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NYC Prosecutors Probing Sam Bankman-Fried’s Role in TerraUSD Collapse: Report

The May crash of Terra and Luna upended the entire crypto ecosystem, including SBF’s failed exchange FTX.

Was Sam Bankman-Fried involved in the demise of the Terra blockchain and its stablecoin, Luna? The New York Times reported on Wednesday that Manhattan prosecutors are looking into it.

According to the Times, federal prosecutors are investigating whether the FTX founder manipulated the market price of the two doomed, interlinked currencies earlier this year. According to the publication, the collapse of Terra and Luna eventually led to the catastrophic failure of FTX, echoing the conclusion of other blockchain analysts.

“U.S. prosecutors in Manhattan are looking into whether Mr. Bankman-Fried manipulated the prices of two interconnected currencies, TerraUSD and Luna, to benefit entities he controlled, including FTX and Alameda Research,” according to the report.

TerraUSD (UST) is an algorithmic stablecoin created by Terraform Labs. It was intended to keep its peg to the US dollar by using an arbitrage network to buy and sell Terra’s cryptocurrency, LUNA.

TerraUSD’s peg to the US dollar was lost in May after Terraform Labs flooded the market with Luna tokens to support the 1:1 UST-to-dollar peg. The once-mighty stablecoin slipped further from its peg the following week, reducing the price of the Luna token to fractions of a cent.

The Times reports that the drastic action was prompted by a flood of sell orders for TerraUSD, which an unnamed source claims came from FTX. Simultaneously, FTX had shorted the price of Luna in an apparent attempt to make a “fat profit.”

The bottom fell out of the entire TerraUSD-Luna ecosystem, according to the report.

Since FTX’s demise in November, the exchange and its enigmatic founder have come under increased scrutiny from regulators and officials around the world, who are also dealing with a “crypto contagion” that is causing other cryptocurrency businesses to fail.

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

The Times reports that the investigation into Bankman-possible Fried’s involvement with TerraLuna is in its early stages.

On December 13, 2022, Bankman-Fried has been invited to testify before the House Financial Services Committee. The next day, he was summoned to testify before the Senate Banking Committee. It is unknown whether Bankman-Fried will attend either hearing.

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