Bankrupt cryptocurrency exchange FTX paid more than $25 million in hush money to whistleblowers before filing for bankruptcy in November 2022, according to a new report from a court-appointed investigator.
Earlier this year, the U.S. Department of Justice (DOJ) retained Robert J. Cleary, an attorney who served as lead prosecutor in the Unabomber case, to investigate FTX as part of the exchange’s ongoing bankruptcy case.
In a report filed Thursday, Cleary pointed to an investigation conducted by Quinn Emanuel Urquhart & Sullivan, a white-shoe law firm hired by FTX CEO John J. Ray III, who took over from disgraced former CEO Sam Bankman-Fried .
Quinn Emanuel investigated how FTX handled several whistleblower complaints alleging systemic misconduct at the company.
The law firm concluded that FTX failed to properly investigate the substance of the whistleblowers’ complaints, but paid out more than $25 million to seven people who raised issues. Bankman-Fried’s father, Stanford Law School professor Joseph Bankman, reportedly helped resolve some of the complaints.
The whistleblowers alleged that FTX and its affiliated entities misled investors, commingled customer funds, violated commodity regulations, engaged in market manipulation and insider trading, and failed to maintain appropriate anti-money laundering controls and compliance measures to install.
FTX imploded and filed for bankruptcy in November 2022 amid allegations that Bankman-Fried mishandled the exchange’s funds by lending billions of dollars in customer deposits to Alameda Research, the company’s trading arm.
The multi-billion dollar stock market collapse led to a sharp drop in crypto prices, and US federal authorities arrested Bankman-Fried the following month.
Last November, a U.S. jury found the former CEO of FTX guilty of bank fraud and conspiracy to commit bank fraud against FTX’s customers, bank fraud and conspiracy to commit bank fraud against Alameda’s lenders, conspiracy to commit securities fraud against FTX investors, conspiracy to commit fraud commodity fraud against customers of FTX and conspiracy to commit money laundering.
In March, Judge Lewis A. Kaplan sentenced Bankman-Fried to 25 years in prison and three years of supervised release. He also ordered the 32-year-old to pay an $11 billion forfeiture. Bankman-Fried is appealing his conviction and sentence.
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