Exclusive: FTX Lost At Least $1 Billion In Client Funds

  • FTX Founder Bankman-Fried Secretly Transferred $10 Billion to Trading Firm Alameda – Sources
  • Bankman-Fried showed colleagues spreadsheets showing money transfers to Alameda – sources
  • Spreadsheet shows $1B-2B in client funds unaccounted for – sources
  • Executives set up bookkeeping ‘backdoor’ to block red flags – sources
  • Missing funds unaccounted for – sources

NEW YORK, Nov 11 (Reuters) – At least $1 billion in customer funds has disappeared from defunct cryptocurrency exchange FTX, according to two people familiar with the matter.

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

Much of it has disappeared, they said. The missing amount is about $1.7 billion, one source said. Another said the gap was between $1 billion and $2 billion.

While FTX is known to have moved client funds to Alameda, this is the first time the missing funds have been reported here.

The records Bankman-Fried shared with other senior executives on Sunday revealed financial holes, according to two sources. The records, they said, provide an up-to-date account of conditions at the time. Both sources held senior positions at FTX until this week and said senior staff briefed them on the company’s financials.

Bahamas-based FTX filed for bankruptcy on Friday after a large number of clients withdrew earlier this week. A bailout deal with rival exchange Binance fell through, leading to the cryptocurrency’s most high-profile crash in recent years.

Bankman-Fried said in a text message to Reuters that he “disagreeed” with the characterization of the $10 billion transfer.

“We have no secret transfers,” he said. “We confused the internal label and misread it,” he added, 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 he was “pieceing 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 post one by one.”

At the heart of FTX’s problems was a loss in Alameda that most FTX executives were unaware of, Reuters previously reported.

Changpeng Zhao, CEO of major cryptocurrency exchange Binance, said on Sunday that Binance would sell its entire stake in the FTX digital token, worth at least $580 million, amid a surge in customer withdrawals “due to recent disclosures.” Four days ago, news outlet CoinDesk reported that a significant portion of Alameda’s $14.6 billion in assets is held in tokens.

That Sunday, Bankman-Fried met with several executives in Nassau, the capital of the Bahamas, to figure out how much outside funding he would need to cover FTX’s shortfall, according to two people with knowledge of FTX’s finances.

Bankman-Fried confirmed to Reuters that the meeting had taken place.

Bankman-Fried showed the heads of the company’s regulatory and legal teams several spreadsheets showing that FTX had moved roughly $10 billion in client funds from FTX to Alameda, the two said. The spreadsheets showed how much FTX loaned to Alameda and what it was used for, they said.

The filings show that between $1 billion and $2 billion of those funds were not counted among Alameda assets, the sources said. The spreadsheet did not say where the money was transferred, and the sources said they did not know where it went.

During subsequent inspections, the FTX legal and finance teams also learned that Bankman-Fried implemented what the duo described as a “backdoor” into FTX’s bookkeeping system, which was built using custom software.

They said the “back door” allowed Bankman-Fried to execute orders that could alter the company’s financial records without alerting others, including external auditors. That setup meant that moving $10 billion to Alameda did not trigger FTX’s internal compliance or accounting red flags, they said.

Bankman-Fried denied implementing a “backdoor” in a text message to Reuters.

The U.S. Securities and Exchange Commission is investigating FTX.com’s handling of client funds and its crypto lending and lending activities, a source with knowledge of the investigation told Reuters on Wednesday. The Justice Department and the Commodity Futures Trading Commission are also investigating, the sources said.

FTX’s bankruptcy marked a stunning reversal for Bankman-Fried. The 30-year-old founded FTX in 2019 and has led it to become one of the largest cryptocurrency exchanges, with a personal fortune estimated at nearly $17 billion. FTX was valued at $32 billion in January, with investors including SoftBank and BlackRock.

The crisis reverberated in the cryptocurrency world, with the prices of major coins plummeting. FTX’s debacle has been compared to earlier major business debacles.

On Friday, FTX said it had handed over control of the company to John J. Ray III, a restructuring specialist who handled the Enron liquidation — one of the largest bankruptcy cases in history.

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

Our Standards: The Thomson Reuters Trust Principles.

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