FTX CEO’s market manipulation could cause Terraform Labs to collapse — SBF can be forced to appear in court

The founder of the infamous FTX crypto exchange Sam Bankman-Fried may be linked to the market manipulation that led to the collapse of TerraUSD and LUNA. The New York Attorney’s Office is investigating the matter. This was reported by The New York Times, referring to its sources. 

What’s known 

It is supposed that the founder of the exchange consciously sent the quotations of two related assets (TerraUSD and LUNA) in favor of the hedge fund Alameda Research and other companies under his control. Thus Bankman-Fried could manipulate prices to make profits for his own organizations. 

However, it is too early to say anything, since it is noted that the investigation is at an early stage. The report also states that the case is part of an overall investigation into the collapse of FTX, owned by Sam Bankman-Fried, and the possible misappropriation of billions of dollars of funds of exchange customers. 

Recall that the UST stablecoin lost its peg to the dollar in May 2022, leading to the collapse of the Terra ecosystem and the resulting market crash. At the time of writing, LUNC is trading at $0.00017 with a market capitalization of $1.019B. Over the last 24 hours, the value of the coin has increased by 2.62%, and over the last month by 4.43%. Not bad results, especially in the background of the collapse of the whole market.

How could FTX be involved in the TerraUSD and LUNA collapse? 

The answer to this question is in the state attorney’s report. It says that the collapse of TerraUSD was initiated by an increase in the number of sell orders from FTX. In other words, to get a lot of money, Bankman-Fried was shorting LUNA at the same time. If it had succeeded, the drop in the value of LUNA would have made the head of FTX a lot of money, but the SBF bid simply destroyed the TerraUSD-LUNA ecosystem and collapsed the cryptocurrency market. 

Counting on success and profit, Bankman-Fried sowed the seed of the next future collapse, due to which FTX and Alameda have already suffered in November. 

In his reply statement, the head of the exchange said that he was not aware of any market manipulation, and allegedly never planned to do anything of the sort. He also added that, as reported to him and as he himself knew, all transactions were for investments or hedging. 

Terraform Labs CEO Do Kwon reacted to the news of the investigation. Specifically, he said that Genesis Trading should come clean about whether it provided $1B UST to FTX or Alameda before Terra collapsed. 

He also added that the severe currency cut that occurred with UST in February 2021 was also initiated by Alameda. The company then sold $500M of UST short to drain its pools during the crisis. 

This is fairly public knowledge at this point, but the large currency contraction that UST went through in Feb 2021 was started by Alameda, when they sold 500mm UST in minutes to drain its curve pools during the MIM crisis

— Do Kwon 🌕 (@stablekwon) December 8, 2022

 

Now, Bankman-Fried could face even more problems. For example, if he fails to appear at the December 14 hearing and give testimony on the FTX and Alameda collapse before the Committee on Banking, Housing, and Urban Affairs in Washington, D.C., he will be forcibly summoned to court. The chairman of the Senate Banking Committee, Sherrod Brown, said so in a letter to the head of the exchange. 

Sam Bankman previously declined to attend the Dec. 13 court hearing at the invitation of the chairman of the House Financial Services Committee, arguing that he would not appear before the committee until he had read and analyzed what happened. However, now, given the threat of a trial, the head of FTX will have to study the case docs much faster.

 

How can I make money on this?

One way to make money on this, or rather to get it back, is if you are a former FTX customer. The company has not yet settled with the users and according to official data owes about $8.4B. Recently, it was reported that up to 50% of customers would be able to get their money back, but the conditions that must be met for this to happen are almost impossible. 

However, there is still hope for justice. On December 8, the court ordered Celsius to pay its users $44M. The decision was made several months later and, in the end, the lawyers sided with the affected clients, affecting the depositary accounts, which are, in fact, owned by the company. The proceedings against FTX and Alameda have just begun, so it is possible that exchange users will also be able to get their money back. 

Here’s another option for LUNA holders. However, it seems quite surreal. If SBF is confirmed to be involved in the Terraform Labs crash, then, purely theoretically, Do Kwon may be partially justified and confidence in the cryptocurrency may return, causing its price to rise. We reported whether Terra Classic is a good investment at the present moment here. 

Hopefully, even though SBF has hired one of the best attorneys in the U.S., the court will side with the clients.

How does Sam Bankman-Fried hire one of the top lawyers in the country with only 100k in the bank? Who is funding this?

— Layah Heilpern (@LayahHeilpern) December 6, 2022