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Cryptoverse: Bitcoin investors take control

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Jan 24 (Reuters) – Paranoid? The domino downfall of FTX and other crypto custodians is enough to make the most trusting investor grab their bitcoin and shove it under the mattress.

Indeed, holders big and small are taking “self-custody” of their funds, moving them from crypto exchanges and trading platforms to personal digital wallets.

In a sign of this shift among retail investors, the number of bitcoin held in smaller wallets – those with under 10 bitcoin – rose to 3.35 million as of Jan. 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.

As a percentage of total bitcoin supply, wallet addresses holding under 10 bitcoin now own 17.4%, up from 14.4% a year ago.

“A lot of this really depends on how frequently you’re trading,” said Joshua Peck, founder of hedge fund TrueCode Capital. “If you’re just going buy and hold for the next 10 years, then it’s probably worth making the investment and learning how to custody your assets really, really well.”

The stampede has been turbocharged by the FTX scandal and other crypto collapses, with large investors leading the way.

The 7-day average of daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, at the time of FTX collapse, according to data from Chainalysis.

Big investors with transfers of above $100,000 were responsible for those flows, the data showed.

Reuters Graphics

WHERE ARE MY KEYS?

Not your keys, not your coins.

This mantra among early crypto enthusiasts, cautioning that access to your funds is paramount, regularly trended online last year as finance platforms dropped like flies.

Self-custody’s no walk in the park, though.

Wallets can range from “hot” ones connected to the internet or “cold” ones in offline hardware devices, although the latter typically don’t appeal to first-time investors, who often buy crypto on big exchanges.

The multi-level security can often be cumbersome and expensive process for a small-time investor, and there’s always the challenge of guarding keeping your encryption key – a string of data similar to a password – without losing or forgetting it.

Meanwhile, hardware wallets can fail, or be stolen.

“It’s very challenging, because you have to keep track of your keys, you have to back those keys up,” said Peck at TrueCode Capital, adding: “I’ll tell you it’s a very challenging prospect of doing self custody for a multi-million-dollar portfolio of crypto.”

Institutional investors are also turning to regulated custodians – specialized companies that can hold funds in cold storage – as many traditional finance firms would not legally be able to “self-custody” investors’ assets.

One such firm, BitGo, which provides custodian services custody for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December versus the month before from those looking to move their funds from exchanges, plus a 20% jump in assets under custody.

David Wells, CEO of Enclave Markets, said trading platforms were extremely cautious of the risks of storing the investors’ assets with a third party.

“A comment that stuck with me was ‘investors will forgive us for losing some of their money through our trading strategies, because that’s what they sign up for, what they’re not going to forgive us is for being poor custodians’.”

Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Feds seized nearly $700 million from FTX founder Bankman-Fried

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Jan 20 (Reuters) – Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.

Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.

The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.

The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.

The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX’s subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.

The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.

DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.

Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis

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Crypto lending unit of Genesis files for U.S. bankruptcy

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Jan 20 (Reuters) – The lending unit of crypto firm Genesis filed for U.S. bankruptcy protection on Thursday, owing creditors at least $3.4 billion, after being toppled by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov. 16 after the collapse of major exchange FTX sent shockwaves through the crypto asset industry, fuelling concern that other companies could implode.

Genesis is owned by venture capital firm Digital Currency Group (DCG).

Its bankruptcy filing is the latest in a string of crypto failures triggered by a market collapse that wiped about $1.3 trillion off the value of crypto tokens last year. While bitcoin has rallied so far in 2023, the impact of the market collapse has continued to hit companies in the highly interconnected sector.

The bankruptcy “doesn’t come as a shock to the markets,” said Ivan Kachkovski, currency and crypto strategist at UBS. “It remains to be seen if the chain effect would go on.”

“However, given that the funds have already been frozen for over two months and no other large crypto company reported an associated weakness, it’s likely that the contagion would be limited.”

Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing with the U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would contemplate a potential sale, or a stock-related transaction, to pay creditors, and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker dealer and custody businesses were not part of the bankruptcy process, and would continue their client trading operations.

