It’s official: FTX is missing a large chunk of client funds.
How much is a lot? Try around $9 billion.
In a preliminary analysis(Opens in a new tab) released by the bankruptcy crypto exchange on March 2, FTX presented its current findings to stakeholders. And it confirmed the worst: a “massive shortfall,” as only about $2.2 billion in client assets were located. Moreover, even less of that amount — $694 million — is made up of liquid assets such as cash, stablecoins, bitcoins, or ether.
One of the reasons FTX got into this predicament was the borrowing of client funds by its trading company, Alameda Research. The presentation claims that Alameda received $9.3 billion from FTX customers. Another $191 million was borrowed by Alameda from clients of the US exchange FTX US.
While FTX co-founder and former CEO Sam Bankman-Fried once claimed that FTX US was completely insulated from FTX’s problems, the company’s latest analysis revealed that FTX US also had a shortfall of several hundred million.
“It took a huge effort to get here,” said John J. Ray III, the current CEO of FTX who took over amid bankruptcy, in a statement(Opens in a new tab). “The exchanges’ assets were heavily mixed and their books and records are incomplete and, in many cases, missing entirely. For these reasons, it is important to stress that this information is still preliminary and subject to change. We believe that it is more important to provide transparency to stakeholders by making this information public now than to wait until we can achieve certainty.”
FTX was once one of the largest crypto exchanges in the world. However, in November last year, reports emerged that its sister company, Alameda Research, was insolvent. Shortly after, competitor Binance sold its cryptocurrency holdings of FTX, the FTT token. Over the next few days, billions of dollars were withdrawn from the exchange by its clients. Within a week, FTX filed for bankruptcy. Evidence soon emerged that Bankman-Fried had misused its clients’ funds, leading to its arrest and indictment for securities fraud.
Caroline Ellison, CEO of Alameda Research, to plead guilty to a number of fraud charges in December. She faces up to 120 years in prison. Ellison also agreed to cooperate with prosecutors as they build their case against Bankman-Fried.