$1,000,000,000 in client funds missing at failed crypto firm FTX
At least $1 billion of customer funds have vanished from the collapsed crypto exchange FTX.
The third largest crypto exchange with one million users, came crashing down last week after a $6 billion hole in the exchange’s balance sheet prompted it to file for bankruptcy.
The exchange’s founder Sam Bankman-Fried had secretly transferred $10 billion of customer funds from FTX to Bankman-Fried’s trading company Alameda Research, as reported by Reuters.
A large portion of that total, anywhere between $1 billion and $2 billion has since disappeared.
The financial hole was revealed in records that Bankman-Fried shared with other senior executives last Sunday.
The Bahamas-based crypto exchange filed for bankruptcy on Friday after a rush of customer withdrawals earlier this week. A rescue deal with rival exchange Binance fell through, precipitating crypto’s highest-profile collapse in recent years.
In text messages to Reuters, Bankman-Fried said he ‘didn’t secretly transfer’ the $10 billion.
Asked about the missing funds, Bankman-Fried responded: ‘???’
In a tweet on Friday, Bankman-Fried said he was ‘piecing together’ what had happened at FTX.
‘I was shocked to see things unravel the way they did earlier this week,’ he wrote. ‘I will, soon, write up a more complete post on the play by play.’
At the heart of FTX’s problems were losses at Alameda that most FTX executives did not know about, Reuters has previously reported.
Customer withdrawals had surged last Sunday after Changpeng Zhao, CEO of crypto exchange Binance, said Binance would sell its entire stake in FTX’s digital token, worth at least $580 million, ‘due to recent revelations’.
Four days before, news outlet CoinDesk reported that much of Alameda’s $14.6 billion in assets were held in FTX’s own token.
In a subsequent examination, FTX legal and finance teams also learned that Bankman-Fried implemented a ‘backdoor’ in FTX’s book-keeping system, which allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people.
This setup meant that the movement of the $10 billion in funds to Alameda did not trigger internal compliance or accounting red flags at FTX.
Bankman-Fried denied implementing a ‘backdoor’ to Reuters.
FTX.com’s handling of customer funds and crypto-lending activities are now being investigated by the US Securities and Exchange Commission, The Department of Justice and the Commodity Futures Trading Commission.
30-year-old Bankman-Fried had set up FTX in 2019 and built it up to become one of the largest crypto exchanges, accumulating a personal fortune of nearly $17 billion.
FTX was valued in January at $32 billion, with investors including SoftBank and BlackRock.
During the crypto downturn this past year, Bankman-Fried was compared to JP Morgan for the seemingly endless pile of cash he had to offer floundering crypto firms as he swooped in as a saviour.
The crisis has sent reverberations through the crypto world, with the price of major coins plummeting.
FTX’s collapse is drawing comparisons to earlier major business meltdowns.
On Friday, FTX said it had turned over control of the company to John J. Ray III, the restructuring specialist who handled the liquidation of Enron Corp – one of the largest bankruptcies in history.
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