Since the ill-fated crypto exchange FTX went bankrupt last year, evidence of rampant criminal activity on the part of the company’s top executives has been mounting. A new report on the company’s finances, released on Monday, does nothing to disprove that assumption, instead revealing new allegations about how the failed exchange squandered billions of customer funds by spending on everything from luxury real estate to illegal political donations.
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The report, prepared by the exchange’s new CEO and top restructuring officer, John J. Ray III, accuses the company’s former chief Sam Bankman-Fried, as well as other top FTX executives, of widespread illegality and criminal conduct. It also reveals new details about how SBF allegedly worked with a company lawyer to hide evidence of the company’s financial wrongdoing. Here are some of the key takeaways from the new report.
The Great Mixture
The latest report focuses on FTX’s “fund mixing” — a fancy term for the fact that exchange managers don’t appear to have made any meaningful distinction between funds deposited by clients and their own money. According to investigators, SBF and its top lieutenants treated the company like their personal piggy bank, stealing customer accounts for their own spending and personal investments. This apparently went on until billions and billions of dollars were embezzled — about $8.7 billion, the report says.
Part of the reason that FTX was able to get away with it for so long is that the exchange was considered fairly trustworthy until it collapsed. And the reason it was considered trustworthy is because the exchange executives used ongoing PR efforts convincingly to give the impression that they were diligent stewards of clients’ finances (rather than cowardly crypto bandits with the scruples of Caligula). According to the report…
The FTX Group presented itself as a pioneer in customer protection efforts in the crypto industry. Its co-founder and CEO, Sam Bankman-Fried, claimed he supports federal laws protecting consumers’ digital assets and touted FTX exchanges’ alleged practices to protect fiat currencies and crypto deposits, including in a testimony before the US -Senate. ..
…The image FTX Group wanted to convey as the customer-centric leader of the digital age was a mirage. In fact, as detailed in this report, since the inception of the FTX.com exchange, the FTX Group has commingled customer deposits and corporate funds and misused them with insolence.
What did FTX managers use clients’ money for? According to the report, the answer is pretty much anything and everything. The report notes that “speculative trading, venture investing and buying luxury real estate, as well as political and other donations to enhance their own power and influence” were all things FTX executives appear to have splurged on. Meanwhile, corporate insiders told anyone who would listen that they were actually a model of tax ethics. Some excerpts from this section are laughable and funny. A particular anecdote reveals that SBF apparently kept telling the public that everything was fine when the bottom under the crypto exchange started to ease. The report states…
On November 7, 2022 — months after internal discussions that over $8 billion in fiat currency alone was missing from the FTX exchanges and four days before FTX Group filed for bankruptcy — Bankman-Fried tweeted, “[w]We have a long history of protecting clients’ assets, and that still holds true today.”
Jeez, can we already get Adam McKay and some of his fellow comedians together for an adaptation of this thing? It really just calls for it.
FTX’s accounting practices were so insane that it’s hard to understand what happened at the company
The report notes that the exchange’s ridiculous financial practices make it extremely difficult to figure out what the heck happened to FTX clients’ money. In fact, the report notes that…
Despite extensive work by experts in forensic accounting, asset tracking and recovery, blockchain analysis and other areas, it is extremely difficult to attribute significant debtor assets to a specific funding source or to distinguish between FTX Group’s working capital and other deposits from its customers.
Essentially, the report states that since there was no functional difference between clients’ money and money FTX executives spent on themselves, it was quite difficult to tell what was spent on what.
SBF is accused of creating “sham documents” to hide other corruption
One of the new report’s biggest bangers is the allegation that Sam Bankman-Fried and an unnamed corporate attorney created “sham documents” to hide irregular financial dealings between FTX and one of its sister hedge funds, Alameda. According to the report, the documents were then submitted to an outside auditor who prepared a financial review that “examined the relationship between FTX Trading Ltd. to Alameda inaccurately and misleadingly and did not track fiat currency from FTX.com customers.” ” FTX reportedly then showed investors the fake financial documents during a Series C funding round, which helped the company raise approximately $400 million.
Judge to SBF: No, you will definitely be put on trial for that
As a result of all this alleged monkey business, Bankman-Fried is currently facing a long, long list of federal charges and a substantial prison sentence as a result. Given the circumstances, it makes sense that the former crypto mogul recently attempted to have his criminal case dropped. In fact, in May, attorneys representing SBF filed a motion to dismiss all but three criminal charges against him on the basis of some serious legal sleight of hand. On Tuesday, however, a federal judge declared the SBF team’s request “baseless or unfounded” and allowed criminal proceedings against the former CEO to proceed.
“The dismissal of the charges ‘is an ‘extraordinary remedy’ reserved for only extremely limited circumstances affecting fundamental rights,” Judge Lewis Kaplan wrote in a memo issued Tuesday in the US District Court for the Southern District of New York became. “The Second Circuit has viewed the release as an ‘extreme sanction’ that was maintained ‘only in very limited and extreme circumstances’ and ‘should be reserved for the truly extreme cases’, ‘especially where serious criminal behavior is involved’.”
So it looks like old Sam will be staying in the US criminal justice system for now. What will financial investigators find out next? Tune in next time for more financial mishaps in FTX’s bankruptcy proceedings…