CREDITORS’ CLAIMS

Genesis owes its 50 biggest creditors $3.4 billion, according to Reuters’ calculations from the bankruptcy filing. Its largest creditor is crypto exchange Gemini, which it owes $765.9 million. Gemini was founded by the identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.

Genesis was already locked in a dispute with Gemini over a crypto lending product called Earn that the two firms jointly offered to Gemini customers.

The Winklevoss twins have said Genesis owed more than $900 million to some 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for the removal of Barry Silbert as the chief executive of Digital Currency Group.

Representations of cryptocurrencies are seen in front of displayed decreasing stock graph in this illustration taken November 10, 2022. REUTERS/Dado Ruvic/Illustration

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently,” Winklevoss said in his tweet thread.

DCG did not immediately respond to a Reuters request for comment on the tweets.

Amsterdam-based crypto exchange Bitvavo, said in December it was trying to recover 280 million euros ($302.93 million) which it had lent to Genesis.

Bitvavo said in a blog post on Friday that talks on the repayment “have not yet led to an overall agreement that works for all parties concerned” and that it would continue to negotiate.

The bankruptcy filing “brings the process of negotiations to calmer waters,” Bitvavo said.

LENDING BUSINESS

Genesis brokered digital assets for financial institutions such as hedge funds and asset managers and had almost $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to its website.

Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows debt to Genesis was assumed by its parent company Digital Currency Group (DCG), which then filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, which acted as the de facto banks, boomed during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a shortfall of collateral forced some lenders – and their customers – to shoulder large losses.

($1 = 0.9243 euros)

Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi, and Elizabeth Howcroft in London; Editing by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili and Sharon Singleton

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Davos 2023: Cowed crypto crowd feel winter freeze at WEF

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DAVOS, Switzerland, Jan 19 (Reuters) – In the snow and ice on the main drag in Davos, the impact of the crypto winter is plain for WEF attendees to see.

Last May, the dressed-up shop fronts that line both sides of the Promenade street running through the Swiss ski resort were dominated by crypto firms, rolling in bitcoin.

Now there are just a handful and the executives who have made it to Davos have swapped their hoodies for blazers, despite sub-zero temperatures outside.

Some of those from the digital industry which have set up shop on the fringes of the World Economic Forum (WEF) annual meeting were quick to distance themselves from cryptocurrencies.

“I hope there’s an increased focus on utility value and practical applications of the technology, and less focus on retail investors chasing meme coins,” Jeremy Allaire, CEO of USDC stablecoin issuer Circle, said.

“There was a lot of nonsense,” Allaire told the Reuters Global Markets Forum.

Former Reserve Bank of India Governor Raghuram Rajan believes last year’s plunge in digital assets allows investors to focus on the true value of the technology.

“We’re at the right place now in terms of crypto,” he said.

Executives in Davos said they are now all about blockchain technology, proper controls and regulation, and the promise of disruption that it holds for financial services and beyond.

“We are an infrastructure, plumbing play. We build infrastructure today for digital assets, which is crypto. Tomorrow it will be different assets,” said Dmitry Tokarev, chief executive of Copper, which provides custody services.

“I would question some of the stuff that I saw, ‘What is the return on that?'” Tokarev added, referring to the big presence of crypto companies at the last WEF meeting, which was unusually held in May as a result of the COVID-19 pandemic.

“We have been always ignoring the noise. All our partners were here last year. They are here this year,” Tokarev added.

The world of digital assets has changed drastically since May, with the value of the crypto market plummeting and some of the major crypto companies going under as investors pulled back from riskier assets in the face of rising interest rates.

The market capitalization of crypto currencies has shrunk by $1.4 trillion, a third of its value from peaks hit in late 2021 and some of the best-known crypto firms are under stress or have gone under, including the collapse of crypto exchange FTX.

“There is a place for trading use cases but they cannot be the singular focus, we need to move to more real use cases and put attention there,” said Denelle Dixon, CEO of Stellar Development Foundation, which supports the Stellar blockchain.

