About 74% of $8.7B Owed by FTX to Customers was in Fiat and Stablecoin Funds
The bankrupt FTX cryptocurrency exchange owed its customers $8.7 billion – approximately 74%, or $6.4 billion, were misappropriated fiat currencies and stablecoins, according to a report published on Monday.
The new management of the bankrupt FTX crypto exchange filed a lawsuit against the former director of compliance (CCO) Daniel Friedberg, claiming that he committed fraud and paid “secret money” so that employees and their lawyers would not disclose this fraudulent activity.
- According to a new report by the FTX debtor management group, the bankrupt crypto exchange owed $8.7 billion in assets to customers.
- The vast majority of misappropriated assets, approximately $6.4 billion, are denominated either in fiat currency or in stablecoins.
- The report also reports that FTX and related debtors have already managed to recover assets worth about $ 7 billion, while the repayment process is still ongoing.
FTX’s Lawsuit Against Its Former CCO
The FTX statement contains numerous civil charges against Friedberg, accusing him of violating his legal duties, approving fraudulent transfers and providing loans to other former FTX executives.
During his time at FTX, Friedberg allegedly received significant compensation, including a salary of $300,000, a subscription bonus of $1.4 million, a separate cash bonus of $3 million, 8% of FTX US shares and cryptocurrency assets worth tens of millions of dollars as of 2020.
FTX is seeking to recover these assets through this lawsuit.
More specifically, the lawsuit alleges that Friedberg made payments to two unnamed potential informants, effectively silencing them and preventing disclosure of regulatory issues and close ties between FTX and the trading firm Alameda Research.
According to the FTX complaint, Friedberg acted as a “fixer” for co-founder and former CEO Sam Bankman-Fried. It is alleged that Bankman-Fried’s father advocated for Friedberg to play a central role in the organization.
In addition to his role as FTX’s chief executive officer, Friedberg was also the general counsel of Alameda.
The specific details of the payments made to the whistleblowers are not disclosed in the complaint.
However, one of the cases mentions the provision of an “emergency payment” of undisclosed value to a former employee named “Whistleblower-1”, who worked at FTX US for less than two months.
The settlement was a response to a demand letter alleging that Alameda served as an extension of FTX and was used to manipulate investor confidence and inflate project prices.
In addition, the lawsuit alleges that FTX signed an agreement to receive “general client advice” from whistleblower-1’s lawyers in the amount of $200,000 over five years, worth a total of $12 million, in an attempt to silence them.
FTX also claims that Friedberg fired a lawyer referred to as “whistleblower-2” who expressed concerns about governance and regulatory issues at Alameda.
This person received “severance pay, despite the fact that Whistleblower-2 worked at Alameda for less than three months,” which suggests that this is not uncommon, although the details of the package have been edited.
What Does This Mean for FTX Customers?
In the FTX Bankruptcy panel report, under the leadership of new CEO John J. Ray III, the second report on the financial condition of the exchange since its collapse in November last year, now shows the amount of debt owed by the bankrupt exchange to its customers – a staggering $8.7 billion.
During the investigation, cases of mixing and misuse of customer deposits were revealed, with about $6.4 billion of the amount due being appropriated in the form of fiat currency and stablecoins.
To date, $7 billion worth of liquid assets have been recovered, and efforts are currently being made to identify additional cases of return. However, the report also adds: “It is important to understand that this analysis is current, incomplete and subject to change.”
Fund Misuse and Comingling Was by Design
The report paints a pernicious picture of the company’s management and senior lawyers who knowingly mismanaged clients’ funds by engaging in deceptive actions such as document forgery and evading detection by moving FTX Group across various jurisdictions.
In particular, it turned out that FTX Group provided false information about the nature of the bank account of the associated trading firm Alameda Research, which was used to process customer funds.
In a statement, Ray, who is leading the recovery effort, stressed that FTX’s image as an industry leader focused on customers from the earliest stages was nothing more than a facade.
“It was no accident that senior FTX executives mixed up customer contributions and misused them,” Ray’s report says. “The exchange and misuse took place at their direction and according to their plan.”
The findings contained in the report were made after an initial audit conducted in April, which revealed various cases of improper activity under the supervision of founder and former CEO Sam Bankman -Fried, who is currently facing criminal charges, a trial for which is scheduled for October in New York.
Against the background of bankruptcy proceedings in Delaware, Ray has been working to settle the affairs of the exchange since its collapse in November.
There have been signs that FTTX activity may be resumed under the name FTHX 2.0, but the focus remains on resolving financial obligations and seeking damages to creditors.