About $2billion of customer funds have vanished from collapsed crypto exchange FTX, according to two people familiar with the matter.

Founder and CEO Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to the trading company Alameda Research, which is run by his girlfriend Caroline Ellison, Reuters reports.

A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $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 fell through, precipitating crypto’s highest-profile collapse in recent years.

FTX founder and CEO Sam Bankman-Fried allegedly shuffled $10billion in funds to his trading firm Alameda Research, with about $2billion now going missing

Sources said that the CEO showed spreadsheets revealing the missing funds from FTX, one of the world’s largest crypto companies that crashed and burned this week

Bankman-Fried denied making the secret transfers to his crypto trading firm, which is run by his girlfriend, Caroline Ellison (above) 

SBF: Hoodie-wearing vegan son of Stanford Law professors who sleeps four hours a night

Sam Bankman-Fried, a vegan who sleeps four hours a night, had become a public face of cryptocurrency, with a personal fortune once estimated at nearly $25 billion.

The success of FTX allowed the platform to forge prestigious partnerships, notably with American football legend Tom Brady and former supermodel Gisele Bundchen, and it featured comedian Larry David in a Super Bowl television advertisement.

Almost always appearing with a hoodie and a dark T-shirt, Bankman-Fried has pledged to donate almost all of his fortune to his favored causes, like animal welfare and the fight against global warming.

The son of Stanford Law School professors and a graduate of the elite Massachusetts Institute of Technology (MIT), he was born on the Stanford campus and raised in California.

 Sam Bankman-Fried, 30

He worked as a broker on Wall Street before turning to cryptocurrencies in 2017.

Bankman-Fried moved the company to the Bahamas, where taxes are almost nonexistent, saying the Caribbean nation is ‘one of the few countries that has a comprehensive licensing regime for cryptocurrencies and cryptocurrency exchanges.’

He has been a vocal advocate for smoother access to the crypto market for the general public, particularly in the United States.

In text messages to Reuters, Bankman-Fried said he ‘disagreed with the characterization’ of the $10billion transfer.

‘We didn’t secretly transfer,’ he said. ‘We had confusing internal labeling and misread it,’ he added, without elaborating.

Asked about the missing funds, Bankman-Fried responded: ‘???’

FTX and Alameda did not respond to requests for comment.

In a tweet on Friday, Bankman-Fried said he was ‘piecing together’ what had happened at FTX. 

‘I was shocked to see things unravel the way they did earlier this week,’ he wrote. ‘I will, soon, write up a more complete post on the play by play.’

At the heart of FTX’s problems were losses at Alameda that most FTX executives did not know about, Reuters has previously reported.

Customer withdrawals had surged last Sunday after Changpeng Zhao, CEO of giant crypto exchange Binance, said Binance would sell its entire stake in FTX’s digital token, worth at least $580million, ‘due to recent revelations.’ 

Four days before, news outlet CoinDesk reported that much of Alameda’s $14.6billion in assets were held in the token.

That Sunday, Bankman-Fried held a meeting with several executives in the Bahamas capital Nassau to calculate how much outside funding he needed to cover FTX’s shortfall, the two people with knowledge of FTX’s finances said.

Bankman-Fried confirmed to Reuters that the meeting took place.

Bankman-Fried showed several spreadsheets to the heads of the company’s regulatory and legal teams that revealed FTX had moved around $10billion in client funds from FTX to Alameda, the two people said. 

The spreadsheets displayed how much money FTX loaned to Alameda and what it was used for, they said.

The documents showed that between $1billion and $2billion of these funds were not accounted for among Alameda’s assets, the sources said. 

The spreadsheets did not indicate where this money was moved, and the sources said they don’t know what became of it.

In a subsequent examination, FTX legal and finance teams also learned that Bankman-Fried implemented what the two people described as a ‘backdoor’ in FTX’s book-keeping system, which was built using bespoke software.

They said the ‘backdoor’ allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people, including external auditors. 

This set-up meant that the movement of the $10billion in funds to Alameda did not trigger internal compliance or accounting red flags at FTX, they said.

In his text message to Reuters, Bankman-Fried denied implementing a ‘backdoor’.

The U.S. Securities and Exchange Commission is investigating FTX.com’s handling of customer funds, as well its crypto-lending activities, a source with knowledge of the inquiry told Reuters on Wednesday. 

SEC Chairman Gary Gensler is also facing criticism over his agency’s failure to investigate the company prior to the crash despite earlier warning signs that its business practices weren’t on the level.  

 Sources said Bankman-Fried showed several spreadsheets to the heads of the company’s regulatory and legal teams that revealed FTX had moved around $10 billion in client funds from FTX to Alameda

SEC Chairman Gary Gensler (left) is under fire for failing to investigate FTX founder Sam Bankman-Fried (right) before his $30billion crypto empire came crashing down

The Department of Justice and the Commodity Futures Trading Commission are also investigating, the source said.

FTX’s bankruptcy marked a stunning reversal for Bankman-Fried. 

The 30-year-old had set up FTX in 2019 and led it to become one of the largest crypto exchanges, accumulating a personal fortune estimated at nearly $17billion. 

FTX was valued in January at $32billion, with investors including SoftBank and BlackRock.

The crisis has sent reverberations through the crypto world, with the price of major coins plummeting. And FTX’s collapse is drawing comparisons to earlier major business meltdowns.

Bankman-Fried has resigned his role and will remain in an advisory role to assist in an ‘orderly transition’, the company said. 

On Friday, FTX said it had turned over control of the company to John J. Ray III, the restructuring specialist who handled the liquidation of Enron Corp – one of the largest bankruptcies in history.

Bankman-Fried’s fall from grace also served as a surprising blow to Democrats as it was revealed that he pumped nearly $40million into political campaigns this year, most of which went to the liberal party.

