According to two persons with knowledge of the situation, the defunct crypto exchange FTX has lost at least $1 billion in customer assets.
FTX client money worth $10 billion were surreptitiously moved by Sam Bankman-Fried, the exchange’s founder, to Bankman-trading Fried’s firm Alameda Research, the sources told Reuters.
They said that a sizable chunk of that sum had subsequently vanished.
According to one estimate, the missing funds total almost $1.7 billion.
The other stated that there was a $1 billion to $2 billion deficit.
Although it is well known that FTX transferred client monies to Alameda, this is the first time the lost amounts have been mentioned.
According to the two individuals, Bankman-Fried shared information with other top officials last Sunday that showed the financial gap.
They claimed that the documents provide a current account of the circumstances at the time.
Prior to this week, both of the sources had senior roles with FTX and claimed to have received financial updates from senior personnel.
Following a spike in client withdrawals earlier this week, the Bahamas-based FTX filed for bankruptcy on Friday.
The most high-profile collapse in cryptocurrency in recent years was caused by a rescue agreement that broke down with a competing exchange, Binance.
Bankman-Fried expressed his “disagreement with the depiction” of the $10 billion transfer in text exchanges to Reuters.
He said, “We didn’t transmit covertly.
Without going into any detail, he only stated, “We had unclear internal labeling and misunderstood it.
Bankman-Fried said in a tweet on Friday that he was “piecing together” what had transpired at FTX.
I was astounded to witness events fall apart in the manner they did earlier this week, he wrote.
I’ll soon provide a more thorough play-by-play, I promise.
According to prior reports from Reuters, losses at Alameda that the majority of FTX management were unaware of were at the root of the company’s issues.
Following Changpeng Zhao’s announcement last Sunday that Binance will sell its entire share in FTX’s digital token, estimated to be worth $580 million, “due to recent disclosures,” customer withdrawals spiked.
The majority of Alameda’s $14.6 billion in assets were reportedly held in the token four days prior, according to news source CoinDesk.
The two persons with knowledge of FTX’s finances claimed that on that Sunday, Bankman-Fried met with numerous executives in Nassau, the capital of the Bahamas, to determine how much outside cash he would require to make up the gap at FTX.
The existence of the meeting was verified to Reuters by Bankman-Fried.
According to the two persons, Bankman-Fried presented many spreadsheets to the leaders of the organization’s regulatory and legal teams that showed FTX had transferred around $10 billion in customer funds from FTX to Alameda.
According to them, the spreadsheets showed how much money FTX loaned Alameda and what it was used for.
According to the sources, the paperwork revealed that between $1 billion and $2 billion of these money were not included among Alameda’s assets.
The sources claimed they have no idea what happened to this money, and the spreadsheets did not show where it was moved.
Following an investigation, FTX’s legal and financial teams discovered that Bankman-Fried had added what the two individuals called a “backdoor” to the company’s custom software-made bookkeeping system.
They said that by using a “backdoor,” Bankman-Fried was able to issue orders that may change the company’s financial records without informing anyone else—including outside auditors.
Due to this arrangement, FTX did not get any warnings from internal compliance or accounting regarding the transfer of the $10 billion in money to Alameda.
Reuters received a text reply from Bankman-Fried in which he refuted the use of a “backdoor.”
According to a person with knowledge of the investigation, the U.S. Securities and Exchange Commission is looking into how FTX.com manages client cash and its cryptocurrency lending operations.
The source claimed that investigations are also being conducted by the Department of Justice and the Commodity Futures Trading Commission.
The collapse of FTX was a startling turnaround for Bankman-Fried.
The 30-year-old founded FTX in 2019 and oversaw its growth to become one of the biggest cryptocurrency exchanges, building up a personal wealth believed to be worth close to $17 billion.
FTX was valued at $32 billion in January by investors that included SoftBank and BlackRock.
Major currencies’ prices have fallen as a result of the crisis, which has repercussions throughout the cryptocurrency community.
And the demise of FTX is being compared to previous significant company meltdowns.
On Friday, FTX announced that it has given John J. Ray III, a restructuring expert who oversaw the liquidation of Enron Corp., one of the worst bankruptcies in history, ownership of the business.
