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FTX Found to Owe Customers $8.7 Billion: Report

Updated: Jul 4, 2023

Sam Bankman-Fried
Sam Bankman-Fried. Image courtesy: The Telegraph

NEW YORK – A report released Monday by the FTX team over the weekend has exposed the grim financial reality behind the collapsed exchange. The findings indicate that the company was indebted to its customers for a staggering $8.7 billion, a result of commingling and misusing their deposits. What is even more disturbing is the revelation that senior executives had been concealing the information since August 2022.


The report disclosed that approximately $6.4 billion of the owed amount consisted of fiat currency and stablecoin that had been misappropriated. However, there is a glimmer of hope as $7 billion in liquid assets have been recovered thus far, with expectations of further recoveries as the investigation into the company's assets continues.


The report, a result of meticulous analysis and forensic auditing spanning several months, paints a damning portrait of company management and, notably, a senior lawyer who were fully aware of their wrongful actions. The individuals involved allegedly resorted to deceiving banks and auditors, falsifying documents, and constantly shifting the FTX Group across jurisdictions, from the United States to Hong Kong to the Bahamas, all in an elaborate effort to enable their misconduct and evade detection.


This comprehensive 33-page review represents the second report filed by CEO John J. Ray III. The initial examination, released in April, had already unearthed numerous instances of improper activities that had taken place under the watch of the company's founder and former CEO, Sam Bankman-Fried. Bankman-Fried is currently facing multiple criminal charges and is scheduled for trial in New York in October.


With the company now undergoing bankruptcy proceedings in Delaware, Ray has been diligently working towards resolving the exchange's affairs since its collapse in November. Interestingly, there have been whispers suggesting the potential resurrection of operations under the banner of FTX 2.0.


However, those tasked with tracing FTX transactions and funding have encountered an exceedingly arduous challenge, as indicated by the report. The complexity and intricacy of the web woven by the company's dealings have made the task of untangling the financial mess a Herculean endeavor.


Additionally, the report reveals that Bankman-Fried provided false testimony to senators during a hearing on February 9, 2022. He allegedly misrepresented the company's practices regarding the protection of customers and their funds.


Moreover, it is stated in the report that senior executives, including Caroline Ellison, the former CEO of FTX's trading affiliate Alameda Research, were aware as early as August 2022 that the firm owed over $8 billion to customers, without having the means to cover this substantial liability. To obfuscate scrutiny, a sham customer account was created on FTX, which they referred to as "our Korean friend's account," reflecting an $8.9 billion debt to the FTX exchange.


Furthermore, it is alleged that the company routinely deceived its banking partners about the usage of accounts. A former employee of Alameda Research revealed to the bankruptcy team that the company made no meaningful distinction between customer funds and Alameda funds.

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