- FTX has recovered $7 billion of the $8.7 billion it owes former customers
- The second report by the debtor’s group highlighted more mismanagement under Sam Bankman-Fried’s reign of chaos
- FTX might have been $10 billion in debt by March 2022
The new management in charge of FTX has collected around $7 billion in liquid assets, raising hopes that customers will get something approaching their entire balances back. The current management team said in a report yesterday that it has made “substantial progress” in securing the approximately $8.7 billion it owes to customers, while at the same time laying out further misdeeds at the company under the reign of Sam Bankman-Fried.
Customer Balances Almost Recovered
FTX revealed the news in its second report, which it said in a press release “details the commingling and misuse of customer deposits at FTX.com by FTX Group’s previous management team,” as well as shedding light on the efforts to make customers whole.
The exchange said at the time of its bankruptcy last November that it owed around $8.7 billion to customers, which the report confirmed, noting that the vast majority of the deficit — more than $6.4 billion — was in the form of fiat currency and stablecoin that had been misappropriated.
More Details Emerge of Chaotic Management
The report also highlighted more illegal activity carried out by Bankman-Freid and his cohorts during their chaotic reign. The report alleges that the company’s management engaged in deceptive practices and fired an employee who raised concerns about the mishandling of customer funds.
FTX Group employees also allegedly provided false information to banks regarding the commingling of customer funds and the use of accounts belonging to trading firm Alameda Research for FTX customer transactions. These actions were taken after certain banks questioned Alameda’s wire activity in 2020 and started rejecting transfers.
In one specific incident, a representative from a bank noticed references to FTX and inquired whether an Alameda account, which received customer deposits, would be utilized for settling trades on FTX. A senior FTX executive instructed an Alameda employee to lie and state that customers occasionally confused FTX and Alameda, while asserting that all incoming and outgoing wires were used solely for settling Alameda trades.
The second report also revealed for the first time the existence of a new entity, North Dimension Inc., which was misrepresented as a crypto trading firm with 2,000 counterparties and an average monthly trading volume of $10 million. However, in reality, North Dimension served as a shell company utilized by FTX to handle customer deposits and fund withdrawals for their exchange based in the Bahamas.
When a junior attorney at FTX discovered this deceptive practice and expressed concerns about North Dimension accounts being utilized for funding FTX exchange customer withdrawals, the company reportedly terminated the attorney’s employment. The attorney had been hired less than three months prior to the incident.
$10 Billion Debt in March 2022
John Ray III, chief executive officer of FTX and many related entities, said in a statement that FTX had been corrupt from the outset:
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.
The report also highlighted how the complicated relationship between FTX and Alameda played a significant role in the downfall of the empire. According to private notes from Caroline Ellison, the former CEO of Alameda Research, in March 2022, FTX alone had a cash deficit exceeding $10 billion, and yet made few efforts to manage this deficit.
