FTX’s offshore status and its willingness to keep American traders off its Bahamas-based exchange in large part shielded the company from strict U.S. laws that govern trading and how investments can be sold to the public. But FTX’s implosion last week and reports that it used customer funds to back an affiliate’s risky venture investments have exposed the company and its founder to potential criminal liability, according to attorneys who specialize in white-collar criminal law, WSJ Pro Bankruptcy reported. The Manhattan U.S. attorney’s office is investigating FTX’s collapse, according to people familiar with the matter. One focus for prosecutors, at least initially, is likely to be examining reports that FTX lent customer funds to Alameda Research, a crypto-trading firm that traded on FTX and other exchanges. FTX founder Sam Bankman-Fried, who resigned as chief executive on Friday, also founded and owns Alameda Research. Mr. Bankman-Fried has acknowledged in tweets that he made mistakes before his company’s downfall and bankruptcy. FTX’s terms of service told its users that they own the cryptocurrencies in their accounts. “None of the digital assets in your account are the property of, or shall or may be loaned to, FTX Trading,” the document says. The terms of service with FTX Trading Ltd. — the entity that filed for bankruptcy last week in Delaware federal court — are still online.
