FTX investigating possible hack hours after bankruptcy filing
By David Yaffe-Bellany
A day after it filed for bankruptcy, collapsed cryptocurrency exchange FTX said Saturday that it was investigating “unauthorised transactions” flowing from its accounts, as crypto researchers documented suspicious transfers of $515 million that may have been the result of a hack or theft.
John Ray III, the newly instated CEO of FTX, said in a statement that “unauthorised access to certain assets has occurred” and that the company was in touch with law enforcement officials and regulators. As part of the bankruptcy process, the company has been moving its remaining crypto funds to a more secure form of storage.
The suspicious movement of funds marked a new twist in a dramatic series of events that kicked off earlier this past week, when the exchange faced a run on deposits and was unable to meet demand. On Friday, the company filed for bankruptcy, and Sam Bankman-Fried, FTX’s founder and CEO, announced his resignation, with Ray, a corporate turnaround specialist, replacing him.
The implosion of Bankman-Fried’s cryptocurrency exchange has already cost customers billions of dollars in lost crypto deposits, setting off law enforcement investigations that could lead to criminal charges.
But the full impact of FTX’s dramatic collapse is only beginning to take shape. In his relatively short time as a multibillionaire, Bankman-Fried built up an astonishingly broad business empire, with investments in dozens of smaller crypto firms and partnerships with businesses as varied as Anthony Scaramucci’s investment firm SkyBridge Capital and the NBA.’s Miami Heat. He also became an influential Democratic Party donor, promising to spend as much as $1 billion during the 2024 election cycle.
Now, all those ventures have been thrust into chaos.
BlockFi, a crypto lending platform that Bankman-Fried had helped finance, said this past week that it was suspending operations as a result of the collapse. The price of Solana, a cryptocurrency that Bankman-Fried promoted heavily, has crashed. And the team behind the FTX Future Fund, a charitable operation bankrolled by Bankman-Fried, announced their resignations.
News of the possible theft started spreading on Twitter late Friday, as crypto enthusiasts examined public transaction records documenting the movement of cryptocurrencies. A report by crypto research firm Elliptic pegged the amount that may have been stolen or hacked at $515 million.
The exact nature of the transfers remained unclear. It could have been the result of a hacker gaining access to the exchange’s system or an insider with special access seeking to abscond with funds. Asked about the transfers, Bankman-Fried said in a text to The New York Times, “We’re sorting through it with the bankruptcy” team.
In its post, Elliptic said the cryptocurrencies that were suspiciously transferred from FTX were rapidly moved through decentralized exchanges — crypto marketplaces that operate based on code and have fewer guardrails than centralized exchanges such as Coinbase. The researchers described the transfers as “a common technique used by hackers in order to prevent their haul being seized.”
When cryptocurrency is stolen, it’s often difficult for the thieves to convert it into usable cash. Because crypto transaction records are public, experts can track the movement of the funds, gathering clues about the identities of the thieves.
But a major theft would probably make it even more difficult for FTX to refund customers and other creditors who have already lost billions of dollars in the firm’s collapse.
After failing to meet a surge of withdrawal requests this past week, FTX is estimated to owe $8 billion, according to people familiar with the matter. Amateur investors stored their crypto savings on FTX, which was widely regarded as a safe and easy-to-use platform, even in the wild world of crypto. How much those customers are repaid will depend on the bankruptcy process. In an initial filing Friday, FTX said it had more than 100,000 creditors.
As speculation about the FTX fund transfers spread on Twitter, crypto industry officials appeared to be piecing together the situation in real time. After reports circulated that someone involved in moving funds had an account on Kraken, another crypto exchange, Kraken’s chief security officer, Nick Percoco, tweeted, “We know the identity of the user.”
Ryne Miller, general counsel of the U.S. arm of FTX, quickly responded. “Interested in anything you are open to share,” he said. “Could you reach out to me?”
A Kraken spokesperson did not immediately respond to a request for comment.
This article originally appeared in The New York Times.
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