NEW YORK, Nov 11 (Reuters) – At least $1 billion in customer money has been stolen from bankrupt crypto exchange FTX, according to two people familiar with the matter.
Exchange founder Sam Bankman-Fried secretly transferred $10 billion in customer funds from FTX to Bankman-Fried’s trading firm, Alameda Research, a person familiar with the matter told Reuters.
After that, most of that sum disappeared, they said. One source said the shortfall was about $1.7 billion. Another said the gap was between $1 billion and $2 billion.
FTX is known to have moved customer funds to Alameda, but the missing funds are reported here for the first time.
The financial hole was revealed in records Bankman-Fried shared with other senior executives last Sunday, two sources said. The records provided an up-to-date description of the situation at the time, they said. Both sources were in senior positions at FTX until this week and were briefed on the company’s finances by top staff.
Bahamas-based FTX filed for bankruptcy on Friday after a flood of customer withdrawals earlier this week. A bailout deal with rival exchange Binance fell through, sparking one of the most high-profile cryptocurrency collapses in recent years.
Bankman-Fried said in a text message to Reuters that he “disagrees with the characterization” of the $10 billion transfer.
“We didn’t move secretly,” he said. “We had a confusing internal label and misread it,” he added, but didn’t go into details.
Asked about the missing funds, Bankman-Fried replied, “???”
FTX and Alameda did not respond to requests for comment.
In a tweet on Friday, Bankman-Fried said he was “pieced together” of what happened at FTX. “I was shocked to see things unfold like they did earlier this week,” he wrote. “I will write a more complete article on play-by-play in the near future.”
Reuters previously reported that the crux of FTX’s troubles was the loss at Alameda that most FTX executives didn’t know about.
Last Sunday, CEO of crypto exchange giant Binance Zhao Changpeng said Binance would sell its entire stake in FTX’s digital tokens worth at least $580 million “due to recent revelations.” After that, customer withdrawals skyrocketed. Four days earlier, news outlet CoinDesk reported that much of Alameda’s $14.6 billion in assets were held in tokens.
Bankman-Fried met with several executives in Nassau, the Bahamas capital, that Sunday to calculate the external funding needed to cover FTX’s shortfall, two people familiar with FTX’s finances said. .
Bankman-Fried confirmed to Reuters that the meeting had taken place.
Bankman-Fried showed the head of the company’s regulatory and legal teams several spreadsheets that revealed that FTX had moved about $10 billion of customer funds from FTX to Alameda, the two said, citing a relationship between the two. person said. The spreadsheet showed how much money FTX lent Alameda and what it was used for.
The documents showed that between $1 billion and $2 billion of those funds were not recorded in Alameda’s assets, the sources said. The spreadsheet didn’t show where the money went, and sources said they didn’t know what happened to it.
In subsequent investigations, FTX’s legal and finance teams also found that Bankman-Fried had implemented what the two described as a “backdoor” into FTX’s bookkeeping system, which was built using custom-built software. I knew.
They said the “backdoor” allowed Bankman-Fried to execute commands that could change the company’s financial records without alerting others, including external auditors. The setup meant that the move of $10 billion to Alameda did not trigger FTX’s internal compliance or accounting red flags, they said.
In a text message to Reuters, Bankman-Fried denied implementing a “backdoor.”
The U.S. Securities and Exchange Commission is investigating FTX.com’s handling of customer funds and cryptocurrency lending activities, a source familiar with the investigation told Reuters on Wednesday. Sources said the Department of Justice and the Commodity Futures Trading Commission are also investigating.
FTX’s bankruptcy has been a surprising turnaround for Bankman-Fried. The 30-year-old founded his FTX in 2019, leading it to become one of the largest crypto exchanges, amassing a personal fortune estimated at around $17 billion. FTX was valued at his $32 billion in January, with investors including his SoftBank and BlackRock.
The crisis resonated in the cryptocurrency world, with the prices of major coins plummeting. Also, the FTX collapse has been compared to previous major business collapses.
On Friday, FTX announced that it had turned over control of the company to John J. Ray III. John J. Ray III is a restructuring expert responsible for the liquidation of Enron Corporation, one of the largest bankruptcies in history.
Reported by Angus Berwick.Edited by Paristosh Bansal and Janet McBride
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