Bankruptcy Report Exposes FTX’s Customer Fund Mishandling
The new management team of bankrupt crypto conglomerate FTX has accused Sam Bankman-Fried’s company of making “false statements” to banks regarding the commingling of customer funds and firing an employee who raised concerns about the practice. In a report released on Monday, FTX Group’s new management alleged that employees of the company had lied to banks about using trading firm Alameda Research’s accounts for customer transactions on FTX.com.
FTX’s total liabilities now are about $15 billion, which means that customers can eventually recover about 40% of their assets.
— Wu Blockchain (@WuBlockchain) June 27, 2023
Alameda’s Wire Activity
According to the report, some banks had questioned Alameda’s wire activity in 2020 and began rejecting transfers. In response to a bank representative’s inquiry about an Alameda account receiving customer deposits, an Alameda employee was instructed by a senior FTX executive to lie and state that customers “occasionally confuse FTX and Alameda.” The report revealed that all incoming and outgoing wires were actually used to settle Alameda trades.
The complicated relationship between FTX and Alameda played a significant role in the downfall of the empire. Former CEO of Alameda Research, Caroline Ellison, estimated in private notes from March 2022 that FTX.com had a cash deficit of over $10 billion. The report stated that from the beginning of the FTX.com exchange, customer deposits were commingled with corporate funds and misused under the direction of previous senior executives.
FTX Debtors released their second investigative report, which details the commingling and misuse of customer deposits at https://t.co/Svd0COiEpS by FTX Group’s previous management team: https://t.co/jtz3vI0jBY
— FTX (@FTX_Official) June 26, 2023
North Dimension Inc. Exposed
Furthermore, the report alleged that FTX created a new entity called North Dimension Inc., which was falsely portrayed as a crypto trading firm with 2,000 counterparties and an average monthly trading volume of $10 million. In reality, North Dimension was a shell company used by FTX to handle customer deposits and fund withdrawals for the Bahamas-based exchange. When a junior attorney at FTX discovered and voiced concerns about North Dimension accounts being used to fund customer withdrawals from the exchange, the attorney was promptly fired. The attorney had only been with the company for less than three months, according to the report.
FTX’s current management team claimed to have made significant progress in securing assets and recovering funds, with approximately $7 billion in liquid assets already retrieved. The report stated that when FTX.com filed for bankruptcy, it owed customers around $8.7 billion, with the majority of the deficit, over $6.4 billion, consisting of misappropriated fiat currency and stablecoin.
