Crypto Shakedown: Employees and Insiders of Fallen Crypto Entities Should Expect to Be Subpoenaed

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We expect the Department of Justice (DOJ) to take full advantage of its broad subpoena power to compel potential witnesses—as well as suspects and targets—to provide evidence as it seeks to build criminal cases against Bankman-Fried and other key players involved in the recent fall of various crypto entities. In connection with the arrest of Bankman-Fried in December, U.S. Attorney Damian Williams remarked that “[i]f you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly and our patience is not eternal.” Indeed, cases are rapidly progressing. A February 23 superseding indictment against Bankman-Fried added four new charges. It has also been revealed that another FTX insider—the third since December—pleaded guilty for his role in the FTX conspiracy and agreed to cooperate.

These developments show that the DOJ is aggressively investigating and prosecuting individuals for their involvement in the collapse of FTX and other crypto trading platforms. With little documentary evidence to build a case, the DOJ and others with subpoena power will look for witnesses that can shed light into what occurred. Any individual who has information related to the alleged wrongdoing of FTX and other crypto platforms should be prepared to receive and comply with a subpoena.

Subpoenas will be crucial to the ongoing investigations

Poor record-keeping practices, lack of internal controls, and the use of encrypted internal messaging platforms with auto-delete functions suggest that documentary evidence in these cases will be scarce, leading investigators to seek out witnesses with direct knowledge of the crypto entities’ business practices and/or the alleged wrongdoing. Subpoenas are effective means to gather evidence in connection with an ongoing legal proceeding or investigation because noncompliance can carry significant penalties.

We expect that subpoenas will be widespread not only due to these significant evidentiary gaps, but because the government has ramped-up its investigative capacity. For instance, in an unusual move, the U.S. Attorney’s Office has created a dedicated task force to trace and recover assets of FTX victims and to handle investigations and prosecutions related to the company and other entities.

Subpoenas may be directed at current and former employees, investors, vendors, family members, business associates, and anyone else who is believed to have relevant information.

Subpoenas will come from different sources

Subpoenas can be issued by courts, grand juries, or government agencies with investigative powers (think SEC, IRS, and CFTC) or attorneys representing parties in legal proceedings. In connection with the fall of the various crypto platforms, we are expecting subpoenas from every potential angle.

As a matter of practice, the government does not disclose the names of individuals and organizations who have been subpoenaed when a criminal investigation is ongoing. Identities of individuals will be disclosed, however, if the subpoena is issued for testimony in a public trial or hearing which will likely occur as the criminal cases progress.

The SEC has issued subpoenas to various individuals and entities in connection with its ongoing investigation into the crypto crashes which are not publicly disclosed but may surface in connection with a company’s reporting obligations. For example, Robinhood disclosed in its annual 10‑K filing that it received a subpoena from the SEC soon after FTX crashed. That 10‑K further disclosed that the subpoena asked for information regarding the company’s “supported cryptocurrency listings, custody of cryptocurrencies, and platform operations.”

The subpoenas issued in connection with the crypto bankruptcies, however, are public. On February 8, 2023, the judge presiding over the FTX bankruptcy ruled that the Official Committee of Unsecured Creditors can subpoena founders and former executives of FTX which include Bankman-Fried, Gary Wang (co-founder and former chief technology officer of FTX), Caroline Ellison (former CEO of Alameda Research), Nishad Singh (ex-chief technology officer of FTX), and Constance Wang (former co-CEO of FTX Digital Markets). Subpoenas have also been issued to Bankman-Fried’s mother, father, and brother, while the Voyager Unsecured Creditors Committee has issued subpoenas to Wang, Ellison and Bankman-Fried.

What to do if you receive a subpoena

The importance of testimonial evidence in these cases and the number of entities with subpoena powers mean that, if you are believed to have relevant information in connection with the fall of a crypto entity and related wrongdoing, you may soon be receiving a subpoena.

If you receive one, do not ignore it. Failure to comply with a subpoena can result in legal consequences, including fines and even imprisonment. Familiarize yourself with the deadline for compliance, ensure you understand what is being asked of you, and seek counsel to advise you on how to proceed, including on whether you may be able to quash the subpoena for being unduly burdensome or in violation of your constitutional right against self-incrimination.

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Elisa Botero is head of Curtis’ digital assets and blockchain technology group and Kaitlyn Devenyns is a member of the firm’s white-collar defense and investigations practice. The material contained in this article does not constitute legal advice. No legal decision should be based on its contents.