Just weeks before the dramatic collapse of crypto exchange FTX, a top executive challenged Sam Bankman-Fried over a mammoth $13 billion loan to sister firm Alameda Research, it turns out.
At the time of the loan to Alameda Research, which is run by Caroline Ellison, Bankman-Fried’s ex-girlfriend, FTX had just posted a staggering $5 billion loss that appeared to include funds deposited by customers.
When approached by the senior software engineer, Bankman-Fried admitted there was a problem, telling him “the situation is a cause for concern” and affecting his productivity, New York Times documents show.
The revelation shows the chaos of FTX’s final days, as panicked executives feared the impending bloodbath as the company filed for bankruptcy after a gaping hole in its finances was revealed.
Former FTX chief Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, is seen leaving a courthouse on January 3
Disgraced crypto prodigy Bankman-Fried has been accused of stealing billions of dollars from FTX clients to pay off debts at its crypto-focused hedge fund Alameda Research.
In a report to creditors on Tuesday, FTX reported that about $415 million in cryptocurrency was stolen in hacks.
FTX has said it has recovered over $5 billion in crypto, cash and liquid securities, but that significant deficits remained on its exchanges.
Some of the shortfall was attributed to hacks, with $323 million hacked from FTX’s international exchange and $90 million from its US exchange since it filed for bankruptcy on Nov. 11, sources said.
Bankman-Fried later questioned aspects of the company’s report in a blog post.
He contested FTX’s calculations late Tuesday, saying the company’s lawyers at Sullivan & Cromwell had painted an “extremely misleading” picture of the company’s finances.
Bankman-Fried said FTX has more than enough cash to repay US customers it owes between $181 million and $497 million at its “best estimate.” Bankman-Fried has not had access to FTX records since resigning as CEO in November.
Bankman-Fried loaned Alameda Research, run by Caroline Ellison, $13 billion just before its collapse
A spokesman for Sullivan and Cromwell declined to comment. Lawyers for the firm said in a recent court filing that they dismissed Bankman-Fried’s efforts to remain involved in the company’s bankruptcy proceedings.
US Department of Justice bankruptcy watchdog opposes FTX bid for bankruptcy judge’s approval to hire Sullivan & Cromwell.
New York-based Sullivan & Cromwell is seeking court approval to appoint FTX’s chief bankruptcy counsel, a lucrative role that would likely allow the firm to rake in hundreds of millions of dollars in fees.
But it has been embroiled in a number of potential conflicts of interest after conducting previous work for the tanked crypto exchange.
US Trustee Andrew Vara criticized Sullivan & Cromwell’s “completely inadequate” disclosures, which left him unable to determine whether the firm had conflicts that could damage its reputation.
He accused them of not disclosing that FTX’s US General Counsel, Ryne Miller, is a former partner of the firm.
He also disagreed with the firm seeking a role in the investigation into FTX’s demise, noting that such an investigation would “necessarily focus on those with ties to Sullivan & Cromwell – and possibly Sullivan & Cromwell itself.” .
FTX defended the firm’s recent work for the stock market in a response Tuesday, authored by attorneys for Sullivan & Cromwell, saying it was “directly responsible” for securing client assets and sharing valuable information with US prosecutors and regulators.
Bankman-Fried has pleaded not guilty to the fraud charges and is due to appear in court in October
FTX said it provided the US Trustee with additional disclosures about the company’s past work, arguing that the company did not get in trouble just because it advised the exchange before the bankruptcy.
Federal bankruptcy law states that law firms representing debtors may not have a direct interest in the proceeding.
A federal bankruptcy judge is scheduled to hold a hearing Friday to decide whether to move forward with the firm’s appointment.
Bankman-Fried has pleaded not guilty to the fraud charges and is due to appear in court in October.
FTX did not provide an estimate of the amount owed to FTX’s US or international clients and did not immediately respond to questions about Bankman-Fried’s blog post.
FTX provided some additional details on its recovery efforts on Tuesday, saying it had recovered $1.7 billion in cash, $3.5 billion in liquid cryptocurrency and $300 million in liquid securities.
Bankman-Fried has been accused of stealing billions of dollars from FTX clients to pay off debts at his crypto-focused hedge fund Alameda Research
“We are making progress in our efforts to maximize recovery and it has taken our team a Herculean investigative effort to uncover this preliminary information,” Ray said in a statement.
Crypto assets recovered to date include $685 million in Solana, $529 million in FTX’s proprietary FTT token, and $268 million in Bitcoin, based on crypto prices as of November 11, 2022.
Solana, which was praised by Bankman-Fried, lost most of its value in 2022.
During FTX’s first investigation into hacks in its system, it uncovered a November seizure of assets by the Securities Commission of the Bahamas, sparking a dispute between FTX’s US-based bankruptcy team and Bahamian regulators.
The two sides settled their differences in January, and Ray said Tuesday the Bahamian government has $426 million ready for creditors.
Referring to the dispute during an event Tuesday at the Atlantic Council in Washington, Bahamas Prime Minister Philip Davis said Ray’s team “came around” and accepted that the seizure of assets in the Bahamas “was appropriate and perhaps a lot of FTX.” -Saved the day for investors.’