While the crypto market still hasn’t fully digested the insolvency of FTX, U.S. federal prosecutors are investigating whether FTX founder Sam Bankman-Fried played a role in the collapse of TerraUSD (UST) and Luna.

The stablecoin UST lost its peg to $1 in May 2022, triggering the collapse of the Terra ecosystem. As a result, 80,000 Bitcoins had to be sold by the Luna Foundation Guard (LFG), causing a massive market meltdown.

As the New York Times reports today, federal prosecutors are investigating whether FTX founder Sam Bankman-Fried and his hedge fund Alameda orchestrated the trade to cause the collapse.

Anonymous sources told the NYT that U.S. prosecutors in Manhattan are investigating the possibility that Bankman-Fried manipulated prices to generate profits for his own companies.

The investigation is still in its early stages, the report says. It is not clear whether prosecutors have found any wrongdoing by Bankman-Fried or when they began investigating the TerraUSD and Luna deals.

The report goes on to say:

The matter is part of a broadening inquiry into the collapse of Mr. Bankman-Fried’s Bahamas-based cryptocurrency empire, and the potential misappropriation of billions of dollars in customer funds.

How FTX Could Have Orchestrated The TerraUSD/Luna Crash?

According to the report, TerraUSD’s collapse was triggered by an increased number of sell orders from a single venue: FTX. In an effort to “make a fat profit,” Bankman-Fried simultaneously shorted Luna.

Had the trade gone as expected, Luna’s price decline could have yielded a “fat profit.” Instead, SBF’s bet destroyed the entire TerraUSD-Luna ecosystem and crashed the broader crypto market.

Ultimately, SBF dug his own grave for FTX and Alameda with this failed bet. The ripple effects of the Luna crash may also have had a decisive impact on the collapse of SBF’s business.

Remarkably, the U.S. Federal Prosecutor’s Office opened an investigation against FTX months before the bankruptcy. However, as part of this, SBF denied all allegations of alleged market manipulation.

Rumors: Did CZ Prevent Worse? Will Caroline Snitch On SBF?

The investigation also shed new light on prior rumors about the relationship between Binance CEO Changpeng Zhao (“CZ”) and Bankman-Fried.

CZ allegedly warned SBF about his reckless behavior on several occasions, but SBF ignored him.

As things got worse, CZ saw no choice but to take the issue public. “As things got worse, CZ saw no choice but to make the issue public. This led to the infamous tweet by CZ that took down FTX,” said Mario Nawfal.

The founder of the ICB Group was referring to a Twitter space in which a close friend of CZ drew attention to the circumstances. The person is said to have been a senior executive of another major exchange.

On another note, rumors are currently swirling about SBF’s Dec. 13 hearing on Capitol Hill. Along with this, speculation is circulating that Alameda CEO Caroline Ellison may snitch on her former boyfriend SBF.

Ellison was recently spotted in New York City at a coffee shop near the FBI offices. But why? The rumors are that she is working on a deal with the Justice Department and the FBI to send Bankman-Fried up the river.

At press time, the Bitcoin price was still holding up strong against the macro headwinds. BTC was trading at $16,843.