FTX commingled customer deposits and corporate funds from the outset and misused them for speculative trading, investments, luxury properties, and political donations, according to bankruptcy chief John J. Ray III in an updated report to the US Bankruptcy Court.
According to the withering assessment of the collapsed cryptocurrency exchange founded by disgraced mogul Sam Bankman-Fried, FTX senior executives, including Bankman-Fried, were directly responsible for orchestrating the commingling and misuse of funds.
FTX claimed to prioritise customer protection while supporting legislation for safeguarding digital assets, all the while engaging in deceptive practices such as lying to banks and auditors, executing false documents, and moving the company across jurisdictions to evade detection.
Matching previous estimates, the report said up to $8.7bn in customer-deposited assets, mostly cash and stablecoin, was misappropriated from the exchange.
It is unclear how much, if any, of these assets will ever be recovered.
Per the court filing: “Notwithstanding extensive work by experts in forensic accounting, asset tracing and recovery, and blockchain analytics, among other areas, it is extremely challenging to trace substantial assets of the Debtors to any particular source of funding, or to differentiate between the FTX Group’s operating funds and deposits made by its customers.”
Ineffective altruism
Bankman-Fried and other FTX executives claimed to be making charitable donations to a range of causes through The FTX Foundation for Charitable Giving.
In reality, transfers from bank accounts containing commingled customer and corporate funds were used to fund the FTX Foundation grants.
The FTX Foundation also directed grants directly from FTX Group bank accounts holding commingled funds.
FTX Group executives directed up to US$20mln in commingled funds to Guarding Against Pandemics, Inc. (GAP) and related entities.
FTX also used commingled customer funds to finance venture investments and acquisitions.
As has been previously reported, Bankman-Fried and other FTX executives spent over US$243 million on real estate in the Bahamas, including multimillion-dollar luxury properties for employees, friends and family.
The FTX Group funded these real estate purchases from accounts that held commingled customer and corporate funds.
Bankman-Fried remains under house arrest at his parents' Palo Alto, California mansion.