a business for whole-body transplants: “Give an old person a new body – keep the head, keep the spine, and re-create the rest,” he said.

The executive served in the Israeli army from 1984-1987, where he trained as a pilot and served in the Golani infantry units, according to his personal website.

Mashinsky has raised over $1.5 billion for various ventures that generated more than $3 billion when he and other investors cashed out of them, according to his website, which also says he holds more than 50 patents.

“The greatest risk is not taking one,” the home page reads.

In hundreds of interviews, blog posts and livestreams as the public face of Celsius, Mashinsky promised its customers that they would receive high returns if they deposited digital assets on his platform, with minimal risk, according to the New York AG’s lawsuit.

Neither Mashinsky nor his lawyer immediately responded to requests for comment on Thursday.

Celsius pledged investors would obtain returns of up to 17%, among the highest in the industry. “We take it from the rich,” the lawsuit quoted Mashinsky as saying.

By early 2022, it had amassed $20 billion in digital assets from investors. But the company struggled to generate enough revenue to pay the promised yields and moved into much riskier investments, according to the claim.

The company extended hundreds of millions of dollars in uncollateralized loans, and invested hundreds of millions more in unregulated decentralized finance platforms, the lawsuit said.

Mashinsky, who wore t-shirts with slogans such as “banks are not your friends,” continued to falsely represent to investors that Celsius was generating high yield through low-risk investments, according to the legal filing.

In an “Ask Mashinsky Anything” YouTube video on June 10, the entrepreneur said “Celsius has billions in liquidity.” Two days later, it paused investor withdrawals “in order to stabilize liquidity and operations.”

Celsius filed for Chapter 11 protection from creditors last July 13, listing a $1.19 billion deficit on its balance sheet.

(Reporting by John McCrank in New York and Hannah Lang in Washington; Editing by Lananh Nguyen and Matthew Lewis)

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New York sues Celsius Network founder Mashinsky, alleges crypto fraud

By Jonathan Stempel

NEW YORK (Reuters) – New York’s attorney general on Thursday sued Celsius Network founder Alex Mashinsky, claiming he defrauded investors out of billions of dollars in digital currency by concealing the failing health of his now-bankrupt cryptocurrency lending platform.

Mashinsky fraudulently promoted Celsius as a safe alternative to banks, while concealing that it was losing hundreds of millions of dollars in risky investments, according to a complaint filed by the attorney general, Letitia James.

The civil lawsuit filed in a New York state court in Manhattan seeks to ban Mashinsky from doing business in New York and have him pay damages, restitution and disgorgement.

It accuses him of violating the state’s Martin Act, which gives James broad power to pursue securities fraud cases, and other laws.

“Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” James said in a statement. “Making false and unsubstantiated promises and misleading investors is illegal.”

Mashinsky, his lawyer and lawyers for Celsius did not immediately respond to requests for comment.

Celsius, based in Hoboken, New Jersey, filed for Chapter 11 protection from creditors last July 13, listing a $1.19 billion deficit on its balance sheet.

The filing came one month after Celsius froze withdrawals and transfers for its 1.7 million customers, citing “extreme” market conditions.

Celsius ended November with $9 billion of liabilities, including more than $4.3 billion owed to customers, a court filing shows.

James said more than 26,000 New Yorkers were among the fraud victims. Many victims were ordinary investors, like a father of three who lost his $375,000 life savings, and a disabled veteran who lost the $36,000 he spent nearly a decade saving, she said.

IGNORE THE ‘FUD’

Cryptocurrency lenders gained popularity during the COVID-19 pandemic by promising high interest rates and easy loan access to depositors. They then lent out tokens to institutional investors, hoping to profit from the difference.

The business model proved often unsustainable in 2022 after a selloff in cryptocurrency markets, including the collapse of the terraUSD and luna tokens.

Born in Ukraine and later emigrating to Israel with his family, Mashinsky started multiple businesses before founding Celsius in 2017, becoming its chief executive and public face.

James said his promotional efforts through social media, interviews and cryptocurrency conferences helped the company amass $20 billion of digital assets by early last year.

