A Blog by Jonathan Low

 

Nov 12, 2022

As FTX Files For Bankruptcy and CEO Resigns, Execs Knew It Was Using Customers Funds To Cover Losses

This means that on top of bankruptcy, criminal charges may be in the offing for those involved. JL

Dave Michaels and colleagues report in the Wall Street Journal:

Alameda Research’s chiefAlameda had taken out loans to fund illiquid venture investments executive and senior FTX officials knew that FTX had lent its customers’ money to Alameda to help it meet its liabilities.Alameda’s troubles helped lead to the bankruptcy of FTX, the crypto exchange founded by Sam Bankman-Fried. Alameda is a trading firm also founded and owned by Mr. Bankman-Fried. Bankruptcy means that it could be a long time before individual investors and others owed their funds are able to potentially recover any of them, if ever.

Alameda Research’s chief executive and senior FTX officials knew that FTX had lent its customers’ money to Alameda to help it meet its liabilities, according to people familiar with the matter.

Alameda’s troubles helped lead to the bankruptcy of FTX, the crypto exchange founded by Sam Bankman-Fried. Alameda is a trading firm also founded and owned by Mr. Bankman-Fried.

In a video meeting with Alameda employees late Wednesday Hong Kong time, Alameda CEO Caroline Ellison said that she, Mr. Bankman-Fried and two other FTX executives, Nishad Singh and Gary Wang, were aware of the decision to send customer funds to Alameda, according to people familiar with the video. Mr. Singh was FTX’s director of engineering and a former Facebook employee. Mr. Wang, who previously worked at Google, was the chief technology officer of FTX and co-founded the exchange with Mr. Bankman-Fried.

 

Alameda faced a barrage of demands from lenders after crypto hedge fund Three Arrows Capital collapsed in June, creating losses for crypto brokers such as Voyager Digital Ltd., the people said.

Ms. Ellison said on the call that FTX used customer money to help Alameda meet its liabilities, the people said.

Alameda had taken out loans to fund illiquid venture investments, the people said.

On Friday, FTX, Alameda, FTX US and other FTX affiliates filed for bankruptcy protection.

Bankruptcy means that it could be a long time before individual investors and others owed their funds are able to potentially recover any of them, if ever.

Ms. Ellison didn’t return a phone message and an email seeking comment. Messrs. Singh and Wang didn’t respond to multiple messages seeking comment. Ryne Miller, FTX US’s chief legal officer, declined to comment.

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