By Chris Prentice and Mehnaz Yasmin
(Reuters) – Prosecutors with the Manhattan district of New York are probing FTX’s collapse, a source with knowledge of the investigations said on Monday, after the crypto exchange filed for bankruptcy protection last week following a rush of customer withdrawals.
The downfall followed a failed rescue deal with rival exchange Binance, with FTX now facing scrutiny from U.S. regulators over its handling of customer funds, as well as its crypto-lending activities.
The Manhattan U.S. attorney’s office declined to comment.
Reuters reported last week that at least $1 billion of customer funds have vanished from FTX, citing sources.
Cryptocurrencies have languished this year as higher interest rates and growing worries of an economic downturn cratered prices that eliminated key players such as Voyager Digital, Three Arrows Capital and Celsius Network.
But the bigger blow to digital assets came since FTX, which had developed a penchant for bailing out troubled crypto firms, showed early cracks. Bitcoin has slid below $16,000 for the first time since late 2020.
“Although investors have suffered significant losses, we believe this second “crypto winter” will be a net positive because the FTX collapse will edge the crypto ecosystem closer to the established financial sector,” Deutsche Bank (ETR:DBKGn) analysts wrote in a note on Monday.
“The FTX crash spotlighted well-known structural issues in the crypto ecosystem: insufficient reserves, conflict of interest, a lack of regulation and transparency, and unreliable data.”