• Bankruptcy proceedings reveal disastrous conditions in FTX’s finance department
• Missing documents, but also indications of concealment of transactions
• Missing client funds: misjudgment or personal enrichment?
The illicit ties between two Bankman Fried companies, FTX.com, and trading firm Alameda Research were recently exposed in a CoinDesk article. After Binance CEO Changpeng Zhao announced plans to sell his FTT tokens, he triggered a mass sell-off among investors. A supposed agreement to take over FTX by Binance fell through just a few hours later.
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This was followed by the announcement of Sam Bankman-Fried’s bankruptcy and the formal filing of FTX’s bankruptcy.
Insolvency proceedings not only reveal gaps in accounting
Last October, FTX secured a $420 million funding round to further develop the company’s growth and user experience, as well as collaborating with regulators. The Wall Street Journal now reports that the sale of Friedman Banks’ shares and alleged repayments for deposits meant that most of the money, namely $300 million, did not go to FTX but to SBF directly.
The bankruptcy trustee and current CEO of FTX, John J. Ray, is appalled by the state of financial accounting, which goes far beyond the much-cited “chaotic state”. “In my entire professional life I have never experienced such a failure of the internal control systems and such a complete lack of trustworthy financial information as here,” John J. Ray’s description of the accounting situation to the bankruptcy court was quoted in numerous media outlets. A small group of inexperienced people managed the fortunes of the company without a basic understanding of accounting principles.
The list of offenses and omissions is long: failure to keep track of cash balances, bank accounts or authorized signatories; Payment approvals via smileys in company chat, deleted communications between CEO and employees. In addition, the finances were not checked by a regulatory authority because the company is based in the Bahamas. Of particular note in the overall situation, which Ray described as “unprecedented”, is the allegation that FTX’s software systems were “compromised” in order to enable transactions to Alameda and thus conceal the abusive outflow of customer funds.
Since it is still unclear where the millions in deposits from customers and well-known investors have gone, the suspicion arises that a group around the former CEO has enriched itself on a large scale. The FAZ reports, for example, that Alameda Research has granted several loans with a total volume of 4.1 billion US dollars to senior employees, Bankman-Fried himself and companies belonging to the group.
The former crypto shooting star in focus
In an interview with VOX journalist Kelsey Piper, conducted more by chance via Twitter, SBF describes the bankruptcy proceedings as the biggest mistake, since the finances are now outside of its control. Those responsible at FTX, who are now making allegations against the former boss, would now “out of shame try to reduce everything to rubble,” said Bankman-Fried. While his priority is raising the $8 million that could be used to compensate investors, the process has made that even more difficult because, in addition to finding investors, both creditors and the bankruptcy court have to agree.
An interesting point raised in the interview is the question of investors’ investments in the stock market. SBF had initially denied investing its clients’ funds on the exchange, but has now admitted that sister company Alameda “borrowed far more money from FTX’s balance sheet for investment than it realized, which ultimately made FTX vulnerable to did the crypto equivalent of a bank run,” Piper said.
Piper also reiterates a question he asked in an interview last summer about whether Bankman-Fried thinks it’s reasonable to do unethical things for the “general good.” Both SBF and the former CEO of Alameda, Caroline Eddison, are advocates of “effective altruism”, i.e. the idea of improving the lives of as many people as possible through the optimal use of limited resources. When asked how far he would go, SBF sticks to generalities. This could become politically explosive for the US Democrats, because Bankman-Fried is sixth on the list of the largest political donors and supported the midterm elections with sums in the millions.
Editorial office finanzen.net
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