NYC Prosecutors Probing Sam Bankman-Fried's Role in TerraUSD Collapse

Did Sam Bankman-Fried have a hand in the collapse of the Terra blockchain and its Luna stablecoin? According to a Wednesday report by the New York Times, Manhattan prosecutors are looking into it.

Federal prosecutors are investigating whether the FTX founder manipulated the market price of the two doomed, interlinked currencies earlier this year, the Times says. The publication echoes the conclusion of other blockchain analysts in asserting that the collapse of Terra and Luna eventually led to the catastrophic failure of FTX.

“U.S. prosecutors in Manhattan are examining the possibility that Mr. Bankman-Fried steered the prices of two interlinked currencies, TerraUSD and Luna, to benefit the entities he controlled, including FTX and Alameda Research,” the report says.

TerraUSD (UST), produced by Terraform Labs, is an algorithmic stablecoin. It was designed to maintain its peg to the U.S. dollar through an arbitrage network, which bought and sold Terra’s cryptocurrency, LUNA.

TerraUSD lost its peg to the U.S. dollar in May after Terraform Labs flooded the market with Luna tokens to prop up the 1:1 UST-to-dollar peg. The following week saw the once mighty stablecoin slip further from its peg, cutting the price of the Luna token to fractions of a cent.

According to the Times, that drastic action was prompted by a torrent of sell orders for TerraUSD, which an unnamed source said came from FTX. At the same time, FTX had shorted the price of Luna, in an apparent attempt to yield “a fat profit.”

“Instead, the bottom fell out of the entire TerraUSD-Luna ecosystem,” reads the report.

Since the collapse of FTX in November, the exchange and its enigmatic founder have come under increasing scrutiny from regulators and officials worldwide, who are also grappling with a “crypto contagion” that continues to take down other cryptocurrency businesses.

A legal battle between the United States and the Bahamian government is currently underway to determine which country has jurisdiction over the case of FTX.

According to the Times, the investigation into Bankman-Fried’s potential involvement with TerraLuna is in its early stages.

What happened at FTX is horrendous.

But we shouldn't confuse the bad actions of individuals with an underlying asset. The code isn’t guilty of anything.

The Senate Banking Committee should bring in SBF for a hearing. pic.twitter.com/nuo8a7ZKEM
— Senator Pat Toomey (@SenToomey) December 2, 2022

Bankman-Fried has been urged to attend a House Financial Services Committee hearing on December 13, 2022. He was also summoned to a Senate Banking Committee hearing the next day.

It's still unclear if Bankman-Fried plans to attend either hearing.