Bankman-Fried was among the top donors to campaigns this year, with most of the nearly $40million going to Democrats 

Bankman-Fried was the main funder behind the Protect Our Future PAC,  an organization that focuses on promoting Democrats who champion pandemic preparedness and prevention.

The group made over $1million in independent expenditures to help Democratic congressional candidates like Lucy McBeth, a current representative from Georgia, Jasmine Crockett of Texas, Adam Hollier of Michigan, Valerie Foushee of North Carolina and Shantel Brown of Ohio.

Bankman-Fried also spent money on the House Majority PAC and crypto PAC GMI.

He also handed $5.2 million to President Joe Biden’s 2020 election campaign. 

But he does not consider himself an exclusive Democrat donor, MarketWatch  reports, giving $45,000 to the National Republican Congressional Committee in July.

As he told Politico in August, Bankman-Fried is ‘legitimately worried about doing things that make people view me as partisan when it’s not how I feel … because I think it both misses what I’m trying to do and makes it harder for me to act constructively.’

But Bankman-Fried has since lost $16billion of his personal fortune as his company faces a liquidity crunch and is being bailed out by its rival. 

The 94 percent loss is the biggest one-day collapse ever among billionaires

FTX issued this statement on Thursday announcing it has filed for Chapter 11

Binance’s billionaire boss Changpeng ‘CZ’ Zhao (above) shocked the $1trillion crypto industry with a proposal to take over troubled exchange FTX, which is led by his chief rival and onetime disciple Bankman-Fried. Zhao, however, backed out of the deal after discovering a ‘black hole’ in FTX’s books, putting the death knell on the company

FTX is the latest in a series of cascading disasters that have shaken the crypto sector, now under intense pressure from collapsing prices and circling financial regulators. 

The meltdown followed a year of intense pressure for crypto markets, as rising interest rates prompted investors to ditch risky or speculative assets. 

And alarm bells were ringing even before the FTX fiasco, following the collapse of several crypto lenders, including Celsius and Voyager, major tokens terraUSD and Luna, and hedge fund Three Arrows Capital.

Now the failure of FTX is also sending tsunami-like waves throughout the crypto universe.

Cryptocurrency lender BlockFi announced on Twitter late Thursday that it is ‘not able to do business as usual’ and pausing client withdrawals as a result of FTX’s implosion.

In a letter posted to its Twitter profile late Thursday, BlockFi – which was bailed out by Bankman-Fried´s FTX early last summer – said it was ‘shocked and dismayed by the news regarding FTX and Alameda.’

The company ended by saying any future communications about its status ‘will be less frequent that what our clients and other stakeholders are used to.’

Bitcoin tumbled immediately after the letter was posted, losing close to 5 percent before inching back above $17,000 overnight. 

The original cryptocurrency, Bitcoin, had been hovering around $20,000 for months before the FTX’s problems became public this week, sending it briefly to around $15,500, a two-year low.

Timeline of the rapid rise and swift downfall of crypto exchange FTX

Cryptocurrency exchange FTX stood on the brink of failure on Thursday after a bailout from larger rival Binance collapsed. Chief executive Sam Bankman-Fried said he was exploring all options for his firm.

Here is a history of FTX since its foundation in 2019:

2019:

May – Former Wall Street trader Sam Bankman-Fried and ex-Google employee Gary Wang founded FTX, the owner and operator of FTX.COM cryptocurrency exchange.

2020:

August – FTX acquired mobile portfolio tracking application, Blockfolio for $150 million.

2021:

July – A $900 million funding round valued FTX at $18 billion.

September – FTX signed a sponsorship deal with Mercedes’ Formula 1 team.

October – FTX raised capital at a valuation of $25 billion from investors including Singapore’s Temasek and Tiger Global.

2022:

Jan. 27 – FTX’s U.S. arm said it was valued at $8 billion after raising $400 million in its first funding round from investors including SoftBank and Temasek.

Jan. 31 – FTX raised $400 million from investors including SoftBank at a valuation of $32 billion.

Feb. 13 – Larry David stars in Super Bowl commercial for FTX

June 4 – FTX signed a reportedly $135 million sponsorship deal for naming rights of the Miami Heat’s home court.

July 1 – FTX signed a deal with an option to buy embattled crypto lender BlockFi for up to $240 million.

July 22 – FTX offered a partial bailout of bankrupt crypto lender Voyager Digital. Voyager called it a ‘low-ball bid’.

July 29 – FTX said it won full approval to operate its exchange and clearing house in Dubai.

Aug. 19 – A U.S. bank regulator ordered crypto exchange FTX to halt ‘false and misleading’ claims it had made about whether funds at the company are insured by the government.

Sept. 9 – FTX’s venture capital fund said it would buy a 30% stake in SkyBridge Capital.

Nov. 2 – Crypto news website CoinDesk reported a leaked balance sheet that showed Alameda Research, Bankman-Fried’s crypto trading firm, was heavily dependent on FTX’s native token, FTT. Reuters was unable to verify the report.

Nov. 6 – Binance CEO Changpeng Zhao said his firm would liquidate its holdings of FTT due to unspecified ‘recent revelations’.

Nov. 7 – Bankman-Fried said ‘FTX is fine. Assets are fine’.

Nov. 8 – FTT collapses by 72% as clients swamp the exchange with withdrawal requests. Binance offers a potential bailout in a non-binding deal.

Nov. 9 – Binance backs out of the rescue plan, saying: ‘As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.’ 

Nov. 11 – Bankman-Fried resigns as CEO and FTX files for Chapter 11 bankruptcy. Sources allege that Bankman-Fried had secretly shuffled $10 billion from FTX to his Alameda Research trading firm, with $2billion having gone missing. 

This content was originally published here.

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