‘DODGED A BULLET’

While interest remains in the technology, the conversation is turning to responsibility.

Colm Kelleher, chairman of Swiss bank UBS (UBSG.S), told a WEF panel that blockchain technology will help reduce costs for banks. But he said the industry needed to figure out the basics, such as anti-money laundering controls.

“We kind of dodged a bullet,” Kelleher said, noting that the collapse in the value of crypto currencies had not caused systemic problems. “We did have investors who did want to invest in coinage. And we had to draw a line on what was suitable for those investors,” he added.

Yat Siu, co-founder of Hong Kong-based blockchain gaming developer Animoca Brands, was supportive of the firms in Davos.

“These are companies with serious cash positions and revenue generating companies,” Siu said. “They’re billion dollar enterprises.”

Crypto is trying to establish its presence, SkyBridge Capital founder Anthony Scaramucci said, adding “there’s nothing more establishment than the World Economic Forum.” Scaramucci maintains a bullish stance on crypto despite losses last year.

Back on the Davos Promenade, some signs of crypto’s lost swagger endure.

Parked right outside a pavilion promoting blockchain early in the week was a bright orange Mercedes.

On the hood, instead of the carmaker’s insignia was a copper-colored symbol for bitcoin.

The tires carried a slogan in white: “In Bitcoin we trust”.

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Additional reporting by Lananh Nguyen in Davos, Stefania Spezzati and Lisa Mattackal; Editing by Alexander Smith

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Cryptoverse: Bitcoin is back with a bonk

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Jan 17 (Reuters) – Bitcoin is on the charge in 2023, dragging the crypto market off the floor and electrifying bonk, a new meme coin.

The No.1 cryptocurrency has clocked a 26% gain in January, leaping 22% in the past week alone, breaking back above the $20,000 level and putting in on course for its best month since October 2021 – just before the Big Crypto Crash.

Ether has also risen, by 29% this year, helping drive the value of the overall global cryptocurrency market above $1 trillion, according to CoinGecko.

“After a rough year last year for cryptos, we are seeing a form of mean reversion,” said Jake Gordon, analyst at Bespoke Investment Group, referring to the theory of asset prices returning to long-term averages.

Researchers said investor bets on a rosier macroeconomic picture were driving a jump in riskier assets across the board.

Few crypto tokens have benefited more than bonk, which was launched at the end of December on the Solana blockchain and had rocketed 5,000% by early January. It has since fallen back, though remains up 910% since the start of the year.

It is the latest entrant to the hyper-volatile world of meme coins, cryptocurrencies inspired by online memes and jokes, and is modeled after the same grinning Shiba Inu dog as dogecoin – which itself was catapulted to fame by Elon Musk tweets.

Bonk’s a puppy, though.

Even at its peak it was worth just $0.000004873759 with a market capitalization of about $205 million.

Other meme tokens are also up, with dogecoin and Shiba Inu up 19% and 27% respectively in 2023.

But buyers beware.

“Investors need to be especially cautious when it comes to coins like doge, Shiba Inu and bonk,” said Les Borsai, co-founder of digital assets services firm Wave Financial.

“They fall just as hard as they surge.”

Nonetheless, some market players pointed to the relative cheapness of these tokens – doge is worth about eight cents – as a reason why speculators were willing to place bets on them.

“Meme coins belong to crypto, it’s part of the culture,” said Martin Leinweber, digital assets product specialist at MarketVector Indexes. “It just takes a few lines of codes to create a meme token and if you have a community for it, people love that.”

RUMORS OF SOL’S DEATH EXAGGERATED

Bonk is a meme coin with a mission. It was created, in part, to support the Solana blockchain, which has seen an exodus of funds and users since crypto exchange FTX filed for bankruptcy in November, and its native Solana token drop over 37%.

The Solana token has now indeed jumped as bonk has gained traction: it’s up 131% in 2023, the biggest gainer among major cryptocurrencies.

