Cryptocurrency issuer Paxos has frozen over $19 million worth of crypto assets tied to bankrupt exchange FTX at the direction of U.S. law enforcement, the company announced Saturday.
The funds, 11,184 tokens of PAXG—Paxos’ native stablecoin, which is backed by physical gold bars—were worth just over $19 million at the time of the action over the weekend.
After the Bahamian government froze all assets associated with Bahamas-headquartered FTX on Thursday, the embattled company declared bankruptcy on Friday. Then, late on Friday night, hundreds of millions of dollars were mysteriously drained from wallets belonging to FTX. It remains unclear whether the transfers were the result of a hack or if they were initiated by an FTX employee in defiance of bankruptcy proceedings, though FTX General Counsel Ryne Miller referred to the transfers as “unauthorized.”
On Saturday, federal officials ordered Paxos to freeze PAXG associated with four of the wallet addresses involved in Friday night’s events. Paxos says it immediately complied.
“As always, Paxos will continue to work closely with law enforcement and regulators,” the company’s global general counsel, Ben Gray, said in a statement. “Thanks go to federal law enforcement for their extraordinary responsiveness to this matter.”
Days prior on Wednesday, as the likelihood of FTX’s stunning collapse became evident, Paxos tweeted that “FTX and Alameda have broken confidence and trust in crypto and blockchain.”
“These events are the result of irresponsible activity and lacking management practices reminiscent of past financial crises,” the company wrote. “The path to adoption is through appropriate oversight and regulation. There are no shortcuts and history is clear.”
1/ FTX & Alameda have broken confidence and trust in crypto & blockchain. These events are the result of irresponsible activity and lacking risk management practices reminiscent of past financial crises;
— Paxos (@PaxosGlobal) November 10, 2022
In the days following FTX’s implosion, lawmakers issued stern demands for a ramp-up in crypto regulation, after years of sporadic enforcement actions from the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) that have failed to establish industry-wide standards.
The SEC, CFTC, and Department of Justice are all reportedly investigating FTX’s management of customer funds and possible fraud. Regulators in California are also conducting their own investigation of the now defunct company, which until last week marketed itself as the most trustworthy, dependable, and regulation-friendly brand in crypto.