Bankrupt crypto exchange FTX has said $8.8 billion in customer funds are not being accounted for in a “massive shortfall” that casts doubt on whether banked customers will ever see their money back.
In a presentation to creditors released publicly Thursday, the auditors who guided FTX through the bankruptcy said they had identified just $2.8 billion in assets toward the $11.6 billion owed by customers from their accounts.
FTX filed for bankruptcy on Nov. 11 and founder Sam Bankman-Fried is accused of siphoning billions in client funds to support his hedge fund Alameda Research, buying lavish properties in the Bahamas and making massive political donations.
Three of Bankman-Fried’s top lieutenants at FTX, including his former lover, Alameda boss Caroline Ellison, have pleaded guilty to fraud charges and have agreed to cooperate with the investigation.
The new report, overseen by John J. Ray III, FTX’s chief of restructuring, found that the shortfall in client funds was primarily traced to Alameda’s $9.3 billion “net loan” from FTX.com, the international stock exchange of the company.
FTX has said $8.8 billion in client funds are not being accounted for in a “massive shortfall.” Pictured: FTX founder Sam Bankman-Fried leaves court last month
FTX co-founder Gary Wang (left) and former Alameda Research CEO Caroline Ellison (right) have both pleaded guilty to criminal charges in connection with the scandal
It also confirmed that a total of $432 million in FTX assets disappeared in “unauthorized transfers” amid the bankruptcy chaos.
FTX’s current management says it was breached by hackers on the same day as the bankruptcy filing, but it remains unclear whether all unauthorized transfers were due to outside hackers.
The report also quantified the massive surge in customer withdrawals that revealed FTX’s severe liquidity problems in November.
Amid concerns about FTX’s handling of client funds, clients have withdrawn a net $8.4 billion from the exchange from early November to the bankruptcy date, the report said.
The stampede of withdrawals, similar to an old-fashioned bank run, eventually exposed the serious irregularities at FTX, when the exchange was unable to meet its obligations to clients.
The financial report cautioned that the most recent figures are “preliminary and subject to material changes if new, additional or conflicting information is identified.”
It noted that the “analysis is ongoing and complicated by the incomplete nature of the books and records maintained by” the company’s former management team, who was ousted when Ray, a respected bankruptcy attorney, took over.
Earlier this week, former FTX technical director Nishad Singh became the third high-level executive to plead guilty to criminal charges in the case.
The plea deal was another sign that prosecutors are leaning into the inner circle of Sam Bankman-Fried, who was hit with four additional criminal charges last month after pleading eight charges of fraud and conspiracy in December.
The chart above shows the shortfall of assets versus customer debt for FTX.com, the company’s international exchange. FTX US had smaller, but still significant shortcomings
The new report from John J. Ray III, FTX’s head of restructuring, found that the shortfall in client funds was primarily traced to Alameda’s “net borrowing” of $9.3 billion from FTX.com
At a hearing in Manhattan on Tuesday, Singh pleaded guilty to six criminal counts, telling the judge, “I’m incredibly sorry for my role in all of this.”
According to a civil complaint filed separately Tuesday by the U.S. Securities and Exchange Commission, Singh used his computer skills to reverse fraudulent money transfers and set up an “unlimited line of credit” for Alameda using customer money.
Court documents also accuse Singh of acting as a “straw” donor for Bankman-Fried to surreptitiously donate tens of millions of dollars to influence lawmakers to pass legislation favorable to the company.
Prosecutors say Bankman-Fried used Singh to donate to liberal causes and candidates, and another executive to donate to Republicans, with many donations funded by Alameda and including FTX funds from clients.
An indictment said a political consultant working for Bankman-Fried told Singh that “you, as the center-left of our spending, means you give (donations) to a lot of waking shit for transactional purposes.”
Singh, identified in court documents only as CC-1 (co-conspirator 1), gave more than $1 million to a pro-LGBTQ group at Bankman-Fried’s direction, the indictment said.
Singh contributed $8 million to leftist campaigns in the 2022 election cycle, including $1.1 million on July 7, 2022 to the LGBTQ Victory Fund, according to public records.
Nishad Singh, the former technical director of now-bankrupt cryptocurrency exchange FTX, has agreed to plead guilty to US criminal charges, his lawyer said
Singh’s plea comes after two other former executives agreed in December to cooperate with prosecutors.
Ellison, Alameda’s chief executive, and Gary Wang, FTX’s chief technology officer, pleaded guilty to seven and four charges, respectively.
Former top FTX attorney Daniel Friedberg has also cooperated with prosecutors but has not been told he is under criminal investigation, a person familiar with the case told Reuters in early January.
Several other former FTX executives have also hired lawyers to discuss possible cooperation with prosecutors.
