FTX Founder Sam Bankman-Fried Faces Market Manipulation Inquiry

In May, major cryptocurrency market makers — exchanges or individuals who arrange for buyers and sellers to be matched — noticed a flood of “sell” orders coming in for TerraUSD, said one person with knowledge of the market activity. The orders were in small denominations, but they were placed very quickly, the person said.

The sudden jump in sell orders for TerraUSD overwhelmed the system, making it hard to find matching “buy” orders for them. Under normal conditions, any sell orders that remained unfulfilled for too long would be matched with buy orders at a lower price. The longer the orders lingered without being matched, the more they forced down the price of TerraUSD and caused a corresponding drop in Luna prices because of the way the two coins were linked..

The exact causes of the collapse of the two cryptocurrencies remain unclear. However, the bulk of the sell orders for TerraUSD appeared to be coming from one place: Sam Bankman-Fried’s cryptocurrency trading firm, which also placed a big bet on the price of Luna falling, according to the person with knowledge of the market activity.

Had the trade gone as expected, the price declines in Luna could have yielded a fat profit. Instead, the bottom fell out of the entire TerraUSD-Luna ecosystem. The collapse caused more trouble in the cryptocurrency industry, sending several prominent companies into bankruptcy and erasing about $1 trillion in value from the crypto market.

The ripple effects from the Luna crash ultimately contributed to the collapse of Mr. Bankman-Fried’s business empire. In November, Caroline Ellison, the chief executive of Alameda, told staff that loans to Alameda were recalled as a result of the market chaos unleashed by the crash, according to a person familiar with the matter. But the funds that Alameda had borrowed were no longer easily available, Ms. Ellison told the staff, so the company used FTX customer funds to make the payments.

An attorney for Ms. Ellison did not return requests for comment.

Article source: https://www.nytimes.com/2022/12/07/business/ftx-sbf-crypto-market-investigation.html