- June 27, 2023
- Posted by: [email protected]
- Category:
According to the second interim report from FTX Debtors, tracing funds has proven to be an immensely challenging task, and it is evident that this difficulty was intentionally orchestrated. FTX, however, has managed to reclaim approximately $7 billion in liquid assets thus far, with the search for additional assets still ongoing, as stated by CEO John Ray in the report released on June 26. Unfortunately, the extensive mingling of funds has significantly complicated their efforts.
The FTX debtors, comprising FTX and its affiliates, currently estimate that approximately $8.7 billion of customer assets were misappropriated. Most of this sum, approximately $6.4 billion, consisted of fiat and stablecoins, which FTX did not differentiate in its accounting records.
The report claims that the former leadership of FTX deliberately and methodically commingled and misused customer deposits with the assistance of a senior FTX Group attorney and others. Consequently, despite the extensive expertise employed in forensic accounting, asset tracing and recovery, and blockchain analytics, among other fields, identifying the origins of substantial assets belonging to the debtors, or distinguishing between the FTX Group’s operating funds and customer deposits, has proven to be an extremely challenging endeavor.
A diagram illustrating the flow of FTX customer funds out of primary deposit accounts was presented, highlighting the magnitude of the chaos. The report stated that these flows were made possible by providing false information regarding their purpose and engaging in numerous other misrepresentations.
Even former CEO Sam Bankman-Fried (SBF) reportedly misrepresented facts to the United States Congress. The involvement of an unidentified senior FTX attorney was repeatedly mentioned, and it was revealed that the attorney terminated a subordinate attorney who raised objections to the company’s deceitful practices. The report alleged that misappropriated funds were utilized for political and charitable donations, as well as the company’s investments and acquisitions, including luxury real estate.
“The FTX Senior Executives [SBF, Gary Wang, and Nishad Singh] and [Alameda Research CEO Caroline] Ellison informally monitored the undisclosed fiat currency liability to customers resulting from the extensive mingling and misuse of FTX.com customer deposits,” stated the report. Their estimates ranged from $8.9 billion to $10 billion, slightly higher than the FTX Debtors’ estimate.
In conclusion, while FTX has successfully recovered $7 billion in assets thus far, it still faces a shortfall of approximately $2 billion to fully cover the misappropriations. The complexity arising from the mingling of funds and the deliberate actions taken by former FTX leadership have made the task of tracing and distinguishing these assets an arduous undertaking.