But as it struggled to pay the promised yields on investor deposits, Celsius moved into riskier investments, while Mashinsky continued to assure that the platform was safe.

The lawsuit said that in the two weeks before the withdrawal freeze, Mashinsky was still dismissing criticism that Celsius was overextended, urging investors to “ignore the FUD,” short for “fear, uncertainty and doubt.”

James said Mashinsky’s fraud ran from 2018 to June 2022, when deposits were frozen.

In September, U.S. Bankruptcy Judge Martin Glenn appointed an examiner to investigate whether Celsius was mismanaged, after a federal trustee said an appointment could help “neutralize the inherent distrust” in the company among creditors and customers.

Mashinsky resigned as Celsius chief executive in September, saying at the time he was committed to helping return deposits to investors.

(Reporting by Jonathan Stempel in New York; Additional reporting by Luc Cohen and Dietrich Knauth; Editing by Noeleen Walder, Chizu Nomiyama, Bill Berkrot and David Gregorio)

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Crypto lender Genesis lays off 30% of staff – WSJ

(Reuters) – Cryptocurrency lender Genesis has cut 30% of its workforce in a second round of layoffs in less than six months, the Wall Street Journal reported on Thursday, citing people familiar with the matter.

The company did not immediately respond to Reuters request for comment.

The crypto firm’s lending arm, Genesis Global Capital, froze customer withdrawals on Nov. 16, citing “unprecedented market dislocation” following the collapse of major crypto exchange FTX.

Higher interest rates and worries of an economic downturn have roiled cryptocurrencies as investors fled risky assets, with recent bankruptcies in the space adding to the uncertainty.

(Reporting by Niket Nishant in Bengaluru; Editing by Shailesh Kuber)

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U.S. judge says Celsius Network owns most customer crypto deposits

By Dietrich Knauth

(Reuters) – A U.S. bankruptcy judge ruled on Wednesday that Celsius Network owns most of the cryptocurrency that customers deposited into its online platform, meaning most Celsius customers will be last in line for repayment in the crypto lender’s bankruptcy.

The ruling by U.S. Bankruptcy Judge Martin Glenn in New York affects approximately 600,000 accounts that held assets valued at $4.2 billion when Celsius filed for bankruptcy in July. The company does not have enough funds to fully repay those deposits, Glenn wrote.

The ruling means that most Celsius customers will be lower priority than customers who held non-interest bearing accounts and other secured creditors. It was unclear whether Celsius has significant secured debt.

The ruling also prevents in-fighting for higher priority among customers with interest-bearing accounts, avoiding a situation in which some of those customers are repaid 100% of their deposits while similarly-situated customers are able to recover “only a small percentage” of their deposits, according to Glenn. Celsius’ terms of service made clear that the crypto lender took ownership of customer deposits into its interest-bearing Earn accounts, according to Glenn. That means that Earn customers will be treated as unsecured creditors in Celsius’ bankruptcy, and they will be last in line for repayment after Celsius repays higher-priority debts.

Twelve U.S. states and the District of Columbia had objected to Celsius’ bid to claim the digital assets. They argued among other things that it was unclear if customers understood the terms of service and that Celsius was under investigation in several states for violating regulations, which could arguably prevent the company from relying on the terms of use.

The ruling does not mean that Earn customers will get “nothing” in the bankruptcy case, and it does not stop further challenges to Celsius’s ownership of the crypto deposits, Glenn wrote.

Celsius customers may be able to bring fraud or breach of contract claims against the crypto lender, and state regulators may be able to make the case that the accountholders’ contracts cannot be enforced because they violated state securities laws, according to the ruling.

“The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform,” Glenn wrote. “Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process.”

The ruling authorizes Celsius to sell approximately $18 million stablecoins that had been held in customers’ Earn accounts.

In December, Glenn ruled that a relatively small group of customers with different kinds of Celsius accounts were entitled to their deposits back during Celsius’s bankruptcy. That ruling was limited to customers who had non-interest-bearing custody accounts, whose funds were not commingled with other Celsius assets, and whose accounts were too small for Celsius to seek to claw them back to repay other customers.

