The collapse of crypto exchange FTX has continued to affect crypto markets and many crypto companies, with users losing trust in centralised crypto exchanges and fast withdrawing their funds. FTX is being investigated for fraud, and bankruptcy documents reveal amongst other things a ‘complete failure of corporate control, that FTX ‘loaned’ founder SBF $1 billion (who needs a personal loan of $1bn?), and that it owes its top 50 creditors $3.1 billion, with over 1 million individuals also thought to be affected. It’s a hard time for many out there at the moment. Above is a relaxing view of the Bahamas where SBF and co were hanging out.
FTX Bankruptcy filings by New CEO reveal ‘complete failure of corporate controls’
Table of Contents
- FTX Bankruptcy filings by New CEO reveal ‘complete failure of corporate controls’
- Alameda Research Loaned $4.1B to Related Parties – Including $1B to SBF
- FTX Owes $3.1 Billion to Its 50 Largest Creditors
- FTX Shopping Spree: SBF Bought Himself and Employees Homes In The Bahamas
- ‘Grayscale Discount’ Widens to Record 45% as FTX Contagion Spreads
- Gemini Halts Withdrawals For Its EARN Program. Are they under water?
- Coinbase plunges as FTX chaos spreads further into the crypto market
- Why didn’t KYC and AML prevent FTX from illegally using $billions of customer funds? What does this mean for FTX and Alameda’s bank, Silvergate?
- Bahamas Liquidators Discover Possibilities Of Fraud From FTX
- SBF’s lawyers terminate FTX representation due to conflicts of interest
- FTX Collapse Pushes Investigations into Retail Communications around Crypto
- The Bahamas Regulator Orders FTX to Transfer Cryptos to Government Wallets
- FTX Exploiter Transfers $200M in Ether to 12 Crypto Wallets
- After FTX, crypto exchanges struggle to convince customers they’re safe
- Genesis Trading seeks $1bn loan, says it has ‘no plans to file bankruptcy imminently’
- US Congress Ramps Up FTX Investigation
- Multicoin Capital Loses Almost $1B On FTX
- Crypto scammers are using black market identities to avoid detection: CertiK
- Lawsuit in England Alleges Crypto Lender Nexo Prevented Withdrawals
- South Korea seizes $104M from Terra co-founder suspecting unfair profits
- Ohio Investment Manager Arrested for Allegedly Running $10M+ Crypto Ponzi Scheme
- Hong Kong’s Genesis Block Stops Trading and Will Close OTC Portal
The bankruptcy documents from FTX reveal how bad the state of the exchange was and how it got so bad. New FTX CEO John Ray, who worked on the Enron bankruptcy and has over 40 years legal and restructuring experience says: ‘Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.’ The filing also adds that ‘regarding the assets, ‘a substantial portion… may be missing or stolen’. (FTX Bankruptcy filings, accessible in full here)
Alameda Research Loaned $4.1B to Related Parties – Including $1B to SBF
The bankruptcy documents on FTX reveal that Alameda Research, the venture-capital and trading firm affiliate of collapsed crypto exchange FTX, made $4.1 billion in loans to related parties. Related parties include a $1 billion ‘loan’ to former FTX CEO Sam Bankman-Fried. Other ‘loans’ include $543 million to FTX Director of Engineering Nishad Singh and $55 million to FTX Digital Markets head Ryan Salame. It isn’t yet clear why these individuals needed such large loans. There was also a $2.3 billion loan between FTX legal subsidiaries Euclid Way Ltd. and Paper Bird Inc.
FTX Owes $3.1 Billion to Its 50 Largest Creditors
The bankruptcy documents filed on Saturday in Delaware bankruptcy court say bankrupt crypto exchange FTX owes $3.1 billion to its top 50 creditors. The filing didn’t disclose the identities of the creditors but it does make clear how much its clients face to lose. FTX’s owes its top creditor over $276 million, and its top ten creditors alone have more than $100 million each in unsecured claims, according to the filing. However, the filing could just be scratching the surface of what FTX owes, as it explained last week that it could have more than 1 million creditors. The third-largest unnamed creditor is listed as being owed $174 million which aligns with cryptocurrency lender Genesis’ disclosure that it had $175 million of funds locked in its FTX trading account.