“Rumors of Solana’s death seem to have been greatly exaggerated,” said Tom Dunleavy, senior research analyst at data firm Messari. “Despite the recent price appreciation seemingly being driven by speculation, the underlying ecosystem remains quite strong.”

Reuters Graphics

TOO EARLY TO CALL A CRYPTO REVERSAL

Some researchers chalked the crypto gains up to optimism that inflation had peaked, reducing the need for tighter central bank policy.

“Bitcoin and crypto tend to front-run everything, which is why we’ve seen notable relative strength in this asset class of late,” said Wave Financial’s Borsai.

There’s certainly been an increase in activity.

The dollar value of bitcoin trading volumes on major exchanges over a 7-day period jumped to $151 million, the highest in nearly two months, according to data from Blockchain.com.

Total bitcoin flows – representing all uses including trading and payments – have increased by 13,130 bitcoin on average in the last 7 days, the largest rise in 64 days, Chainalysis data showed.

However, market watchers warned against celebrating too soon, noting trading volumes remained low and the macroeconomic environment uncertain.

“It’s too early to declare a definitive reversal for the crypto market despite the recent strength we’ve seen of late,” said Aaron Kaplan, co-founder of Prometheum, a digital asset securities trading platform.

“If interest rate increases are below what the market expects, then risk assets will benefit and crypto prices will likely continue the uptrend, but there’s just too much uncertainty right now.”

Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Failed crypto exchange FTX has recovered over $5 bln, attorney says

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  • FTX valued a year ago at $32 bln
  • Over $8 billion in FTX customer funds missing
  • Plan to sell FTX affiliates presented in court

NEW YORK/WILMINGTON, Del., Jan 11 (Reuters) – Crypto exchange FTX has recovered more than $5 billion in liquid assets but the extent of customer losses in the collapse of the company founded by Sam Bankman-Fried is still unknown, an attorney for the company told a U.S. bankruptcy court on Wednesday.

The company, which was valued a year ago at $32 billion, filed for bankruptcy protection in November and U.S. prosecutors accused Bankman-Fried of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

“We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities,” Andy Dietderich, an attorney for FTX, told U.S. Bankruptcy Judge John Dorsey in Delaware at the start of Wednesday’s hearing.

Dietderich also said the company plans to sell nonstrategic investments that had a book value of $4.6 billion.

However, Dietderich said the legal team is still working to create accurate internal records and the actual customer shortfall remains unknown. The U.S. Commodities Futures Trading Commission has estimated missing customer funds at more than $8 billion.

Dietderich said the $5 billion recovered does not include assets seized by the Securities Commission of the Bahamas, where the company was headquartered and Bankman-Fried resided.

FTX’s attorney estimated the seized assets were worth as little as $170 million while Bahamian authorities put the figure as high as $3.5 billion. The seized assets are largely comprised of FTX’s proprietary and illiquid FTT token, which is highly volatile in price, Dietderich said.

ASSET SALES

FTX could raise additional funds in the coming months for the benefit of customers after Dorsey approved FTX’s request for procedures to explore sales of affiliates at Wednesday’s hearing.

The affiliates — LedgerX, Embed, FTX Japan and FTX Europe — are relatively independent from the broader FTX group, and each has its own segregated customer accounts and separate management teams, according to FTX court filings.

The crypto exchange has said it is not committed to selling any of the companies, but that it received dozens of unsolicited offers and plans to hold auctions beginning next month.

The U.S. Trustee, a government bankruptcy watchdog, opposed selling the affiliates before the extent of the alleged FTX fraud is fully investigated.

In part to preserve the value of its businesses, FTX also sought Dorsey’s approval to keep secret 9 million FTX customer names. The company has said that privacy is needed to prevent rivals from poaching users but also to prevent identity theft and to comply with privacy laws.

Dorsey allowed the names to remain under wraps for only three months, not six months as FTX wanted.

“The difficulty here is that I don’t know who’s a customer and who’s not,” Dorsey said. He set a hearing for Jan. 20 to discuss how FTX will distinguish between customers and said he wants FTX to return in three months to give more explanation on the risk of identity theft if customer names are made public.