The broader question of who owns crypto assets is a critical one in other crypto bankruptcies as well, including the cases of crypto lenders Voyager Digital and BlockFi.

(Reporting by Dietrich Knauth and Tom Hals in Wilmington, Delaware; Editing by Alexia Garamfalvi)

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Michigan Democratic Senator Stabenow will not seek re-election in 2024

By David Shepardson

WASHINGTON (Reuters) – Michigan Senator Debbie Stabenow, the chair of the agriculture committee and a key lawmaker on electric vehicle and cryptocurrency policy, said on Thursday she will not seek re-election in 2024.

Stabenow, a Democrat, is in her fourth term in the U.S. Senate.

Stabenow’s seat could be crucial to control of the Senate in 2025. Democrats currently control the Senate by a narrow 51-49 majority but must defend 23 seats in the 2024 election – including seats of three independents who caucus with Democrats – while Republicans have 10 seats to defend.

Stabenow wrote legislation in 2007 to create a U.S. government auto loan program that helped fund low-emissions vehicle production for Ford Motor, Tesla and Nissan and was a key advocate of the government rescue of General Motors and Chrysler in 2008.

Stabenow, a senior member of the Senate Finance Committee, has been an advocate of expanding electric vehicle tax credits and had backed President Joe Biden’s unsuccessful effort to boost credits for union-made EVs.

Stabenow will help lead negotiations in the coming months over a massive farm spending bill passed every five years that funds U.S. public food benefits and farm commodity programs.

The current $428 billion farm bill expires on Sept. 30.

“The climate crisis is real. Millions of Americans, including millions of children, are food insecure,” she told Reuters in November.

About 75% of farm bill funds go toward anti-hunger programs including the Supplemental Nutrition Assistance Program (SNAP), also called food stamps. USDA data shows about 41 million people have received SNAP benefits in 2022.

In November, Stabenow said Congress needs to pass legislation in the wake of the collapse of cryptocurrency exchange FTX saying lawmakers need to adopt “necessary safeguards to the digital commodities market.”

(This story has been refiled to fix a typo in the year from 2205 to 2025, in paragraph 3)

(Reporting by David Shepardson; Editing by Marguerita Choy)

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Silvergate Capital’s crypto-related deposits plunge in fourth quarter

(Reuters) – Silvergate Capital Corp’s crypto-related deposits plummeted in the fourth quarter, according to a preliminary earnings report on Thursday, as souring crypto sentiment following the collapse of FTX exchange led to a surge in withdrawals.

Silvergate’s total deposits from digital asset customers declined to $3.8 billion at the end of Dec. 31, 2022, compared with $11.9 billion at Sept. 30, 2022.

(Reporting by Manya Saini in Bengaluru; Editing by Subhranshu Sahu)

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Exclusive-FTX’s former top lawyer aided U.S. authorities in Bankman-Fried case

By Angus Berwick

(Reuters) – FTX’s former top lawyer Daniel Friedberg has cooperated with U.S. prosecutors as they investigate the crypto firm’s collapse, a source familiar with the matter said, adding pressure on founder Sam Bankman-Fried who was arrested on criminal fraud charges last month.

Friedberg gave details about FTX in a Nov. 22 meeting with two dozen investigators, the person said. The meeting, held at the U.S. Attorney for the Southern District of New York’s office included officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission, the source said. Emails between attendees scheduling the meeting with those agencies were seen by Reuters.

At the meeting, he told prosecutors what he knew of Bankman-Fried’s use of customer funds to finance his business empire, the source said. Friedberg recounted conversations he had with other top executives on the subject and provided details of how Bankman-Fried’s hedge fund Alameda Research functioned, the source said.

Friedberg’s cooperation has not been previously reported. He has not been charged and has not been told he is under criminal investigation, the source said. Instead, he expects to be called as a government witness in Bankman-Fried’s October trial, the person said.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX did not respond to requests for comment on his cooperation. The SEC, the Department of Justice and Bankman-Fried’s spokesman declined to comment.