FTX Shopping Spree: SBF Bought Himself and Employees Homes In The Bahamas
New FTX CEO John Ray has been rather scathing of SBF and FTX in the bankruptcy documents. One of the places FTX users’ money went was to buying houses in the Bahamas for SBF and team. “In the Bahamas, I understand that corporate funds of the FTX group were used to purchase homes and other personal items for employees and advisors.” To make matters worse, they put the acquired properties under their names, making it almost impossible to claim back the properties. Read More: FTX used corporate funds to purchase employee homes, new filing shows
‘Grayscale Discount’ Widens to Record 45% as FTX Contagion Spreads
Shares of the Grayscale Bitcoin Trust (GBTC) are trading at a new record discount of 45% relative to the price of the underlying bitcoin. Grayscale Investments is owned by Digital Currency Group, which also owns Genesis Global Capital, which has now halted customer withdrawals from its lending unit following the collapse of FTX. On Wednesday, Grayscale said that Genesis was “not a counterparty or service provider for any Grayscale product,” and that Grayscale products would “continue to operate business as usual.” Many now expect DCG to “use the most liquid part of the business – Grayscale – to shore up Genesis and other parts of the business.” However, this can only be done with SEC approval with no assurances that this would be granted. Greyscale allows U.S. investors to gain exposure to price movements of BTC without buying the asset itself. It is the world’s largest publicly traded crypto fund with over 635,000 BTC valued at over $13 billion and 3 million ETH valued at $3.7 billion under management.
Gemini Halts Withdrawals For Its EARN Program. Are they under water?
Gemini exchange has halted withdrawals for its EARN program. Its PR team said the denial of service has to do with their partner Genesis Global Capital’s temporary halt to its lending operations. “We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days.”
However, one analyst shared that Gemini’s services were “down across the board” and advised everyone to “Withdraw.
No need to take any unnecessary risks.” Gemini said it was back after an hour and attributed the downtime to a server outage, which caused some worries given how FTX’s website went down before they started admitting it all.
Bitcoinist reported that according to Twitter responses, some Gemini clients allegedly had longer troubles withdrawing their funds and about 30% believe that Gemini is secretly insolvent. Read more: An Important Message Regarding Gemini Earn
Coinbase plunges as FTX chaos spreads further into the crypto market
Trading volume on crypto exchange Coinbase plunged roughly 75% in the hours following FTX’s bankruptcy announcement early Friday, according to data from Nomics. The ongoing crypto winter, but most specifically, the increasing distrust in centralised crypto exchanges following a few major collapses, has led to less retail investors wanting to trade, and many to want to withdraw their crypto to safer cold storage options. There is however a chance for Coinbase to pick up market share since the collapse of FTX. Coinbase stock has dropped by roughly 80% this year.
Why didn’t KYC and AML prevent FTX from illegally using $billions of customer funds? What does this mean for FTX and Alameda’s bank, Silvergate?
It has been reported that Silvergate bank might have allowed FTX and Alameda to share bank accounts, which is illegal. If one had been a subsidiary of the other, the whole situation might be ok. However, “Both structure charts provided by Sam Bankman-Fried and new court appointed CEO John Ray show Alameda was a completely separate company. The only commonality was SBF owned the majority of both.” It is possible that as Alameda had an OTC desk facing the public, it’s justifiable that people were wiring money to them. So it is possible that Silvergate can allege that they were following their client’s instructions and had no idea that the money was for FTX, which reportedly could work in a court of law if there are no documents proving otherwise. Or, as speculated by some, ‘Silvergate didn’t want to do business with FTX directly because “it was banned in the US” and “Alameda was a way around that.”’ It doesn’t look ideal that Silvergate replaced its Chief Risk Officer two days after FTX filed for bankruptcy and that ‘at the time of the egregious activities, the CEO’s son and son-in-law were in charge of the Risk and Compliance Department’. So what does this mean about KYC and AML checks, supposedly designed to prevent such things? Some are speculating that the risk department ‘might’ve ignored KYC and AML requirements because “the deposit growth was so massive and attractive.”’ As some are putting it, ‘“What’s the point of AML/KYC if it can’t catch SBF illegally laundering $billions? Seems like it’s completely ineffective and useless, just massive violation of privacy with zero upside.” ‘Is it possible that… KYC and AML procedures are just instruments of population control and have nothing to do with preventing money laundering? Maybe?’
Bahamas Liquidators Discover Possibilities Of Fraud From FTX
FTX’s Bahamian liquidators have submitted documents to the Southern New York District’s Bankruptcy Court which reveal fraud and mismanagement. Reports also revealed the SEC and CFTC are investigating FTX for the alleged embezzlement of $10 billion worth of customers’ assets to Alameda Research. Law enforcement officers are currently reportedly contemplating whether to extradite SBF to the United States for questioning.
