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FTX Hires Ex-Regulators To Investigate Company Collapse

Cryptocurrency exchange FTX, whose recent collapse has prompted questions about a lack of oversight, has hired a suitable team to untangle the mess: former top US regulators.

In his first hearing in the Delaware bankruptcy court on Tuesday, an attorney representing FTX said the firm is a former enforcement officer for the US Securities and Exchange Commission and commodity futures Trading Commission, now both partners in the law firm Sullivan & Cromwell LLP, hired to help The company’s new chief executive investigates what went wrong.

FTX has hired Steven Peikin, who served as co-director of the SEC’s enforcement department from 2017-2020, and James McDonald, who was also director of enforcement at the CFTC from 2017-2020.

Another prominent FTX associate is Nicole Friedlander, who served as the Chief of the Complex Fraud and Cybercrime Division at the US Attorney’s Office for the Southern District of New York from 2008 to 2016, one of the most influential law enforcement agencies in the country. Ms. Friedlander is also a partner at Sullivan & Cromwell.

Mr McDonald declined to comment, while Mr Peikin and Ms Friedlander did not respond to requests for comment.

FTX’s bankruptcy hearing revealed a “significant amount” of assets were missing and possibly stolen as a run on customer deposits and a liquidity crunch sparked a leadership crisis that led to the company’s collapse. The SEC and Department of Justice are investigating FTX following its implosion earlier this month. FTX said this week it had been in contact with investigators, the Wall Street Journal previously reported.

Hiring investigators to examine claims is a common practice in bankruptcy proceedings. But hiring two high-profile former regulators with enforcement background signals FTX is required to conduct a full internal investigation, according to lawyers defending individuals or companies accused of white-collar crime.

“What a former government official brings to the table is a very sophisticated understanding of how to conduct investigations and how to work with … different government agencies,” said Justin Weitz, a partner at the law firm Morgan, Lewis & Bockius LLP and a former judge department official who added that the newly appointed team’s priorities likely include document retention.

According to James Bromley, an advisor to FTX’s new management and a partner at Sullivan & Cromwell, the team will help assess what led to the crypto exchange collapse and communicate with regulators in the US and around the world. The team of former regulators will report to John J. Ray III, who was appointed chief executive of FTX when the company filed for bankruptcy this month.

FTX, which is based in the Bahamas, has also hired Nardello & Co., an investigation firm specializing in corruption and fraud cases, Mr Bromley told court on Tuesday. It also has those Blockchain-Data platform hired Chainalysis Inc. to help identify and secure digital assets and a cybersecurity firm to help with other parts of the investigation, Mr. Bromley said. The cybersecurity company’s name was not disclosed due to concerns about ongoing cyberattacks on FTX, he said.

FTX’s bankruptcy filing, which it filed last week, says one of its key objectives is to conduct transparent investigations into FTX founder Sam Bankman-Fried and others involved with the company, in coordination with regulators in the US and elsewhere. Another goal of the petition is to introduce controls at FTX — in areas like accounting, audit, cybersecurity and human resources — that didn’t exist or might not have been strong enough.

Mr. Ray, who has helped oversee some of the biggest bankruptcies of all time, including the collapse of energy company Enron Corp. in 2001, said FTX suffered a “complete failure of corporate controls” that culminated in an “unprecedented debacle,” according to the filing.

Mr Bromley told the court on Tuesday: “It’s fair to say we don’t normally quote things that happen on Twitter, but there was one quote that I think sums it up pretty well which is ‘What appears is a serious one Event Investigation by Serious Adults.’”

Authors: Mengqi Sun at mengqi.sun@wsj.com

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Source: Crypto News Deutsch

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