Bankman-Fried is accused of diverting billions of dollars in FTX client funds to Alameda to bankroll venture investments, luxury real estate purchases, and political donations. On Tuesday, he pleaded not guilty in Manhattan federal court.

Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against now bankrupt FTX, said last month: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to fraud and agreed to cooperate. A lawyer for Ellison didn’t respond to a request for comment. Wang’s lawyer declined to comment.

MEETING WITH PROSECUTORS

FTX filed for bankruptcy protection on Nov. 11. A few days later, on Nov. 14, Friedberg received a call from two FBI agents based in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege, according to a person familiar with the matter and emails viewed by Reuters.

Friedberg wrote to FTX the next day asking the company to waive his privilege so he could cooperate with prosecutors, according to the email seen by Reuters. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.

Friedberg then wrote back to the two FBI agents, telling them in an email reviewed by Reuters: “I want to cooperate in all respects.”

The U.S. Attorney’s Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies, according to the source and an email exchanged by participants. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.

“THROUGH THICK AND THIN”

Prior to his work advising FTX, Friedberg advised a mix of banking, fintech, and online gaming companies.

One of his previous employers, a Canadian online gaming firm named Excapsa Software, where he was general counsel, also drew controversy due to a cheating scandal involving a poker site it operated called Ultimate Bet. A Canadian gaming commission in 2008 fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.

According to an audio recording available on the website PokerNews, Friedberg and some other Ultimate Bet associates privately discussed that year how to handle the scandal and minimize the amount of refunds owed to players. Friedberg previously told NBC News that the audio was illegally recorded but NBC’s article did not say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as outside counsel while at U.S. law firm Fenwick & West, where he chaired its payment systems group, the source familiar with the matter said. At the time, the source said Friedberg advised Bankman-Fried on running Alameda, which he founded that year.

In 2020, when Bankman-Fried launched a separate exchange for U.S. customers called FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted blog post published that year on FTX’s website, Bankman-Fried wrote that Friedberg was FTX’s legal advisor “from the very beginning,” noting he had been “with us through thick and thin.”

Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money, according to the source and three other people briefed on the talks, along with text messages his legal team exchanged at the time.

(Additional reporting by Hannah Lang; editing by Megan Davies and Anna Driver)

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U.S. DOJ in process of seizing Robinhood shares tied to Bankman-Fried

WILMINGTON, Del. (Reuters) – U.S. prosecutors are in the process of seizing shares of Robinhood Markets Inc that were allegedly owned by an entity controlled by Sam Bankman-Fried, who has been charged with fraud in the collapse of the FTX cryptocurrency exchange, U.S. attorneys told a judge on Wednesday.

Prosecutors told a U.S. bankruptcy judge they are in the process of seizing shares of Robinhood, the popular securities trading app, that were pledged as loan collateral by Alameda Research, the crypto hedge fund founded by Bankman-Fried.

Alameda filed for U.S. bankruptcy in November along with its affiliate FTX after customers rushed to withdraw funds.

Bankman-Fried has pleaded not guilty to fraud over the loss of potentially billions of dollars by FTX customers, investors and lenders.

Bankman-Fried owned about 56 million shares or about 7.42% of Robinhood stock through Emergent Fidelity Technologies Ltd, according to Eikon data.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Sandra Maler)

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Explainer-What happens next in Sam Bankman-Fried’s fraud case

By Jack Queen

(Reuters) – FTX founder Sam Bankman-Fried pleaded not guilty in Manhattan federal court on Tuesday to fraud and other charges related to the collapse of his $32 billion crypto empire, with a judge setting an October trial date as both sides prepare to sift through mountains of evidence.

WHAT HAPPENS NEXT?

The government will give documents and evidence to Bankman-Fried’s lawyers in a process known as discovery. Prosecutors said on Tuesday that they have hundreds of thousands of documents with more on the way as they continue gathering evidence. Discovery can take months, particularly if disputes arise over what evidence the defense is entitled to see ahead of trial. The documents could include everything from emails to bank statements and internal FTX data.

