FTX Executives Knew of Missing $8.9 Billion in April 2022

The failed cryptocurrency exchange, FTX, and its debtors have released their second report on its collapse. The report includes disturbing revelations about the commingling and improper use of customer deposits by its former management team. Not to mention the fact that FTX leadership knew of massive losses and missing funds months before the exchange unraveled.

The 33-page report, based on ongoing analysis by the FTX debtors, aims to trace and recover assets while maximizing stakeholder recoveries. They have their work cut out for them.

FTX Hid Losses Months Before Bankruptcy

According to the report, FTX’s top brass knew about an $8.9 billion shortfall in customer assets as far back as August 2022. FTX filed for Chapter 11 status on November 11, 2022. It implicates FTX’s top executives as well as Caroline Ellison, the former head of Alameda Research and girlfriend of Sam Bankman-Fried.

The report states that, by August 2022, FTX senior executives and Ellison estimated that the exchange owed customers well more than $8 billion in fiat currency. And did not have such a sum on hand. Their actions, when faced with this knowledge, were not exemplary.

The report continues:

“They did not disclose the shortfall, but at that time, for the first time, they created a sham customer account on FTX.com to reflect the hidden fiat currency liability. To minimize the risk of scrutiny, the FTX Senior Executives and Ellison referred to this sham account only as ‘our Korean friend’s account.’ The account reflected that their ‘Korean friend’ owed the FTX.com exchange $8.9 billion.

John J. Ray III, who is leading the effort to recover funds for the creditors, put out a statement praising the report’s release. He said that it furthers transparency regarding the operations of FTX.com and the issues Ray and colleagues face as they strive to maximize recoveries. Ray went on: 

“The image that the FTX Group sought to portray as the customer-focused leader of the digital age was a mirage. From the inception of the FTX.com exchange, the FTX Group commingled customer deposits and corporate funds, and misused them with abandon at the direction and by the design of previous senior executives. We will continue to report our analysis and findings as our work progresses, and remain committed to recovering as much value as possible for creditors.”

The disgraced exchange is currently in bankruptcy proceedings in Delaware. According to the report, approximately $7 billion in liquid assets have been recovered so far, with more expected. 

Its former CEO, Sam Bankman-Fried, faces eight charges in New York related to the exchange’s collapse. When the fiasco came about, Bankman-Fried went from being a high-flying crypto industry booster to a felon of global notoriety.

Even now, he maintains that the misuse of customer funds was a result of mismanagement and not criminal behavior.

Former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang have already pleaded guilty to federal charges. They are cooperating with prosecutors.