Media companies and the U.S. Trustee had argued that U.S. bankruptcy law requires disclosure of creditor details to ensure transparency and fairness.

In addition to selling affiliates, a company lawyer on Wednesday said FTX will end its 19-year $135 million sponsorship deal with the NBA’s Miami Heat and a 7-year about $89 million deal with the League of Legends video game.

FTX’s founder, Bankman-Fried, 30, was indicted on two counts of wire fraud and six conspiracy counts last month in Manhattan federal court for allegedly stealing customer deposits to pay debts from his hedge fund, Alameda Research, and lying to equity investors about FTX’s financial condition. He has pleaded not guilty.

Bankman-Fried has acknowledged shortcomings in FTX’s risk management practices, but the one-time billionaire has said he does not believe he is criminally liable.

In addition to customer funds lost, the collapse of the company has also likely wiped out equity investors.

Some of those investors were disclosed in a Monday court filing, including American football star Tom Brady, Brady’s former wife supermodel Gisele Bündchen and New England Patriots owner Robert Kraft.

Reporting by Dietrich Knauth in New York and Tom Hals in Wilmington, Del.; Editing by Alexia Garamfalvi, Mark Porter, Matthew Lewis and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Exclusive: FTX’s former top lawyer aided U.S. authorities in Bankman-Fried case

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Jan 5 (Reuters) – FTX’s former top lawyer Daniel Friedberg has cooperated with U.S. prosecutors as they investigate the crypto firm’s collapse, a source familiar with the matter said, adding pressure on founder Sam Bankman-Fried who was arrested on criminal fraud charges last month.

Friedberg gave details about FTX in a Nov. 22 meeting with two dozen investigators, the person said. The meeting, held at the U.S. Attorney for the Southern District of New York’s office included officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission, the source said. Emails between attendees scheduling the meeting with those agencies were seen by Reuters.

At the meeting, he told prosecutors what he knew of Bankman-Fried’s use of customer funds to finance his business empire, the source said. Friedberg recounted conversations he had with other top executives on the subject and provided details of how Bankman-Fried’s hedge fund Alameda Research functioned, the source said.

Friedberg’s cooperation has not been previously reported. He has not been charged and has not been told he is under criminal investigation, the source said. Instead, he expects to be called as a government witness in Bankman-Fried’s October trial, the person said.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX did not respond to requests for comment on his cooperation. The SEC, the Department of Justice and Bankman-Fried’s spokesman declined to comment.

Bankman-Fried is accused of diverting billions of dollars in FTX client funds to Alameda to bankroll venture investments, luxury real estate purchases, and political donations. On Tuesday, he pleaded not guilty in Manhattan federal court.

Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against now bankrupt FTX, said last month: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to fraud and agreed to cooperate. A lawyer for Ellison didn’t respond to a request for comment. Wang’s lawyer declined to comment.

MEETING WITH PROSECUTORS

FTX filed for bankruptcy protection on Nov. 11. A few days later, on Nov. 14, Friedberg received a call from two FBI agents based in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege, according to a person familiar with the matter and emails viewed by Reuters.

Friedberg wrote to FTX the next day asking the company to waive his privilege so he could cooperate with prosecutors, according to the email seen by Reuters. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.

Friedberg then wrote back to the two FBI agents, telling them in an email reviewed by Reuters: “I want to cooperate in all respects.”

The U.S. Attorney’s Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies, according to the source and an email exchanged by participants. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.

“THROUGH THICK AND THIN”

Prior to his work advising FTX, Friedberg advised a mix of banking, fintech, and online gaming companies.

One of his previous employers, a Canadian online gaming firm named Excapsa Software, where he was general counsel, also drew controversy due to a cheating scandal involving a poker site it operated called Ultimate Bet. A Canadian gaming commission in 2008 fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.

