Sam Bankman-Fried, co-founder and managing director of FTX, in Hong Kong, China on Tuesday, May 11, 2021.
Lam Yık | Bloomberg | Getty Images
As Sam Bankman-Fried’s FTX enters bankruptcy protection, Reuters reports that between $1 billion and $2 billion in client funds have gone missing from the failed crypto exchange.
Reuters and The Wall Street Journal discovered that Bankman-Fried, now the former CEO of FTX, transferred $10 billion in client funds from his crypto exchange to digital asset trading house Alameda Research.
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Alameda, also founded by Bankman-Fried, was considered a sister company to FTX. These cozy ties are currently under investigation by multiple regulators, including the Department of Justice, as well as the Securities and Exchange Commission, which is investigating how FTX handled client funds, according to multiple reports.
Much of the $10 billion sent to Alameda “has since disappeared”, according to two people speaking to Reuters.
Reuters revealed that the two sources “held senior positions at FTX until this week” and added that “they were briefed on the company’s finances by top employees.”
One source put the discrepancy at $1.7 billion. The other estimated it between 1 and 2 billion dollars.
It appears that Reuters contacted Bankman-Fried via text message. The former FTX chief wrote that he “didn’t agree with the characterization” of the $10 billion transfer, adding that “we didn’t secretly transfer.”
“We had confusing internal labeling and we misread it,” the text message read, and when asked specific questions about the allegedly missing funds, Bankman-Fried wrote, “??? “
Bahamas emergency meeting
Last Sunday, Bankman-Fried called a meeting with executives in Nassau to review FTX’s books and determine how much money the company needed to cover the hole in its balance sheet. (Bankman-Fried confirmed to Reuters that the meeting took place.)
It’s been a tough few days for FTX after Binance CEO Changpeng Zhao tweeted that his company was selling the last of its FTT tokens, FTX’s native currency. This followed a post on CoinDesk highlighting that Alameda Research, Bankman-Fried’s hedge fund, held an inordinate amount of FTT on its balance sheet.
Not only did Zhao’s public statement cause FTT’s price to plummet, but it also led FTX clients to hit the exits. Bankman-Fried said in a tweet that FTX clients demanded about $5 billion in withdrawals on Sunday, which he called “larger by a huge margin.” It was the day of the emergency meeting of SBF in the capital of the Bahamas.
The heads of FTX’s regulatory and legal teams were reportedly in the room, as Bankman-Fried revealed multiple spreadsheets detailing how much money FTX had loaned Alameda and for what purpose, according to Reuters.
The documents, which apparently reflected the company’s most recent financial situation, showed a transfer of $10 billion in customer deposits from FTX to Alameda. They also revealed that some of those funds — somewhere in the $1 billion to $2 billion range — couldn’t be counted among Alameda’s assets.
The financial discovery process also unearthed a “backdoor” in FTX’s books that was created with “bespoke software”.
Both sources speaking to Reuters described it as a way for the ex-CEO Bankman-Fried to make changes to the company’s financial record without reporting the transaction internally or externally. This mechanism could theoretically have, for example, prevented the transfer of $10 billion to Alameda from being reported to its internal compliance team or external auditors.
Reuters says Bankman-Fried flatly refused to set up a so-called backdoor.
FTX and Alameda Research did not immediately respond to CNBC’s request for comment.