As the old adage goes, lying and stealing live next door to each other. And in the case of the failed FTX cryptocurrency exchange, it couldn’t be truer.
Just take a look at the apartments purchased in the Bahamas by FTX and Alameda executives using $243 million of misappropriated customer funds: seven apartment units in the One Cable Beach building and a whopping 17 apartments in the luxury Albany complex, the majority within a few floors or units of one another.
This, as the FTX Debtors on Monday (June 26) released their latest report entitled, “The Second Interim Report of John J. Ray III to the Independent Directors: The Comingling and Misuse of Customer Deposits at FTX.com,” adding more color to the sad saga of FTX and its founder Sam Bankman-Fried.
The second report alleges that a top lawyer for the firm, together with Bankman-Fried, repeatedly lied to banks and auditors, executed false documents, and assisted the firm and its various affiliates as they moved between jurisdictions to avoid detection of wrongdoing and erect an ongoing operational “mirage.”
It also reveals, in a bit of good news, that the FTX Debtors have so far recovered $7 billion of the approximately $8.7 billion in customer-deposited assets which were misappropriated from the FTX.com exchange.
Related: FTX Sues Investment Firm K5 Global To Recover Back $700 Million
“From the inception of the FTX.com exchange, the FTX Group commingled customer deposits and corporate funds, and misused them with abandon,” the report stated.
“The FTX Senior Executives did not commingle and misuse customer deposits by accident. Commingling and misuse occurred at their direction, and by their design,” added John J. Ray III, the current FTX CEO in charge of the multibillion-dollar exchange’s restructuring.
Per the Debtors’ latest report, top executives at the FTX Group were lying from the jump — and insiders including Alameda Research CEO Caroline Ellison and Bankman-Fried were well aware that their operation was wildly insolvent months before FTX publicly and disastrously imploded in November of 2022.
By August 2022, FTX’s senior team was aware of a growing cash liability that totaled around $8.9 billion. Rather than disclosing the shortfall, the amount was hidden under a sham account given the title “Korean Friend.”
Additionally, months before — in March 2022 — Ellison had estimated in private notes that FTX.com had a cash deficit alone of over $10 billion.
Much of the deficit, over $6.4 billion, took the form of fiat currency and stablecoin that had been misappropriated.
Ellison has since pleaded guilty to her role in FTX’s fraud and is cooperating with authorities.
Bankman-Fried to date maintains his innocence.
The report alleges that an unnamed senior lawyer, referred to as “Attorney-1,” and Bankman-Fried played leading roles in carrying out this deception, with Bankman-Fried going so far as to repeatedly give false testimony to members of Congress.
Debtors have identified on Attorney-1’s hard drive a final copy of the false written testimony that Bankman-Fried provided to Congress.