According to an audio recording available on the website PokerNews, Friedberg and some other Ultimate Bet associates privately discussed that year how to handle the scandal and minimize the amount of refunds owed to players. Friedberg previously told NBC News that the audio was illegally recorded but NBC’s article did not say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as outside counsel while at U.S. law firm Fenwick & West, where he chaired its payment systems group, the source familiar with the matter said. At the time, the source said Friedberg advised Bankman-Fried on running Alameda, which he founded that year.

In 2020, when Bankman-Fried launched a separate exchange for U.S. customers called FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted blog post published that year on FTX’s website, Bankman-Fried wrote that Friedberg was FTX’s legal advisor “from the very beginning,” noting he had been “with us through thick and thin.”

Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money, according to the source and three other people briefed on the talks, along with text messages his legal team exchanged at the time.

Additional reporting by Hannah Lang; editing by Megan Davies and Anna Driver

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Insurers shun FTX-linked crypto firms as contagion risk mounts

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Dec 19 (Reuters) – Insurers are denying or limiting coverage to clients with exposure to bankrupt crypto exchange FTX, leaving digital currency traders and exchanges uninsured for any losses from hacks, theft or lawsuits, several market participants said.

Insurers were already reluctant to underwrite asset and directors and officers (D&O) protection policies for crypto companies because of scant market regulation and the volatile prices of Bitcoin and other cryptocurrencies.

Now, the collapse of FTX last month has amplified concerns.

Specialists in the Lloyd’s of London (SOLYD.UL) and Bermuda insurance markets are requiring more transparency from crypto companies about their exposure to FTX. The insurers are also proposing broad policy exclusions for any claims arising from the company’s collapse.

Kyle Nichols, president of broker Hugh Wood Canada Ltd, said insurers were requiring clients to fill out a questionnaire asking whether they invested in FTX, or had assets on the exchange.

Lloyd’s of London broker Superscript is giving clients that dealt with FTX a mandatory questionnaire to outline the percentage of their exposure, said Ben Davis, lead for digital assets at Superscript.

“Let’s say the client has 40% of their total assets at FTX that they can’t access, that is either going to be a decline or we’re going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX,” he said.

The exclusions denying payout for any claims arising out of the FTX bankruptcy are found in insurance policies that cover the protection of digital assets and for personal liabilities of directors and officers of companies that deal in crypto, five insurance sources told Reuters. A couple of insurers have been pushing for a broad exclusion to policies for anything related to FTX, a broker said.

Exclusions may act as a failsafe for insurers, and will make it even more difficult for companies that are seeking coverage, insurers and brokers said.

Bermuda-based crypto insurer Relm, which previously has provided coverage to entities linked to FTX, takes an even stricter approach.

“If we have to include a crypto exclusion or a regulatory exclusion, we’re just not going to offer the coverage,” said Relm co-founder Joe Ziolkowski.

D&O QUESTION

Now, one of the most pressing questions is whether insurers will cover D&O policies at other companies that had dealings with FTX, given the problems facing exchange’s leadership, Ziolkowski said.

U.S. prosecutors say former FTX Chief Executive Officer Sam Bankman-Fried engaged in a scheme to defraud FTX’s customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.

A lawyer for Bankman-Fried said on Tuesday his client is considering all of his legal options.

D&O policies, which are used to pay legal costs, do not always pay out in cases of fraud.

Insurance sources would not name their clients or potential clients that could be affected by policy changes, citing confidentiality. Crypto firms with financial exposure to FTX include Binance, a crypto exchange, and Genesis, a crypto lender, neither of which responded to e-mails seeking comment.

While the least risky parts of the crypto market, such as companies that own cold wallets storing assets on platforms not connected to the internet, may get cover for up to $1 billion, a D&O insurance policyholder’s cover may now be limited to tens of millions of dollars for the rest of the market, Ziolkowski said.

The FTX collapse will also likely lead to a rise in insurance rates, especially in the U.S. D&O market, insurers said. The rates are already high because of the perceived risks and lack of historical data on cryptocurrency insurance losses.