SBF’s lawyers terminate FTX representation due to conflicts of interest
Paul Weiss, the law firm backing FTX CEO Sam Bankman-Fried (SBF) through the exchange’s bankruptcy has renounced representing him, citing a conflict of interest. This decision came after SBF’s “incessant and disruptive tweeting” was found to disrupt the law firm’s reorganisation efforts. Read More: Paul Weiss Drops Ex-FTX CEO Bankman-Fried on Conflicts (Correct)
FTX Collapse Pushes Investigations into Retail Communications around Crypto
Regulators from different jurisdictions are reacting to the fall of FTX, with this collapse expected to spark much stricter regulations on crypto assets. The American self-regulatory organisation, the Financial Industry Regulatory Authority (FINRA), has moved to investigate crypto firms’ retail communications regarding their crypto products and services. This comes after years of crypto firms paying celebrities and influencers and taking out ads at major sporting events. FINRA will now investigate if any retail crypto products and services had a false advertisement. Texas financial regulator the Texas State Securities Board has reportedly said it will now investigate celebrities including Tom Brady over payments made and their promotion of FTX, to see what disclosures were made and how accessible they were for investors. Read more:
The Bahamas Regulator Orders FTX to Transfer Cryptos to Government Wallets
The Securities Commission of the Bahamas has said that it has ordered the transfer of all digital assets held by FTX Digital Markets Ltd to a government-controlled wallet for ‘safekeeping’. It said “Urgent interim regulatory action was necessary to protect the interests of clients and creditors of FDM.” The order was issued last Saturday. Since then, hundreds of millions of dollars of FTX crypto funds have moved, and it isn’t yet clear if these are hacked funds or the Bahamas Government transferring funds for safekeeping. Read More: The Bahamas Regulator Orders FTX to Transfer Cryptos to Government Wallets
FTX Exploiter Transfers $200M in Ether to 12 Crypto Wallets
Blockchain data shows that a crypto account associated with the hacker who stole $600 million from FTX moved a total of 180,000 ether worth roughly $200 million at current prices – to 12 crypto wallets on Monday. Each wallet received 15,000 ETH over a period of minutes. Blockchain experts believe the hacker was likely an insider who had access to the exchange’s cold wallets. Kraken’s security team say they know the hacker’s identity, as they used their personal verified account to pay for transaction fees. Arkham Intelligence said it seems the FTX exploiter is in a panic, judging by the rushed way they are cashing out which has lost them ‘a substantial amount of money in slippage and conversion fees’. This follows the hacker using the Ren bridge to cash out at least $58 million, with Ren having close ties to Alameda Research and having previously been used to launder at least half a billion dollars of stolen funds. Read More: FTX Exploiter Transfers $200M in Ether to 12 Crypto Wallets
After FTX, crypto exchanges struggle to convince customers they’re safe
Crypto exchanges haven’t been successfully able to reassure their users since the downfall of the FTX exchange. Rightly anxious users keep pulling funds. Centralised crypto exchanges have made full or partial disclosures outlining their assets but this hasn’t been enough to reassure clients and prevent massive fund withdrawals. Exchange reserves of crypto have been falling sharply out of exchanges. Many of the so-called proof of reserves so far published by exchanges haven’t been vetted by trusted outside auditors and haven’t been enough to provide clarity or restore confidence. Gemini for example has seen $485M withdrawn amid user concerns. Read more:
- Crypto Exchange Gemini Suffers $485M Rush of Outflows Amid Contagion Fears
- After FTX, crypto exchanges struggle to convince customers they’re safe
Genesis Trading seeks $1bn loan, says it has ‘no plans to file bankruptcy imminently’
Digital-asset brokerage Genesis has cut its capital raise target 50% from $1 billion to $500 million, amidst claims it may face bankruptcy without the funding. “We have no plans to file bankruptcy imminently,” a Genesis spokesperson has said “Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors.” Genesis is ‘counterparty to many in the digital-asset space and is closely watched as a gauge of the industry’s strength’ and has $175 million trapped in FTX. Read more: Crypto Brokerage Genesis Is Said to Warn of Bankruptcy Without Funding
US Congress Ramps Up FTX Investigation
The US House of Representative Sub-Committee on Economic and Consumer Policy is opening an investigation into FTX, calling for documents from SBF and new CEO John Ray. Separately, the House will hold a hearing in December to investigate the exchange’s collapse, where SBF is likely to be compelled to testify. Read More: Chairman Krishnamoorthi Presses FTX Leadership for Answers on Company’s Collapse and Full Scope of Financial Harm to Customers
Multicoin Capital Loses Almost $1B On FTX
The latest revealed victim of the FTX downfall is crypto venture company Multicoin Capital. The fund has disclosed its exposure to FTX, reporting that it plummeted by 55% last month, which it attributed to the collapse of the exchange. As the FTX saga was unwinding last week, Multicoin Capital has recovered just one-quarter of its assets from the exchange with about 15% of its total assets still trapped on FTX. It hasn’t yet stated the amount it’s writing off but some think the value would be more than $850 million. Read More: This Crypto Venture Capital Loses Almost $1B On FTX, When Will This FTX Fiasco End?
