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Cryptocurrency “Guru Kid” Wrecks FTX By Borrowing Money From Its Clients

“Never in my career have I seen such a complete breakdown of corporate control and such a complete absence of reliable financial information as occurred here.” These are the words of John Ray, a 40-year bankruptcy liquidator (known for liquidating giants like energy company Enron) about his new mission, FTX. The legal process to investigate the bankruptcy of the platform founded by cryptocurrency prodigy Sam Bankman-Fried began this Thursday in Delaware, and the first revelations suggest that the company lacked the most basic working structure.

Last Friday, FTX officially filed for bankruptcy. A few days earlier, he announced that Corralito had blocked the withdrawal of funds from the platform, which functioned as a stock exchange for speculating in cryptocurrencies. More than one million of its users saw their money frozen after hours of panic when rumors spread that FTX – which was valued at $32,000 million, aka BBVA – had run out of money, liquidity.

It didn’t help that the company was one of the leaders in the crypto industry, thanks to deep ties in Washington. Donations of millionaires From Bankman-Fried to the Democratic Party. Nor the almost unbeatable image its founder had in the sector after amassing $22.5 billion at the age of 29, the largest crypto fortune on the planet. Neither did the bailout deal signed with Binance, the industry reference platform that promised to save it. When he looked at FTX’s books, he canceled the preliminary contract and the fate of Bankman-Fried and his company was sealed.

What the Binance auditors saw and Ray confirmed this Thursday is the absolute lack of control in FTX’s internal processes, led by the anarchic Bankman-Fried management. What the billionaire showed us from the outside, with a carefree appearance, going so far as to present himself before the US Congress in eccentrically knotted shoes, was how he behaved inside his own company.

It was not a double face. FTX liquidator He testified in court that the company had no books of account or an “accurate list” of its bank accounts. Security keys for systems handling tens of billions of dollars in client assets were shared on an internal, uncontrolled email list. Many important decisions were made in messaging apps that were set up to automatically delete messages at the behest of Bankman-Fried, making it difficult to figure out what set up an address days later.

The total gap he has left between his clients and the rest of the crypto industry, which he has deeply invested in and acquired many competing companies, is somewhere between $10 and $50 billion.

FTX loaned Bankman-Fried from customers

The liquidator’s worst revelation, at least for Bankman-Fried’s legal future, is the lack of boundaries between his personal accounts, those of FTX, Alameda Research, and FTX.US, his US business. They are all organizations founded by kid cryptocurrency gurus, but with different goals and scopes. At least in theory. In practice, their activities and their money were confused, resulting in tens of billions of dollars moving irregularly between them.

FTX’s bankruptcy occurred after the platform lent Alameda Research (which is dedicated to trading) too much money that it did not own, leaving it without the liquidity to return customer deposits. The exact figure and in which direction it went will have to be determined in court. Bankman-Fried confirms that it was 8000 million dollars and as stated this week. Financial TimesThe loan was made because “error” And that he really didn’t want to transfer those funds to Alameda. The context just described by John Ray supports a version of chaos that could have led to something like this, although this is not a positive point for the crypto guru.

“Control [estaba] In the hands of a very small group of inexperienced, intrepid and potentially compromised individuals.

John Ray
FTX liquidator

The liquidator’s statement indicated that FTX gave money from its clients to Sam Bankman-Fried himself. A total of 1,000 million dollars directly to his personal accounts and another 2,300 million only to entities controlled by him. A court filing shows Alameda has $4.1 billion in loans. “The concentration of control in the hands of a very small group of inexperienced, underpowered and potentially compromised individuals” has led to complete confusion across all the platforms Bankman-Fried founded, Ray said.

The chaos resulted in FTX Group funds being used to “purchase houses and other personal items” for staff and their advisers. According to Ray, the payments were approved using “custom emojis” in chat apps.

FTX was hacked after filing for bankruptcy

With only the furniture left to salvage, the FTX leader and his staff managed to deposit $740 million worth of crypto assets into “cold” wallets where they could be insured. However, the company announced hours after it filed for bankruptcy that it suffered a cyber attack in which another $400 million was stolen.

Ray cautioned, however, that even these numbers should be taken with a grain of salt. All balance sheets of the company are drawn up using chaotic Bankman-Fried methods and are considered unreliable by the liquidator. He even cast doubt on the company’s 2021 audited accounts.

Bankman-Fried has not commented on the liquidator’s first official filing, whose mission is to break up his company and return as much money as possible to creditors. However, during this week he did several interviews with the media. He also wrote erratically, going so far as to post one letter per tweet with a “what happened” expression hours later.

“My goal – my only goal – is to do the right thing for the customers. I contribute as much as I can. I personally meet with regulators and work with teams to do what we can for clients. And then the investors. But first, customers,” he concluded in a 22-post thread on Twitter. He alleges that FTX had $2 billion in assets but was unable to liquidate them in time, leading to bankruptcy.

In a long interview New York TimesThe cryptocurrency guru guy admitted that he got carried away by the context. Very fast, very unstable. It sped up until the lights all around it. His vast fortune, the largest amassed by Mark Zuckerberg in his lifetime, disappeared as quickly as it came. “If I had been a little more focused on what I was doing, I could have been more thorough,” he admitted, “which would have allowed me to capture what was happening on the dangerous side.”

Source: El Diario

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