FTX Founder Sam Bankman-Fried Could Face Market Manipulation Inquiry

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Sam Bankman-Fried is the founder of the well-known cryptocurrency exchange FTX and the hedge fund Alameda Research. Since FTX’s demise last month, Sam has been the subject of numerous inquiries into how his business crumbled and how billions of dollars in client funds vanished.

The United States authorities in New York are now looking into the likelihood that Sam influenced the pricing of two interrelated currencies, namely Luna and TerraUSD, as he faces a wider investigation into possible market manipulation.

The government is looking into whether he improperly manipulated the trade of these two currencies, whose devaluation led to FTX’s bankruptcy. Let’s examine this issue in greater detail.

Why is Sam in Trouble?

When FTX declared bankruptcy on November 11, Sam resigned as the company’s CEO. The investigation is still in its initial days, so it’s unclear whether investigators have found any evidence of his wrongdoing.

The case is a component of a larger investigation into the fall of Sam’s cryptocurrency empire, which Sam based in the Bahamas, as well as the alleged theft of billions of dollars in funds from the company’s clients.

Now let’s talk about the two cryptocurrencies: Terra USD and Luna. They have always operated together. As part of a system designed to keep the cost of TerraUSD dependable, the stock of Luna would increase when the value of TerraUSD declined. A wave of sell orders for TerraUSD in May 2022 flooded the digital currency market driving down the price of Luna. Ultimately, the two coins’ markets fell apart.

Most TerraUSD sell orders emerged from a single location, Alameda Research, owned by Sam. The hedge fund also made a wager against Luna. Alameda would have made a sizable profit if everything had gone according to plan. The trade, however, might have been Sam’s major setback.

The collapse of the two coins caused greater chaos in the cryptosphere, which also affected Alameda. Alameda used FTX customer funds to make loan payments in billions of dollars. Customers of FTX rushed to take their funds out of concern for the exchange’s safety, but the company was incapable of handling their demands and failed.

Sam said in a message that he was not informed of any market manipulation and had never meant to engage in it. He stated, “To the finest of my knowledge, all trades were made for hedging or investing.” 

Final Thoughts

The focus on potential market manipulation intensifies the legal controversy surrounding Sam. The intentional staging of market activity intended to manipulate the price of an item is prohibited. If this is proven, the FTX owner might be in trouble. This case shows the volatility of cryptocurrencies and how they can be destructive if not handled carefully. The demise of FTX is a classic example of how every step in this market must be taken with caution and belief in your luck.