Just weeks before the dramatic collapse of crypto exchange FTX, a top executive challenged Sam Bankman-Fried about a mammoth $13billion loan to sister company Alameda Research, it has been revealed.
At the time of the loan to Alameda Research, which is run by Caroline Ellison, Bankman-Fried’s ex-girlfriend, FTX had just posted a staggering loss of $5billion, which appeared to include money deposited by customers.
When he was approached by the high-level software developer, Bankman-Fried admitted there was a problem and told him ‘the situation was causing concern’ and was affecting his productivity, documents seen by the New York Times show.
The revelation shows the chaos inside the final days of FTX as panicked executives feared the oncoming bloodbath in which it filed for bankruptcy after a gaping hole in its finances was exposed.
Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, is seen leaving a courthouse on January 3
Disgraced Crypto Wunderkind Bankman-Fried has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, Alameda Research.
In a report to creditors on Tuesday, FTX reported that about $415million in cryptocurrency had been stolen in hacks.
FTX has said it had recovered over $5billion in crypto, cash and liquid securities, but that significant shortfalls remained in its exchanges.
Some of the shortfall was attributed to hacks, with $323million hacked from FTX’s international exchange and $90million had been hacked from its U.S. exchange since it filed for bankruptcy on November 11, it said.
Bankman-Fried later challenged aspects of the company’s report in a blog post.
He pushed back against FTX’s calculations late Tuesday, saying that the company’s lawyers at Sullivan & Cromwell had presented an ‘extremely misleading’ picture of the company’s finances.
Bankman-Fried said FTX has more than enough money to repay US customers, whom he says are owed between $181million and $497million based on his ‘best guess.’ Bankman-Fried has not had access to FTX records since stepping down as CEO in November.
Bankman-Fried loaned $13billion to Alameda Research, which is run by Caroline Ellison, shortly before its collapse
A spokesperson for Sullivan and Cromwell declined to comment. Attorneys at the firm said in a recent court filing that they have rebuffed Bankman-Fried’s efforts to stay involved in the company’s bankruptcy proceedings.
The US Justice Department’s bankruptcy watchdog is opposing FTX’s bid for a bankruptcy judge’s approval to hire Sullivan & Cromwell.
New York-based Sullivan & Cromwell is seeking the court’s approval to be appointed primary bankruptcy counsel to FTX, a lucrative role that would likely allow the firm to reap hundreds of millions of dollars in fees.
But it has become embroiled in a row about potential conflict of interest after carrying out previous work for the tanked crypto exchange.
US Trustee Andrew Vara blasted Sullivan & Cromwell’s ‘wholly insufficient’ disclosures, which left him unable to determine if the firm had conflicts that could affect its reputation.
He faulted them for not disclosing that FTX’s US general counsel, Ryne Miller, is a former partner at the firm.
He also objected to the firm seeking a role in investigating the demise of FTX, noting that such a probe ‘would necessarily focus on those with connections to Sullivan & Cromwell — and possibly on Sullivan & Cromwell itself.’
FTX, in a response on Tuesday authored by Sullivan & Cromwell lawyers, defended the firm’s recent work for the exchange, saying it had been ‘directly responsible’ for securing customer assets and sharing valuable information with US prosecutors and regulators.
Bankman-Fried has pleaded not guilty to fraud charges, and he is scheduled to face trial in October
FTX said it had provided additional disclosures to the U.S. Trustee about the firm’s past work, and argued that the firm is not conflicted just because it advised the exchange prior to the bankruptcy.
Federal bankruptcy law says law firms representing debtors must not have a direct interest in the proceedings.
A federal bankruptcy judge is scheduled to hold a hearing on Friday to determine if the firm’s appointment should move forward.
Bankman-Fried has pleaded not guilty to fraud charges, and he is scheduled to face trial in October.
FTX did not provide an estimate of the amount owed to FTX’s U.S. or international customers, and it did not immediately respond to questions about Bankman-Fried’s blog post.
FTX provided some additional details about its recovery efforts on Tuesday, saying it had recovered $1.7billion in cash, $3.5billion in liquid cryptocurrency and $300million in liquid securities.
Bankman-Fried has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, Alameda Research
‘We are making progress in our efforts to maximize recoveries, and it has taken a Herculean investigative effort from our team to uncover this preliminary information,’ Ray said in a statement.
The crypto assets recovered to date include $685million in Solana, $529million in FTX’s proprietary FTT token and $268million in bitcoin, based on crypto prices on November 11, 2022.
Solana, which was lauded by Bankman-Fried, lost most of its value in 2022.
During FTX’s initial investigation into hacks of its system, it uncovered a November asset seizure by the Securities Commission of the Bahamas, which led to a dispute between FTX’s US-based bankruptcy team and Bahamian regulators.
The two sides settled their differences in January, and Ray said on Tuesday that the Bahamian government was holding $426million for creditors.
Bahamas Prime Minister Philip Davis referenced the dispute during a Tuesday event at the Atlantic Council in Washington, saying Ray’s team had ‘come around’ and accepted that the Bahamian asset seizure ‘was appropriate and perhaps has saved the day for many of the investors in FTX.’
