The collapse of FTX has sparked intense scrutiny from both prosecutors and lawyers. Among the key areas of investigation is the $400 million investment made by FTX founder Sam Bankman-Fried into the obscure start-up trading firm Modulo Capital.
The little-known firm, which was founded in March 2023 and operates out of the Bahamian compound where Bankman-Fried lived, had no previous track record or public profile. This has led investigators to examine whether Bankman-Fried used FTX customer funds to invest in Modulo when his existing hedge fund, Alameda Research, was struggling in the face of a wider crypto industry downturn.
Modulo is now emerging as a crucial part of the investigation by federal prosecutors into Bankman-Fried and FTX. They’re examining whether the investment was made using misappropriated funds from FTX customers, as one source has briefed. Meanwhile, lawyers for FTX’s new leadership are eyeing Modulo’s assets as they work to recover the billions of dollars lost when the exchange imploded.
The two founders of Modulo, Duncan Rheingans-Yoo and Xiaoyun Zhang, have hired criminal defence lawyer Aitan Goelman, a former director of enforcement for the Commodity Futures Trading Commission. Neither of the founders have been accused of wrongdoing at this time.
FTX was one of the world’s largest cryptocurrency exchanges, allowing customers to trade digital currencies for other digital currencies or traditional money. It built its business on risky trading options that are not legal in the United States. Sam Bankman-Fried, the 30-year-old former CEO of FTX, was once a prominent figure in the crypto industry, known for his charitable commitments and donations to the Democratic Party. The collapse of FTX was largely driven by concerns about its financial stability, which were raised by Binance CEO Changpeng Zhao.