USD 1 billion in client funds missing at crypto firm FTX

At least USD 1 billion of customer funds have vanished from collapsed crypto exchange FTX, according to Reuters sources.

The exchange's founder Sam Bankman-Fried secretly transferred USD 10 billion in customer funds from FTX to Bankman-Fried's trading company Alameda Research, the sources revealed to Reuters.

A large portion of that total has since disappeared, they said. One source put the missing amount at about USD 1.7 billion. The other said the gap was between USD 1 billion and USD 2 billion.

While it is known that FTX moved customer funds to Alameda, the missing funds are reported here for the first time.

The financial hole was revealed in records that Bankman-Fried shared with other senior executives last Sunday, according to the two sources. The records provided an up-to-date account of the situation at the time, they said. Both sources held senior FTX positions until this week and said they were briefed on the company's finances by top staff.

Bahamas-based FTX filed for bankruptcy on Friday after a rush of customer withdrawals earlier this week. A rescue deal with rival exchange Binance did not proceed, after they took a closer look at the firm’s financial books, precipitating crypto’s highest-profile collapse in recent years.

In text messages to Reuters, Bankman-Fried said he “disagreed with the characterisation” of the USD 10 billion transfer.

“We didn't secretly transfer,” he said. “We had confusing internal labelling and misread it,” he added, without elaborating.

Asked about the missing funds, Bankman-Fried responded: “???”

Biden’s second biggest donor

Sam Bankman-Fried was Joe Biden’s second biggest donor during his presidential campaign, providing USD 5 million. His company was set up 13 days after Biden announced that he would be running for president.

His FTX firm filed for bankruptcy on November 11, just 3 days after the midterm elections but not before pumping USD 40 million into the Democratic Party to spend on “get-out-the-vote” and other ballot harvesting mechanics for the midterms.

The 30-year-old, who was once described by media outlet Vox as becoming a billionaire “seemingly out of nowhere”, was once said to have been worth USD 16 billion.

Bankman-Fried’s mother, Stanford law professor Barbara Fried, also is co-founder of the left-wing political action committee ‘Mind The Gap’ which has raised a reported USD 140 million to help Democrats win elections through the same “get-out-the-vote” scheme.

‘Effective Altruism’

He was the most famous millennial proponent of ‘Effective Altruism’, which originated at Oxford University and found fertile ground in Silicon Valley.

‘Effective Altruism’ has been described by analysts as akin to socialism, because their pet projects are left-wing, such as climate change, social justice, equity, banning meat or “pandemic preparedness”.

Impact on crypto market

The nine days of turmoil hit already-struggling cryptocurrency markets, sending bitcoin to two-year lows. Bitcoin dropped after FTX's announcement and is down 18 percent this month, at USD 16,818 on Saturday.

“Things will continue to simmer after the FTX crash,” said Alan Wong, operations manager of Hong Kong Digital Asset Exchange.

“With a gap of USD 8 billion between liabilities and assets, when FTX is insolvent, it will trigger a domino effect, which will lead to a series of investors related to FTX going bankrupt or being forced to sell assets. In an illiquid bear market, the event will lead to a new round of cryptocurrency declines, as well as a liquidation of leverage.”

Shares of cryptocurrency and blockchain-related firms have declined. FTX's token FTT plunged 30 percent on Friday, bringing its collapse this month to 91 percent.