friday the the wall street journal reported:
Crypto exchange FTX loaned billions of dollars in client assets to fund risky bets by its affiliate trading firm, Alameda Research, setting the stage for the exchange to implode, a person familiar with the trade says. case.
FTX chief executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX made loans to Alameda using money clients had deposited on the stock exchange for trading purposes, a move Bankman-Fried called a lack of judgment, one of the people said.
In total, FTX had $16 billion in client assets, the people said, so FTX lent more than half of its client funds to sister company Alameda.
And then on Friday evening, Reuters reported that “at least $1 billion in client funds disappeared from the collapsed FTX crypto exchange, according to two people familiar with the matter.
“Exchange founder Sam Bankman-Fried secretly transferred $10 billion in client funds from FTX to Bankman-Fried’s trading company Alameda Research, the people told Reuters. since disappeared, they said.
One source put the missing amount at around $1.7 billion. The other said the gap was between $1 billion and $2 billion.
Although FTX is known to have transferred client funds to Alameda, the missing funds are reported here for the first time. The financial hole was revealed in filings Bankman-Fried shared with other senior executives last Sunday, according to both sources. The records provided an up-to-date account of the situation at the time, they said. Both sources held senior positions at FTX until this week and said they were briefed on the company’s finances by top employees….
In text messages to Reuters, Bankman-Fried said he “disagrees with the characterization” of the $10 billion transfer. “We didn’t transfer secretly,” he said. “We had confusing internal labeling and we misread it,” he added, without giving further details.
Asked about the missing funds, Bankman-Fried replied: “???”
FTX and Alameda did not respond to requests for comment…
At the heart of FTX’s troubles were losses at Alameda that most FTX executives were unaware of, Reuters previously reported. FTX’s legal and finance teams also learned that Bankman-Fried had implemented what the two people described as an FTX accounting system, which was built using bespoke software. They said the “backdoor” allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting others, including external auditors…
In his text message to Reuters, Bankman-Fried denied setting up a “backdoor”….
On Friday, FTX said it ceded control of the company to John J. Ray III, the restructuring specialist who handled the liquidation of Enron Corp — one of the biggest bankruptcies in history.