Investing

US Prosecutors Ramp Up Investigations on Crypto Firms Post FTX Collapse

Ruholamin Haqshanas

Published: January 9, 2023 10:43 pm

US authorities have ramped up their investigation into crypto-related firms following the recent catastrophic collapse of FTX. In the latest move, US prosecutors and the Securities and Exchange Commission have requested information from Digital Currency Group. Before that, federal prosecutors had sent subpoenas to hedge funds working with Binance.

Investment Firms Dealing With Binance Receive Subpoenas

In a Saturday report, the Washington Post revealed that the U.S. attorney’s office for the Western District of Washington in Seattle had issued subpoenas to American hedge funds and market-making companies working with Binance, asking them to share records of their communications with the exchange.

While the subpoenas do not necessarily mean prosecutors plan to bring charges against Binance, they could suggest trouble is brewing for the exchange. “Prosecutors are still discussing a possible settlement with Binance and weighing whether they have enough evidence to bring indictments against the company,” the Post said.

The world’s largest cryptocurrency exchange has been under investigation by the Department of Justice since 2018 over the potential violations of money-laundering laws. Furthermore, the SEC is also examining whether Binance’s initial coin offering of its BNB token back in 2017 was an unregistered security offering.

As reported, the SEC has filed a limited objection to Binance.US’s proposed $1 billion acquisition of the bankrupt Voyager Digital for $1 billion. The agency said that the purchase agreement lacked details regarding the exchange’s ability to close the deal and also requested more information on the nature of Binance’s business operations.

DCG Comes Under Regulatory Spotlight

Following Binance, crypto conglomerate Digital Currency Group has also come under investigation by US authorities. According to a Bloomberg report, the United States Department of Justice’s Eastern District of New York and the SEC has asked for records of internal transfers between DCG and its subsidiary crypto lending firm Genesis Global Capital.

More specifically, federal prosecutors have requested interviews and documents. The probes are in the early phases, and as of yet, no indictment has been brought against DCG or any of its subsidiaries, the report said.

The probes into major crypto companies come when the industry is struggling with an unfriendly stance from regulators around the globe. The recent implosion of FTX, once the third-largest crypto exchange in the world, has increased concerns around unregulated online marketplaces where digital assets are bought and sold.

In the wake of FTX’s collapse, Genesis Global Capital, the lending arm of Genesis, announced that it is temporarily suspending redemptions and new loan originations. In a statement on Twitter, Genesis says the “abnormal withdrawal requests” have exceeded its “current liquidity.”

Genesis has also revealed that it has $175 million locked in on its FTX trading account. While the company initially claimed they are not much affected by the loss, reports about Genesis Global Capital seeking to raise $1 billion and hiring restructuring advisors have painted a different picture.

The contagion from FTX and Genesis has also spread to other players in the crypto industry. For one, crypto exchange Gemini had to halt redemptions for the customers of its Earn program in mid-November. Reportedly, around $900 million of Gemini’s customer funds are locked in Genesis.

As per the latest reports, Genesis is considering chapter 11 bankruptcy. The company also cut off 30% of its employees last week in the second major round of layoffs within a year.

This article originally appeared on The Tokenist