Crypto scammers are using black market identities to avoid detection: CertiK
A new “cheap and easy” black market of individuals willing to put their name and face to fraudulent projects is being used to facilitate crypto scams. According to blockchain security firm CertiK, these individuals pose as “Professional KYC actors” and in some cases voluntarily become the verified face of a crypto project, gaining trust in the crypto community prior to an “insider hack or exit scam.” These KYC actors are also used to open up bank or exchange accounts on behalf of the bad actors. CertiK analysts found over 20 underground marketplaces on Telegram, Discord, mobile apps, and gig websites where KYC actors are recruited for as low as $8 for simple “gigs” like passing the KYC requirements “to open a bank or exchange account from a developing country.” It costs more to get the KYC actor to put their face and name on a fraudulent project. Some roles paid up to $500 a week for an actor to play the role of CEO for a malicious project. CertiK noted that most seem to be exploited as they are based in developing countries “with an above-average concentration in South-East Asia”.
Lawsuit in England Alleges Crypto Lender Nexo Prevented Withdrawals
Cryptocurrency lender Nexo is being sued by a family of investors who claim it prevented them from withdrawing assets worth $126 million in March 2021. The brothers and cousin claim Nexo said it would allow them to do so if they sold some of their Nexo tokens to Nexo at a 60% discount. ‘Their lawsuit claims Nexo breached its contract by imposing withdrawal limits on the investors and that it intimidated them into selling the tokens below market price’. Nexo in response said “all transactions, including the sale of their Nexo tokens, were completed in good faith, were documented and were accepted as final by the claimants at execution” adding that it considers ‘that the claim has been brought “opportunistically” because the events outlined in the lawsuit were completed in March 2021 and Nexo considered the matter closed.’ Read More: Lawsuit in England Alleges Crypto Lender Nexo Prevented Withdrawals
South Korea seizes $104M from Terra co-founder suspecting unfair profits
Nearly six months after the Terra (LUNA) blockchain was officially halted, South Korean authorities have frozen approximately $104.4 million (140 billion won) from one of the co-founders. The claim related to Shin Hyun-seong’s involvement in selling pre-issued Terra LUNA tokens to unwary investors with the money seized based on suspicion of unfair profits.
Ohio Investment Manager Arrested for Allegedly Running $10M+ Crypto Ponzi Scheme
A 27 year old investment manager in Ohio has been arrested on criminal charges for allegedly running a cryptocurrency investment scam. Giri allegedly misled investors by promoting lucrative returns on the money they invested with him, with no risk to principal. In reality, he ran a standard Ponzi scheme using funds from previous investors to pay off new ones. In August, the U.S. Commodities Futures and Trading Commission alleged that he cheated investors out of more than $12 million which he used to fund a lavish lifestyle of private jets, yacht rentals and more. Read More: Investment Manager Arrested for $10 Million Cryptocurrency Ponzi Scheme
Hong Kong’s Genesis Block Stops Trading and Will Close OTC Portal
Hong Kong-based cryptocurrency retail OTC service provider Genesis Block (not linked with DCG’s Genesis Group) is the latest to cease trading following the collapse of FTX. It asked its customers to withdraw their funds and said it would close its over-the-counter trading portal on Dec. 10. CEO Wincent Hung said “We have ceased trading, as we don’t know which counterparties would fail next, so we would rather close out all our positions to regain some of our liquidity”. Read More: Hong Kong’s Genesis Block Stops Trading and Will Close OTC Portal