Two persons with knowledge of the situation unveiled that the defunct crypto exchange FTX has lost at least $1 billion in customer assets.
The sources claimed Sam Bankman-Fried, the creator of the exchange, secretly transferred $10 billion in customer funds from FTX to Fried’s Bankman-trading firm Alameda Research.
They said that a significant portion of that amount has since disappeared. The amount of missing money is estimated to be close to $1.7 billion. The other said that there was a deficit of between $1 billion and $2 billion.
Although it is well known that FTX transferred customer monies to Alameda, this is the first time the lost amounts have been mentioned.
Based on the two sources, Bankman-Fried shared information with other senior officials last Sunday that showed the financial gap. They urged that the records state a present account of the conditions at the time. Before this week, these sources held top roles with FTX and stated to have gotten financial agendas from veteran staff.
Following a spike in customer withdrawals earlier this week, the Bahamas-based FTX filed bankruptcy on Friday. The largest high-profile breakup in cryptocurrency in these past years was caused by a safe-landing agreement that broke down with a rival exchange, Binance.
Bankman-Fried expressed his disagreement with the way the $10 billion transaction was represented in text conversations.
He claimed that there was no hidden transfer. He continued without going into further detail, ending by saying that there were confusing internal labelling and individuals misconstrued it.
When questioned about the missing money, Bankman-Fried said: “???”
Inquiries for comment were not answered by FTX or Alameda.
Bankman-Fried said in a tweet on Friday that he was piecing together what had occurred at FTX. He said that it was frightening to see events fall apart the way they did earlier this week. He planned to make a more thorough piece on the play-by-play soon.
Failures at Alameda that the majority of FTX management were unaware of were at the root of the company’s issues.
Following Changpeng Zhao’s announcement that Binance would drop its whole ownership in FTX’s digital token, estimated to be valued at least $580 million, due to the recent findings, customer withdrawals spiked last Sunday. The majority of Alameda’s $14.6 total assets were reportedly held in the token four days prior, as per news source CoinDesk.
The two individuals who were aware of FTX’s finances stated that on that Sunday, Bankman-Fried met with numerous executives in Nassau, the capital of the Bahamas, to determine how much outside profits he must acquire to brush up the deficit at FTX.
Bankman-Fried attested to the meeting’s existence.
The sources said Bankman-Fried presented many spreadsheets to the leaders of the organization’s legal and regulatory teams that showed FTX had transferred roughly $10 billion in customer funds from FTX to Alameda. According to them, the spreadsheets showed how much money FTX loaned Alameda and what it’s used for.
They also added the paperwork revealed that around $1 billion or $2 billion of this money was not listed amongst Alameda’s assets. The sources claimed they have no idea what happened to this money, and the spreadsheets did not show where it was moved.
Following an investigation, FTX’s legal and financial teams discovered that Bankman-Fried had added what the two individuals called a “backdoor” to the company’s custom software-made bookkeeping system.
They said that by using a “backdoor,” Bankman-Fried was able to issue orders that may change the company’s financial records without informing anyone else—including outside auditors. Because of this configuration, they claimed, FTX’s internal compliance or accountancy systems were not raised when the $10 billion in funds were transferred to Alameda.
Bankman-Fried denied using a “backdoor” in his text message.