Exclusive: At least $1 billion of client funds missing at FTX

  • FTX founder Bankman-Fried secretly transferred $10 billion to Alameda trading company – sources
  • Bankman-Fried showed colleagues spreadsheets that revealed changes in funds to Alameda – sources
  • Spreadsheets show $1 billion to $2 billion of client money unaccounted for – sources
  • Executives set up ‘back door’ library that avoids red flags – sources
  • It is not known where the missing funds are – sources

NEW YORK, Nov 11 (Reuters) – At least $1 billion in client funds disappeared from the collapse of crypto exchange FTX, according to two people familiar with the matter.

The exchange’s founder, Sam Bankman-Fried, secretly transferred $10 billion in client funds from FTX to the trading firm Bankman-Fried Alameda Research, the people told Reuters.

Most of the collection has since disappeared, they said. One source estimated the loss at around $1.7 billion. Another said that the difference is between 1 and 2 billion dollars.

While FTX is known to have transferred customer funds to Alameda, the missing funds are being reported here for the first time.

The financial hole was revealed in memos that Bankman-Fried shared with other senior executives on Sunday, the two sources said. According to them, the records report on the situation at that time. Both sources held senior positions at FTX until this week and said their senior staff had been briefed on the company’s finances.

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Bahamas-based FTX filed for bankruptcy on Friday after a flurry of customer outflows earlier this week. A bailout deal with rival exchange Binance has ended, leading to the highest-profile fall in crypto in recent years.

In text messages to Reuters, Bankman-Fried said she “did not agree with the description” of the $10 billion transfer.

“We did not transfer secretly,” he said. “We messed up the internal labeling and read it wrong,” he said without elaborating.

Asked about the missing funds, Bankman-Fried replied: “???”

FTX and Alameda did not respond to requests for comment.

In a tweet on Friday, Bankman-Fried said she was “putting together” what happened at FTX. “I was surprised to see things the way they were earlier this week,” he wrote. “I’ll be writing a fuller play-by-play article soon.”

Reuters previously reported that at the heart of FTX’s problems were the losses at Alameda, which most FTX executives were unaware of.

Customer withdrawals increased last Sunday after Changpeng Zhao, CEO of major crypto exchange Binance, said Binance would sell its entire stake in the FTX digital token, worth at least $580 million, “due to recent disclosures.” . Four days ago, a CoinDesk news outlet reported that most of Alameda’s $14.6 billion in assets were held in the token.

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That Sunday, Bankman-Fried held a meeting with several executives in Nassau, the capital of the Bahamas, to calculate how much external financing would be needed to cover FTX’s shortfall, two people familiar with FTX’s finances said.

Bankman-Fried confirmed to Reuters that the meeting took place.

Bankman-Fried showed executives at the firm’s regulatory and legal teams several spreadsheets that revealed FTX had transferred about $10 billion in client funds from FTX to Alameda, according to two of the people. They said the spreadsheets show how much money FTX loaned Alameda and what it was used for.

The documents showed that between $1 billion and $2 billion of those funds were not accounted for among Alameda’s assets, the sources said. The records don’t show where the money was transferred, and sources say they don’t know what happened.

In a subsequent investigation, FTX’s legal and financial teams also learned that Bankman-Fried had implemented what the two described as “behind the scenes” in FTX’s accounting system, which was built using custom software.

They said the “backdoor” allowed Bankman-Fried to execute orders that could alter the company’s financial records without notifying other people, including outside auditors. That setup meant the $10 billion transfer to Alameda didn’t raise internal compliance or accounting red flags at FTX, they said.

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In a text message to Reuters, Bankman-Fried denied the “behind the scenes” implementation.

The US Securities and Exchange Commission is investigating FTX.com’s handling of customer funds as well as its crypto-lending activities, a source familiar with the investigation told Reuters on Wednesday. The source said that the Ministry of Justice and the Commodity Futures Trading Commission are also investigating.

The FTX bankruptcy marked a remarkable turnaround for Bankman-Fried. The 30-year-old founded FTX in 2019 and turned it into one of the largest crypto exchanges, amassing a personal fortune of around $17 billion. FTX was valued at $32 billion in January, with investors including SoftBank and BlackRock.

The crisis has had its repercussions in the crypto world and the price of major coins has plummeted. And the FTX crash is drawing comparisons to previous major trade meltdowns.

On Friday, FTX said it would transfer control of the company to John J. Ray III, the restructuring specialist who oversaw the collapse of Enron Corp., one of the largest bankruptcies in history.

Reporting by Angus Berwick; Edited by Paritosh Bansal and Janet McBride

Our Standards: The Thomson Reuters Trust Principles.

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