Full text of The New York Times: Is SBF the mastermind behind the LUNA collapse?

Original Title: 《FTX Founder Sam Bankman-Fried Is Said to Face Market Manipulation Inquiry》

Authors: Emily Flitter, David Yaffe-Bellany, Matthew Goldstein, The New York Times

Translation: Jordan, PANews

On November 11, FTX announced its bankruptcy, after which SBF announced his resignation as CEO of FTX.

But now, SBF may face an additional charge—market manipulation! According to two informed sources, U.S. federal prosecutors in Manhattan have begun investigating whether former FTX CEO Sam Bankman-Fried (SBF) and his hedge fund Alameda Research used market manipulation trading tactics in May of this year, leading to the collapse of TerraUSD and LUNA, which caused a domino effect and ultimately triggered FTX's bankruptcy.

Is SBF facing more charges?

The investigation is still in its early stages, so it is unclear whether prosecutors have determined that SBF engaged in any wrongdoing, nor is it known when the prosecutors began reviewing the trades of TerraUSD and LUNA. Reportedly, this investigation will be part of a broader inquiry by regulatory and law enforcement agencies into SBF and FTX's misappropriation of billions of dollars in customer funds. U.S. federal prosecutors and the Securities and Exchange Commission have also been reviewing whether FTX's transfer of customer funds to Alameda Research was illegal.

Three other informed sources stated that U.S. law enforcement agencies actually initiated an anti-money laundering investigation into FTX months before its bankruptcy. This information was first reported by Bloomberg, which stated that law enforcement wanted to understand who FTX's customers were, whether they had reported any potential illegal activities to authorities, and other offshore cryptocurrency trading activities.

In a statement, SBF said he was unaware of "any market manipulation" and that he never intended to engage in market manipulation, adding, "To my knowledge, all trades were for investment or hedging." As of now, representatives of the U.S. Attorney's Office for the Southern District of New York have declined to comment on the investigation, and FTX representatives did not immediately respond to requests for comment.

In the U.S., engaging in market activities aimed at artificially inflating or deflating asset prices—i.e., market manipulation—is a very serious crime, which means SBF could face a more intense legal storm.

Alameda Research May Be the Hidden Force Behind the Massive Sell Orders of TerraUSD

TerraUSD is a new type of stablecoin that, unlike other stablecoins, is not directly backed by the U.S. dollar but maintains its value peg through a complex algorithm involving another token, LUNA. Traders within the digital ecosystem can mint LUNA, and its price is flexibly adjusted based on an automatic market-making mechanism. Terra offsets the volatility of TerraUSD by issuing the token LUNA. If TerraUSD is above one dollar, there is an arbitrage opportunity to burn LUNA and create more TerraUSD. Conversely, if TerraUSD is below one dollar, there is also an arbitrage opportunity to create LUNA and burn TerraUSD.

An individual familiar with market activities stated that in May of this year, some major cryptocurrency market makers (including exchanges and individual traders who match buyers and sellers) noticed a large influx of "sell" orders for TerraUSD. These orders were relatively small in transaction amounts but were placed at a rapid pace.

As a result, the sudden surge in sell orders for TerraUSD overwhelmed the system, as it became difficult to quickly find matching "buy" orders in the market. Normally, any long-unfulfilled sell orders would match with lower-priced buy orders, but the longer the orders lingered without matching, the more they could depress the price of TerraUSD. Due to the pegged relationship between TerraUSD and LUNA, this ultimately led to a significant drop in the price of LUNA.

So far, the exact reasons for the collapse of the prices of TerraUSD and LUNA remain unanswered, but individuals familiar with market activities have indicated that most of the sell orders for TerraUSD came from one place—SBF's cryptocurrency trading firm, Alameda Research, as the company bet on a decline in LUNA's price.

If Alameda Research's short trades went as expected, the plummeting price of LUNA could yield substantial profits for them. However, what Alameda Research may not have anticipated was that the TerraUSD-LUNA ecosystem would completely collapse, causing a domino effect that troubled the entire cryptocurrency industry, leading to the bankruptcy of several well-known crypto companies and erasing $1 trillion in market value.

The saying goes, "killing a thousand enemies but losing eight hundred of your own." The chain reaction from LUNA's collapse ultimately triggered the disintegration of SBF's business empire. According to an informed source, in November 2021, Alameda Research CEO Caroline Ellison told her employees that although the LUNA incident caused market chaos, the loans provided to Alameda Research had been recalled. At that time, Caroline Ellison also mentioned that Alameda Research used customer funds from FTX to make payments, but borrowing funds in the future might not be so easy (possibly hinting at a liquidity crisis).

Is Alameda Research really the hidden force behind the collapse of TerraUSD and LUNA? Will SBF face severe penalties for market manipulation? Let’s wait and see.