- Since Sam Bankman-Fried stepped down as CEO and FTX filed for bankruptcy, a number of unusual details have come to light.
- Recently, it emerged that FTX reportedly told customers to send money to a fake and little-known website of an electronics retailer.
- FTX executives also allegedly hid $8 billion in liabilities in what Bankman-Fried referred to as “our Korean friend’s account.”
Critics and cryptocurrency advocates alike consider the nascent sector to be a Wild West, but the collapse of Sam Bankman-Fried’s FTX has given the term new weight.
The ties between the pieces of his crypto empire, which included the FTX exchange, the Alameda Research hedge fund and dozens of smaller subsidiaries, remain complex. Since FTX’s bankruptcy filing on November 11, new and strange details surrounding the murky finances continue to surface.
An SEC complaint said that FTX told clients to send money to a little-known subsidiary Fake online electronics retailer. North Dimension, as it was called, was instrumental in using FTX client funds in Alameda’s business.
The site went down, but it was full of misspelled words and what appeared to be incorrectly priced items. For example, an electronic item displayed a “sale” price of $899, even though it had a regular price of $410.
The revelations only get stranger from there. FTX executives hid $8 billion in liabilities in a client account Bankman-Fried referred to as “our korean friend’s account”, alleges a complaint from the Commodity Futures Trading Commission.
And court documents show that Bankman-Fried and FTX co-founder Gary Wang borrowed $546 million in Alameda notes earlier this year. Buy Robinhood Stock.
Alameda then took out a loan and pledged those same shares as collateral.
Bankman-Fried is now stuck in a Four-sided legal battle with the new leadership of FTX, as well as failed crypto lender BlockFi and creditor Antigua, for control of that Robinhood stake.
Meanwhile, the SEC also alleges that FTX used $200 million user deposits for venture capital investments. Half of that went to fintech startup Dave, while the other half went to Web3 startup Mysten Labs.
“FTX was an opaque company that was so centralized that it was completely dependent on one person,” Andrew Yeoh, director of marketing for Web3 firm. billionhe told Insider. “The point of decentralization is to avoid outcomes like FTX where one person can leverage trust. I think the public and certainly the industry is realizing that.”
A centralized actor in a decentralized environment
The SEC has alleged that Bankman-Fried orchestrated a fraud scheme for years. He has denied criminal liability and is due to appear in New York federal court on January 3 on wire fraud and conspiracy charges.
Using client funds for proprietary trading is a destabilizing practice, according to Jeffrey Blockinger, general counsel at quadrant. The resulting fallout, he explained to Insider, could end up driving investors away from similar rival exchanges.
To Darren Sandler, lead attorney for Republic CryptoThe entire saga is tongue-in-cheek, highlighting the shortcomings of a centralized player in an ostensibly decentralized environment.
“The point of crypto is that it’s completely decentralized and trustless,” he told Insider. “Acts of fraud and misappropriation of funds should actually be impossible or extremely difficult to commit. Everyday participants should not have to trust crypto companies blindly or based on their reputation.”
