FTX Lied to Banks for Years About Commingling Funds, New CEO Claims

FTX’s former management lied to banks about the suspicious movements of customer cash as far back as 2020, an explosive new report by the company’s new CEO alleges. 

Despite the FTX Group portraying itself as “the vanguard of customer protection efforts in the crypto industry,” it allegedly commingled customer and corporate funds purposely so it could snap up luxury properties and make speculative trades on sister firm Alameda Research, John J. Ray III said in a Monday court filing. 

And when banks pressed the FTX management about the movement of funds, “rather than tell the truth to the bank—i.e., that it not only intended to, but had in fact been using the Alameda account for FTX.com customer transactions for nearly a year—the FTX Group lied,” Ray alleged.  

FTX was a popular digital asset exchange that allowed people to buy, sell and bet on cryptocurrencies. But it was so criminally mismanaged, prosecutors allege, it went bust very quickly and unexpectedly in November 2022. 

The exchange’s management—previously described by Ray as “grossly inexperienced and unsophisticated”—allegedly misappropriated $8.7 billion in customer cash. 

FTX’s ex-boss and co-founder Sam Bankman-Fried, a fresh-faced former Jane Street trader and MIT graduate who wooed politicians and celebrities, now faces 13 criminal charges after his arrest last year. 

The charges include conspiracy to commit wire fraud, conspiracy to defraud the United States and violate campaign finance laws, and bribery. 

Last week, a new lawsuit was filed alleging that Bankman-Fried spent $700 million on trying to buy influence from “super-networker” Michael Kives, a Hollywood agent turned investor and ex-aide to Hillary Clinton.

Ray, a highly-experienced lawyer tasked with getting back FTX customers’ missing investments, previously said he had never seen such a mess, despite dealing with the fall of energy company Enron in 2001—one of the biggest company collapses in history. 

In Monday’s report, he added that despite the “challenges” of tracing the allegedly misappropriated funds, his team have managed to recover “approximately $7 billion in liquid assets” and they expect to make additional recoveries.