A typical crime bond — used to protect against losses resulting from a criminal act — would cost $30,000 to $40,000 per $1 million of coverage for a digital assets trader. That compares with a cost of about $5,000 per $1 million for a traditional securities trader, Hugh Wood Canada’s Nichols said.

Reporting by Noor Zainab Hussain in Bengaluru and Carolyn Cohn in London; Editing by Lananh Nguyen and Anna Driver

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In sweltering Bahamas courtroom, Bankman-Fried fights incarceration

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NASSAU, Dec 13 (Reuters) – Cordoned-off roads, a sweltering courtroom and numerous delays marked Sam Bankman-Fried’s first in-person public appearance since his crypto company collapsed.

The Bahamas courtroom hearing, conducted over the course of six hours, saw Bankman-Fried, dressed in a suit rather than his typical t-shirt attire, seeking bail to dispute his extradition to the U.S. He was ultimately refused and faces possible extradition to the United States.

It was a stunning fall from grace for the crypto boss, once estimated by Forbes as worth as much as $26.5 billion.

“I’m not waiving,” Bankman-Fried said when asked if he would seek to waive his right to an extradition hearing.

It was a rare comment in a hearing that was largely taken up with lawyers discussing process. In another comment, Bankman-Fried referred to the night of his arrest as “hectic.”

There was high anticipation ahead of the appearance by Bankman-Fried, who has done numerous media interviews since his firm collapsed but not been widely seen in public.

The day started with Bankman-Fried ushered into court away from the main entrance and photographers and reporters who crowded to get a shot.

Bahamas Chief Magistrate JoyAnn Ferguson-Pratt contributed witty asides that often left the courtroom chuckling, once quipping “I wasn’t born yesterday” at the defense counsel’s interpretation of the law.

Ferguson-Pratt’s repeatedly forgetting the defendant’s last name led to laughter.

“Samuel,” she said before trailing off, with the once-billionaire crypto magnate reminding her of his name: “Bankman-Fried.”

People in the courtroom fanned themselves to keep cool in the tropical heat as sun shone through the windows.

The hearing was adjourned twice, once to consult about the court’s jurisdiction to grant bail, and again in the afternoon.

It also included an extensive discussion of Bankman-Fried’s medication, which his lawyer said was for conditions including depression, insomnia and attention deficit disorder.

At the start of the proceedings, Bankman-Fried asked to change an Emsam patch, a medical strip applied to the skin that is used to treat adult depression. He asked to briefly leave the court room to take the medication.

Bankman-Fried acknowledged that he had not taken his medications with him when he was arrested, which he attributed to having had a “hectic night”.

His parents, Joseph Bankman and Barbara Fried, at times seemed frustrated with the arguments made by the prosecution, which described him as a flight risk.

Bankman-Fried’s defense counsel pointed out that Bankman-Fried had spent weeks in The Bahamas after his business collapsed without attempting to leave the country.

At the end of the hearing, his head lowered, he hugged his parents. A van outside the court waited to take him away.

Reporting by Jared Higgs in Nassau and Brian Ellsworth in Miami; editing by Megan Davies, Noeleen Walder and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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FTX founder Sam Bankman-Fried charged with fraud, denied bail

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NASSAU, Bahamas/NEW YORK, Dec 13 (Reuters) – U.S. prosecutors on Tuesday accused Sam Bankman-Fried, the founder of crypto currency exchange FTX, of fraud and violating campaign finance laws and a judge in the Bahamas denied him bail, sending him to a local correctional facility instead.

The former FTX CEO, who was arrested in the Bahamas on Monday, lowered his head and hugged his parents after the magistrate judge refused bail citing a “great” risk of flight.

He was ordered remanded to a correctional facility in the island nation until Feb. 8, where he will initially held in the medical department, according to a local official.

The day’s events capped a stunning fall from grace in recent weeks for the 30-year-old, who amassed a fortune valued over $20 billion as he rode a cryptocurrency boom to build FTX into one of the world’s largest exchanges before it abruptly collapsed this year.

Bankman-Fried has previously apologized to customers and acknowledged oversight failings at FTX, but said he does not personally think he has any criminal liability.

