According to a recent report from a court-appointed examiner, the collapsed crypto exchange FTX disbursed over $25 million in hush money to whistleblowers prior to its downfall in November 2022. Earlier this year, the U.S. Department of Justice (DOJ) appointed Robert J. Cleary, a renowned lawyer and former lead prosecutor on the Unabomber case, to investigate FTX amid its ongoing bankruptcy proceedings.
The investigation, carried out by the prestigious law firm Quinn Emanuel Urquhart & Sullivan, was commissioned by FTX‘s current CEO, John J. Ray III, who succeeded the now-convicted and sentenced co-founder Sam Bankman-Fried (SBF). The probe examined FTX’s handling of multiple whistleblower complaints that exposed systemic misconduct within the company.
The report said FTX did not adequately investigate the whistleblowers’ allegations. Instead, the exchange paid over $25 million to seven individuals who raised concerns. Joseph Bankman, a Stanford Law School professor and father of SBF, reportedly played a role in settling some of these complaints.
The whistleblowers accused FTX and its affiliates of a range of serious violations, including misleading investors, commingling customer funds, breaching commodity regulations, engaging in market manipulation and insider trading, and neglecting to implement proper anti-money laundering controls and compliance measures.
FTX‘s dramatic collapse in November 2022, attributed to allegations of SBF’s mismanagement, involved the improper loaning of billions of dollars in customer deposits to Alameda Research, FTX’s trading arm. This collapse precipitated a significant downturn in cryptocurrency prices and led to the arrest of Bankman-Fried by U.S. federal authorities the following month.
In November, a U.S. jury found Bankman-Fried guilty on multiple counts, including wire fraud, conspiracy to commit wire fraud, securities fraud, commodities fraud, and money laundering. In March, Judge Lewis A. Kaplan sentenced Bankman-Fried to 25 years in prison, followed by three years of supervised release, and ordered him to pay $11 billion in forfeiture. Bankman-Fried is currently appealing his conviction and sentence.