IS THE INVESTIGATION ONGOING?

Yes. Manhattan U.S. Attorney Damian Williams has said his office will continue to make announcements as its probe widens. In December, he revealed that Bankman-Fried associates Caroline Ellison and Gary Wang had pleaded guilty to defrauding investors and agreed to cooperate with prosecutors. Williams has pointedly urged any FTX insiders with information about the company’s demise to come forward.

WHEN WILL THE TRIAL HAPPEN?

U.S. District Judge Lewis Kaplan set an Oct. 2 trial date, but it is not uncommon for the schedule to be pushed back as fresh legal issues and evidence surface. Pretrial litigation is critically important as both sides press for an advantage over what evidence jurors will see and what legal arguments may be presented to them. Neither side gave any indication on Tuesday that they expect significant delays, but legal experts say similar cases have taken a year or longer to reach juries.

IS BANKMAN-FRIED CERTAIN TO STAND TRIAL?

No. Criminal defendants can change their plea at any time, and their lawyers often negotiate with prosecutors over a possible plea deal. This typically entails a defendant pleading guilty to certain charges in exchange for prosecutors dropping others.

Bankman-Fried, 30, has not given any indication that he intends to strike a plea deal, and prosecutors have not indicated they would offer one. He has apologized to FTX customers but said he does not believe he is criminally liable.

WHAT HAPPENS IF BANKMAN-FRIED IS CONVICTED?

The ex-mogul faces a maximum of 115 years in prison, but he is unlikely to receive such a sentence even if he is convicted on all counts. Judges have discretion in deciding sentences, and after a verdict, prosecutors and the defense frequently argue over an appropriate penalty. This involves weighing mitigating and aggravating factors or reasons why a defendant deserves a lenient or severe sentence.

WHAT ABOUT THE FTX BANKRUPTCY CASE?

FTX declared bankruptcy on Nov. 11 in Delaware. The U.S.-based bankruptcy is still in its early stages and will proceed without Bankman-Fried’s direct involvement.

The company’s current CEO, John Ray, told members of U.S. Congress in December that efforts by FTX to recover customers’ crypto assets would continue. Bankman-Fried has had no role in the company after he stepped down in November, Ray said.

(Reporting by Jack Queen in New York; Additional reporting by Dietrich Knauth in New York; Editing by Noeleen Walder and Matthew Lewis)

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Coinbase to pay $50 million to settle NY state investigation, invest $50 million in compliance

WASHINGTON (Reuters) – U.S.-based cryptocurrency exchange Coinbase Global Inc has reached a $100 million settlement with New York’s Department of Financial Services (DFS), the exchange and the regulator said in statements on Wednesday.

The settlement, which includes a $50 million penalty, caps the regulator’s investigation into the firm’s compliance with requirements to prevent money laundering.

The department found Coinbase treated its onboarding requirements for customers as a “simple check-the-box” and had not done sufficient background checks, the regulator said.

“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth. That failure exposed the Coinbase platform to potential criminal activity,” said New York DFS Superintendent Adrienne Harris.

The exchange has addressed the problems, said Paul Grewal, Coinbase’s chief legal officer, in a statement.

In a blog post, Coinbase said the investigation centered on the company’s compliance program circa 2018 and 2019, as well as the compliance backlogs as the exchange grew in 2021.

“We took NYDFS’s concerns seriously and have taken substantial measures to address these historical shortcomings,” the blog post said.

Coinbase, a publicly traded firm and one of the largest global crypto exchanges, will pay another $50 million to boost compliance efforts aimed at blocking potential criminals from using the exchange, the company said. The deal also requires Coinbase to work with a third-party monitor.

The New York Times first reported the settlement.

Coinbase has been under scrutiny from DFS and other regulators. It has previously disclosed receiving investigative subpoenas and requests from the U.S. Securities and Exchange Commission for documents and information.

