According to two people familiar with the matter, at least $1 billion (nearly 8,050 crore) of customer funds has disappeared from the crashed crypto exchange FTX.
Exchange founder Sam Bankman-Fried secretly transferred $10 billion (nearly 80,500 crore) of customer funds from FTX for Bankman-Fried’s trading firm Alameda Research, these people told Reuters.
They say a large portion of that total is gone. One source said the missing amount is around $1.7 billion (nearly Rs 13,700). The other said the gap is between $1 billion and $2 billion (nearly Rs 16,100).
Although it is known that FTX has transferred customer funds to Alameda, missing funds are reported here for the first time.
The financial vulnerability was disclosed in a filing that Bankman-Fried shared with other senior executives last Sunday, according to two sources. They say the records provide an up-to-date account of the situation at the time. Both sources hold senior positions at FTX until this week and said they were briefed by top employees on the company’s financial position.
Bahamas-based FTX filed for bankruptcy on Friday after customers rushed to withdraw funds earlier this week. A rescue deal with rival exchange Binance has failed, leading to the cryptocurrency’s highest crash in recent years.
In a text message to Reuters, Bankman-Fried said he “disagrees with the characterization of the $10 billion transfer.
“We don’t covertly deliver,” he said. “We had internal labeling that was confusing and misread,” he added, without elaborating.
When asked about the missing amount, Bankman-Fried replied: “???”
FTX and Alameda did not respond to requests for comment.
In a tweet on Friday, Bankman-Fried said he was “putting back together” what happened at FTX. “I was shocked to see things unravel the way they did earlier this week,” he wrote. “I will soon write a more complete article on the play.”
At the heart of FTX’s problems is the loss at Alameda that most FTX executives don’t know about, Reuters previously reported.
Customer withdrawals surged last Sunday after Changpeng Zhao, CEO of the giant crypto exchange Binancesaid that Binance will sell its entire stake in FTX’s digital token, worth at least $580 million (nearly 4,700 crore), “due to recent disclosures.”
That Sunday, Bankman-Fried held a meeting with several executives in the Bahamas capital Nassau to calculate the amount of outside funding he needed to cover the shortfall of FTX, two said someone with knowledge of FTX’s finances.
Bankman-Fried confirmed to Reuters that the meeting took place.
Bankman-Fried gave several spreadsheets to the heads of the company’s regulatory and legal teams that showed FTX had moved about $10 billion in customer funds from FTX to Alameda, the two people said. They said the spreadsheet shows how much money FTX lent to Alameda and what it was used for.
The documents show that between $1 billion and $2 billion of this amount was not included in Alameda’s assets, the sources said. The spreadsheets don’t say where the money went, and sources say they don’t know what it turned out to be.
During a subsequent audit, FTX’s legal and financial teams also learned that Bankman-Fried had implemented what the two described as “back doors” to FTX’s bookkeeping system, which was reported by built with custom software.
They said the “backdoor” allows Bankman-Fried to execute orders that could change the company’s financial records without alerting others, including external auditors. The setup means that the $10 billion transfer to Alameda does not cause internal compliance or accounting red flags at FTX, they said.
In a message to Reuters, Bankman-Fried denied the deployment of “back doors”.
The US Securities and Exchange Commission is investigating FTX.com’s handling of client funds, as well as electronic money– lending practices, a source with knowledge of the investigation told Reuters on Wednesday. The Justice Department and Commodity Futures Trading Commission are also investigating, the source said.
The bankruptcy of FTX marks a stunning reversal of Bankman-Fried. The 30-year-old founded FTX in 2019 and made it one of the largest cryptocurrency exchanges, amassing an estimated personal fortune of nearly $17 billion (nearly Rs 1,36,900 crore Rs. ). FTX was valued in January at $32 billion (nearly Rs 2,57,600), with investors including SoftBank and BlackRock.
The crisis has resonated in the crypto world, with the prices of major coins plummeting. And the collapse of FTX has been compared to previous major business crises.
On Friday, FTX said it had transferred control of the company to John J Ray III, the restructuring expert who handled the liquidation of Enron – one of the largest bankruptcies in history.
© Thomson Reuters 2022
