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Client Funds Totaling At Least $1 Billion Are Missing From FTX: Reuters

Client Funds Totaling At Least $1 Billion Are Missing From FTX: Reuters
FTX, a defunct cryptocurrency exchange, is said to have lost at least $1 billion in customer funds, according to a report by Reuters citing two people familiar with the situation.
According to the report, Sam Bankman-Fried, the founder of the exchange, secretly moved $10 billion in customer funds from FTX to Bankman-trading Fried's firm Alameda Research.
They claimed that a sizable portion of that sum has since vanished. According to one source, the missing funds total around $1.7 billion. The other stated that there was a $1 billion to $2 billion gap.
Although it is well known that FTX transferred customer funds to Alameda, this is the first time the missing funds have been mentioned.
According to the two sources, Bankman-Fried shared records with other senior executives last Sunday that showed the financial gap.
They claimed that the records gave a current account of the circumstances at the time. Prior to this week, both of the sources held senior positions with FTX and claimed to have received financial updates from senior staff.
Following a spike in customer withdrawals earlier this week, the Bahamas-based FTX filed for bankruptcy on Friday. The most high-profile collapse in cryptocurrency in recent years was caused by a rescue agreement that broke down with a rival exchange, Binance.
Bankman-Fried expressed his "disagreement with the characterization" of the $10 billion transfer in text messages to Reuters.
"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: "???"
Inquiries for comment were not answered by FTX or Alameda.
Bankman-Fried claimed in a tweet on Friday that he was "piecing together" what had transpired at FTX. "I was astounded to witness events fall apart in the manner they did earlier this week, he wrote. I'll soon post a more thorough play-by-play, I promise."
According to previous reports from Reuters, losses at Alameda that the majority of FTX executives were unaware of were at the root of the company's issues.
Following Changpeng Zhao's announcement last Sunday that Binance would sell its entire stake in FTX's digital token, estimated to be worth $580 million, "due to recent revelations," customer withdrawals spiked.
The majority of Alameda's $14.6 billion in assets were reportedly held in the token four days prior, according to news source CoinDesk.
The two people with knowledge of FTX's finances said that on that Sunday, Bankman-Fried met with several executives in Nassau, the capital of the Bahamas, to determine how much outside funding he would require to make up the shortfall at FTX.
The existence of the meeting was confirmed to Reuters by Bankman-Fried.
According to the two people, Bankman-Fried presented several spreadsheets to the leaders of the organization's regulatory and legal teams that showed FTX had transferred roughly $10 billion in client funds from FTX to Alameda. According to them, the spreadsheets showed how much money FTX loaned Alameda and what it was used for.
According to the sources, the documents revealed that between $1 billion and $2 billion of these funds were not listed among Alameda's assets. The sources claimed they have no idea what happened to this money, and the spreadsheets did not show where it was moved.
Following an investigation, FTX's legal and financial teams discovered that Bankman-Fried had added what the two individuals called a "backdoor" to the company's custom software-made bookkeeping system.
They claimed that by using a "backdoor," Bankman-Fried was able to issue orders that could change the company's financial records without informing anyone else—including outside auditors. Due to this arrangement, FTX did not receive any warnings from internal compliance or accounting regarding the transfer of the $10 billion in funds to Alameda.
Reuters received a text message from Bankman-Fried in which he refuted the use of a "backdoor."
According to a source with knowledge of the investigation, the U.S. Securities and Exchange Commission is looking into how manages customer funds and its cryptocurrency lending operations. The source claimed that investigations are also being conducted by the Department of Justice and the Commodity Futures Trading Commission.
The bankruptcy of FTX represented a startling turnaround for Bankman-Fried. The 30-year-old founded FTX in 2019 and oversaw its growth to become one of the biggest cryptocurrency exchanges, building up a personal fortune estimated to be worth close to $17 billion. FTX was valued at $32 billion in January by investors that included SoftBank and BlackRock.
Major coins' prices have fallen as a result of the crisis, which has repercussions throughout the cryptocurrency community.
And the demise of FTX is being compared to previous significant business meltdowns.
On Friday, FTX announced that it had given John J. Ray III, a restructuring expert who oversaw the liquidation of Enron Corp., one of the biggest bankruptcies in history, control of the business.

Christopher J. Mitchell

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