Read more:

U.S. Supreme Court agrees to hear Coinbase arbitration dispute

Coinbase CEO expects revenue to plunge over 50% on battered crypto prices

(Reporting by Susan Heavey, Hannah Lang and Jonathan Stempel; Additional reporting and writing by Chris Prentice; Editing by Mark Potter and Lisa Shumaker)

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Ex-CFO pleads guilty to stealing from SPACs to trade meme stocks, cryptocurrencies

By Jonathan Stempel

NEW YORK (Reuters) – A former chief financial officer of multiple special purpose acquisition companies (SPACs) has pleaded guilty to embezzling more than $5 million from them, and losing almost all of it trading meme stocks and cryptocurrencies.

Cooper Morgenthau, 35, of Fernandina Beach, Florida, pleaded guilty to one count of wire fraud on Tuesday before U.S. District Judge Paul Engelmayer in Manhattan federal court.

Morgenthau faces a possible prison sentence of about six to 7-1/4 years, under recommended federal guidelines, at his scheduled April 25 sentencing.

He also agreed to forfeit $5.11 million and pay an equal amount in restitution, and settled related civil charges by the U.S. Securities and Exchange Commission.

Michael Bowen, a lawyer for Morgenthau, declined to comment.

Authorities said that between June 2021 and August 2022, Morgenthau stole more than $1.2 million from African Gold Acquisition Corp, concealed the theft by falsifying its account statements, and spent or lost all of it in securities trading.

To cover his losses, Morgenthau then raised $4.7 million from investors in SPACs known as Strategic Metals Acquisition Corp, only to lose most of it through crypto trading, the SEC said.

African Gold, which is based in New York and was created to buy a gold mining business, had raised $414 million in a Feb. 2021 initial public offering.

It fired Morgenthau last August after he ran out of money and vendors refused to work for the company, the SEC said.

African Gold said at the time it terminated Morgenthau after learning about his “improper withdrawals” and attempts to conceal them.

In pleading guilty, Morgenthau “admitted that he breached the trust that he owed to his public and private investors,” U.S. Attorney Damian Williams in Manhattan said in a statement.

(Reporting by Jonathan Stempel in New York; Editing by Matthew Lewis)

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Bahamas regulator sticks to estimate of FTX assets

(Reuters) – The Securities Commission of the Bahamas (SCB) rebuffed on Monday FTX’s claims about the digital assets of its Bahamas unit held by the regulator, saying the debtors of the bankrupt cryptocurrency exchange had “incomplete information”.

Last month, the SCB said it had seized more than $3.5 billion in cryptocurrency from the unit, FTX Digital Markets, which it was holding for future repayment to customers and other creditors.

FTX disputed SCB’s calculations, saying its digital assets seized in November were worth just $296 million and not $3.5 billion.

“Such public assertions by the Chapter 11 debtors were

based on incomplete information,” the regulator said in a statement on Monday.

There was no immediate response from FTX, which has been at odds with Bahamian officials since filing for bankruptcy protection on Nov. 11.

Bahamas officials have sought access to FTX’s records to help liquidate FTX Digital Markets, but the company’s U.S. bankruptcy team said it did not trust them with the information.

FTX’s founder and former chief executive, Sam Bankman-Fried, was arrested on fraud charges and is expected to be arraigned on Tuesday before U.S. District Judge Lewis Kaplan in Manhattan federal court.

The firm’s new chief executive, John Ray, has said the exchange lost $8 billion of customer money.

(Reporting by Kanjyik Ghosh in Bengaluru; Editing by Clarence Fernandez)

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Bankman-Fried pleads not guilty in FTX fraud case

By Jack Queen and Luc Cohen

NEW YORK (Reuters) – Sam Bankman-Fried pleaded not guilty on Tuesday to criminal charges that he cheated investors in his now-bankrupt FTX cryptocurrency exchange.

Bankman-Fried is accused of looting billions of dollars in FTX customer deposits to support his Alameda Research hedge fund, buy real estate and make millions of dollars in political contributions, in what prosecutors have called a fraud of epic proportions.