Earlier on Tuesday, U.S. Attorney Damian Williams in New York said Bankman-Fried made illegal campaign contributions to Democrats and Republicans with “stolen customer money,” saying it was part of one of the “biggest financial frauds in American history.”

“While this is our first public announcement, it will not be our last,” he said, adding Bankman-Fried “made tens of millions of dollars in campaign contributions.”

Bankman-Fried faces a maximum sentence of 115 years in prison if convicted on all eight counts, prosecutors said, though any sentence would depend on a range of factors.

Williams declined to say whether prosecutors would bring charges against other FTX executives and whether any FTX insiders were cooperating with the investigation.

In his first in-person public appearance since the cryptocurrency exchange’s collapse, Bankman-Fried appeared in court on Tuesday in the Bahamas, where FTX is based and where he was arrested at his gated community in the capital, Nassau.

He appeared relaxed when he arrived at the heavily guarded Bahamas court and told the court he could fight extradition to the United States.

Bahamian prosecutors had asked that Bankman-Fried be denied bail if he fights extradition.

“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” his lawyer, Mark S. Cohen, said in an earlier statement.

‘BRAZEN’ SCHEME

[1/12] Sam Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy, is escorted out of the Magistrate Court building, last month he was arrested after being criminally charged by U.S. prosecutors, in Nassau, Bahamas December 13, 2022. REUTERS/Dante Carrer

FTX’s current CEO, John Ray, told congressional lawmakers on Tuesday that FTX lost $8 billion of client money, saying the company showed “absolute concentration of control in the hands of a small group of grossly inexperienced, nonsophisticated individuals.”

In the indictment unsealed on Tuesday morning, U.S. prosecutors said Bankman-Fried had engaged in a scheme to defraud FTX’s customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.

He also defrauded lenders to Alameda by providing false and misleading information about the hedge fund’s condition, and sought to disguise the money he had earned from committing wire fraud, prosecutors said.

Both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) alleged Bankman-Fried committed fraud in lawsuits filed on Tuesday.

The CFTC sued Bankman-Fried, Alameda and FTX on Tuesday, alleging fraud involving digital commodity assets.

Since at least May 2019, FTX raised more than $1.8 billion from equity investors in a years-long “brazen, multi-year scheme” in which Bankman-Fried concealed FTX was diverting customer funds to Alameda Research, the SEC alleged.

CRYPTO INVESTORS LOST BILLIONS

Bankman-Fried, who founded FTX in 2019, was an unconventional figure who sported wild hair, t-shirts and shorts on panel appearances with statesmen like former U.S. President Bill Clinton. He became one of the largest Democratic donors, contributing $5.2 million to President Joe Biden’s 2020 campaign. Forbes pegged his net worth a year ago at $26.5 billion.

FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 million customers and other investors facing losses in the billions of dollars. The collapse reverberated across the crypto world and sent bitcoin and other digital assets plummeting.

The collapse was one of a series of bankruptcies in the crypto industry this year as digital asset markets tumbled from 2021 peaks. A crypto exchange is a platform on which investors can trade digital tokens such as bitcoin.

As legal challenges mount, the U.S. Congress is also looking at crafting legislation to rein in a loosely-regulated industry.

FTX has shared findings with the SEC and U.S. prosecutors, and is investigating whether Bankman-Fried’s parents were involved in the operation.

The attorney general’s office of the Bahamas said it expected Bankman-Fried to be extradited to the United States.

Bankman-Fried resigned as FTX’s CEO the same day as the bankruptcy filing. FTX’s liquidity crunch came after he secretly used $10 billion in customer funds to support his proprietary trading firm Alameda, Reuters has reported. At least $1 billion in customer funds had vanished.

Additional reporting by Luc Cohen and Jack Queen in New York and Hannah Lang, Chris Prentice and Susan Heavey in Washington
Writing by Nick Zieminski and Deepa Babington
Editing by Noeleen Walder, Megan Davies, Anna Driver and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

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