Global regulators circle Sam Bankman-Fried’s FTX exchange

Global regulators are closing in on embattled crypto exchange FTX as fallout spreads in digital asset markets and founder Sam Bankman-Fried pursues a last-ditch effort to raise up to $8bn in fresh funds.

Authorities in Japan, Australia and the Bahamas, where FTX is based, have all taken actions as worries mount that customers in one of the world’s biggest digital asset venues could face severe losses.

The regulatory crackdown is the latest blow for Bankman-Fried’s crypto empire, which was valued at $32bn just months ago. Its troubles have stung big-name investors, including Japan’s SoftBank, which plans to write down its $100mn investment in the group, a person familiar with the matter said on Friday.

Bahamas’ market watchdog stepped in late on Thursday to freeze assets held by FTX Digital Markets, the local subsidiary that acts as the main service provider for the exchange.

“The Commission is aware of public statements suggesting that clients’ assets were mishandled [and/or] mismanaged . . . any such actions would have been contrary to normal governance, without client consent and potentially unlawful,” the commission said.

Just hours later, Japanese financial authorities moved to indefinitely suspend some local operations of FTX’s main international platform, citing concerns over the exchange’s structure and creditworthiness, while FTX’s Australian business was placed into administration and its customers advised not to deposit any money or to make any trades.

Wall Street watchdog the US Securities and Exchange Commission has in recent days expanded an investigation into FTX, which includes the examination of FTX’s crypto lending products as well as the management of customer funds, according to a person familiar with the matter.

“We are actively working on additional routes to enable withdrawals for . . . our user base. We are also actively investigating what we can and should do across the world,” FTX said.

The widening regulatory clampdown comes as Bankman-Fried was locked in frantic talks with investors, seeking $6bn to $8bn to plug the financial hole at the exchange and avert bankruptcy.

A subset of Bahamian customers, and those using certain tokens, have been able to begin withdrawing assets from the frozen exchange, but most clients remain in suspense as the fate of the company hangs in the balance.

The fallout from the crisis at FTX also continues to ripple across crypto markets. BlockFi, a crypto lender that was bailed out by Bankman-Fried after suffering losses in this spring’s crypto crash, stopped trading “given the lack of clarity” around FTX’s fate.

The lender said it was in the dark on the status of FTX’s international and US exchanges, and sister trading firm Alameda, and would halt client withdrawals until the situation resolved. “We, like the rest of the world, found out about this situation on Twitter,” BlockFi said.

Genesis, a major crypto trading firm, said its derivatives business had about $175mn stuck on the frozen exchange. The company said the funds were “not material to our business” and would not impact its market making or trading functions.

The Securities Commission of the Bahamas said no assets belonging to FTX’s local company could be transferred without the approval of a provisional liquidator, appointed on Thursday.

FTX’s Bahamas company is identified in the terms of service for as “service provider” for many of the exchange’s activities, but the crypto bourse is controlled by an Antigua and Barbuda-based company, FTX Trading.

In Japan the Kanto Local Finance Bureau, which oversees the operations of FTX and other crypto exchanges in the country, said in a statement that it would not allow the company to accept new assets from clients. Separately, Japan’s finance minister Shunichi Suzuki told reporters that the government needed to do “everything possible” to protect the interests of FTX’s Japanese customers.

FTX was among a small number of crypto exchanges that received operating licences from the Japanese financial authorities in 2017 as part of a plan at the time to establish a centre of trustworthy crypto activity. FTX remains comparatively small in Japan versus other exchanges.

Reporting by Scott Chipolina and Joshua Oliver in London, Kana Inagaki and Leo Lewis in Tokyo, Nic Fildes in Sydney, William Langley in Hong Kong and Tabby Kinder in San Francisco

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