The 30-year-old defendant entered his plea through his lawyer to eight criminal counts, including wire fraud and conspiracy to commit money laundering, before U.S. District Judge Lewis Kaplan in Manhattan federal court.

It is common for criminal defendants to initially plead not guilty. They may change their pleas later.

Bankman-Fried, now clean-shaven, had entered the courthouse while wearing a blue suit, white shirt and dotted blue tie and carrying a backpack.

He could face up to 115 years in prison if convicted.

The Massachusetts Institute of Technology graduate rode a boom in the value of bitcoin and other digital assets to build a net worth of an estimated $26 billion and become an influential political donor in the United States.

But FTX collapsed in early November after a wave of withdrawals and declared bankruptcy on Nov. 11, wiping out Bankman-Fried’s fortune. He later said he had $100,000 in his bank account.

Bankman-Fried was extradited last month from the Bahamas, where he lived and where the exchange was based.

Since his release on bond on Dec. 22, Bankman-Fried has been subject to electronic monitoring and required to live with his parents, Joseph Bankman and Barbara Fried, both professors at Stanford Law School in California.

The prosecution case was strengthened by last month’s guilty pleas of two of Bankman-Fried’s closest associates.

Caroline Ellison, who was Alameda’s chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to seven and four criminal charges, respectively, and agreed to cooperate with prosecutors.

Bankman-Fried, Ellison and Wang were also sued by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. Ellison and Wang settled those civil cases.

FTX’s new chief executive, John Ray, known for his work on energy company Enron Corp’s bankruptcy, has said FTX was run by “grossly inexperienced” and unsophisticated people.

(Reporting by Jack Queen and Luc Cohen in New York; Additional reporting by Jonathan Stempel in New York; Editing by Noeleen Walder and Matthew Lewis)

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Banks should approach crypto with heightened caution, U.S. regulators say

(Reuters) – U.S. banking regulators said on Tuesday banks should be aware of key risks associated with cryptocurrency, including legal uncertainties and inaccurate or misleading disclosures by digital asset firms.

In their first joint statement on crypto, the Federal Reserve, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency also said banks issuing or holding crypto tokens that are stored on a public, decentralized network are “highly likely” to be inconsistent with safe and sound banking practices.

The regulators also said they have safety and soundness concerns with bank business models that have concentrated exposure to the crypto sector, or those that are highly concentrated in crypto-related activities.

(Reporting by Hannah Lang in Washington; Editing by Chris Reese)

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Bankman-Fried’s parents have been physically threatened, his lawyers say

NEW YORK (Reuters) – Sam Bankman-Fried’s parents have been getting physical threats since the collapse of their son’s now-bankrupt FTX cryptocurrency exchange, his lawyers said on Tuesday.

The disclosure was made in a filing in Manhattan federal court, where the lawyers asked that the names of two remaining sureties for Bankman-Fried’s $250 million bond not be disclosed.

Bankman-Fried has been required to live with his parents, Joseph Bankman and Barbara Fried, with electronic monitoring since bail conditions were set.

In Tuesday’s filing, his lawyers said the parents “have in recent weeks become the target of intense media scrutiny, harassment, and threats. Among other things, Mr. Bankman-Fried’s parents have received a steady stream of threatening correspondence, including communications expressing a desire that they suffer physical harm.”

As a result, the lawyers said there was “serious cause for concern” the additional sureties might face similar privacy intrusions, threats and harassment, and that this overcame any public right of access to their identities.

Bankman and Fried are professors at Stanford Law School.

They agreed to co-sign their son’s bond, with the additional sureties signing separate bonds in lower amounts.

Bankman-Fried is expected to plead not guilty later on Tuesday to criminal charges that he cheated investors and looted billions of dollars at FTX, a source familiar with the matter said last week.

He is accused of illegally using FTX customer deposits to support his Alameda Research hedge fund, buy real estate and make millions of dollars in political contributions.

(Reporting by Jonathan Stempel in New York; Editing by Tomasz Janowski)