​“Accidental” transfers. Where did FTX’s billions go

According to the documents that surfaced, the accounts of Sam Bankman-Fried’s FTX exchange held liquid assets of only $900 million, while the day before the bankruptcy, FTX’s liabilities already exceeded $9 billion. Financial Times journalists examined balance sheets and spoke to several investors who participated in private negotiations.

According to the documents, as of November 10, the largest share of FTX assets were shares of Robinhood of $470 million. This was not indicated in the bankruptcy filing of a group of companies from 134 legal entities formed around FTX. The document, provided to potential investors before the bankruptcy, gives a detailed picture of the financial hole in FTX’s crypto empire and evidence that exchange customers may face multi-million dollar losses of the assets they stored on the exchange.

On Friday, November 11, Bankman-Fried announced the beginning of bankruptcy proceedings against all FTX entities, including the exchange’s US arm, FTX.US, and trading firm Alameda Research. Appointed as new CEO John J Ray immediately stated that FTX “has valuable assets” and that bankruptcy proceedings would allow the company “to assess its situation and develop a process to maximize recoveries for stakeholders.”

The problems began a few hours later. The initial bankruptcy filing listed several companies that FTX did not actually own, and later on the night of November 12, the exchange’s accounts were hacked, resulting in the withdrawal of about $500 million in several crypto assets. Details of the hack have not been released, but from the observations of concerned researchers, much evidence suggests that someone on the FTX team was behind the withdrawal.

The FTX management has been silent and does not respond to requests from reporters. According to Cointelegraph’s sources, Bankman-Fried is in an apartment in the Bahamas under the supervision of local police, and Alameda CEO Caroline Ellison is looking for ways to move to Dubai, which has no extradition treaty with the United States.

Through Bahamian accounts, which until recently allowed funds to be withdrawn from FTX, about $50 million was transferred in 24 hours through shady schemes and frontmen. Later, the Bahamas Securities Commission issued an official statement that it did not give privileges to local residents and accounts registered on them, which is contrary to the statements of the FTX management, previously reported on the pressure of local authorities.

“Accidental” billions

FTX’s bankruptcy filing provides very few details about the group’s financial condition but notes that its assets and liabilities are in the range from “$10 billion to $50 billion” and that the company has more than 100 000 creditors.

A spreadsheet listing FTX International’s assets and liabilities, which came to the Financial Times journalists, clearly points to the problems that caused the exchange to collapse. It mentions the withdrawal of $5 billion on November 7, as well as a record of a negative balance of $8 billion in an internal account with no clear and detailed description other than a “fiat@” comment.

Bankman-Fried told the FT that $8 billion refers to funds “accidentally” provided to his trading firm Alameda, but declined to comment further. He previously wrote on Twitter that FTX had $4 billion in liquid assets when faced with a massive withdrawal of user funds, which he estimated at $5 billion. According to him, it was the fact that this account was “poorly internally labeled” is related to one of the main causes of the liquidity crisis of the exchange.

Investment materials of FTX Trading, the company behind FTX, report $8,9 billion in liabilities, most of which is $5,1 billion of dollar balances. The spreadsheet indicates FTX Trading has a total of $9,6 billion in assets, but it is unclear how much of that value can be realized.

The vast majority of FTX Trading’s recorded assets are either illiquid venture capital investments or cryptocurrency tokens with low trading volumes. As of November 10, its largest asset was the cryptocurrency Serum (SRM), worth $2,2 billion, with SRM having a market capitalization of just $74 million, according to CoinMarketCap. The token fell by 16% when FTX’s bankruptcy was confirmed. According to other documents previously provided to investors, Alameda and FTX together have about $5,4 billion in illiquid venture capital investments.

Saving the empire

Bankman-Fried tried to raise emergency financing, but could not convince any of his investors to save his collapsed business empire. According to documents reviewed by FT reporters, he sought to raise between $6 billion and $10 billion, including through convertible preferred stock that pays a 10 percent dividend. It was assumed that subsequently these shares could be converted into equity in FTX International at a valuation of $12 billion to $15 billion.

According to an FT interlocutor involved in the negotiations, just hours before the bankruptcy was declared, Bankman-Fried tried to sell $472 million worth of Robinhood stock by negotiating with potential buyers on Signal messenger. The shares were owned by Emergent Fidelity, an offshore company that Bankman-Fried personally controlled. Emergent Fidelity is not among the entities listed in FTX’s bankruptcy filing.

Bankman-Fried offered a 20% discount on the market price of the stock. The former head of FTX had a 7,6% stake in Robinhood and had previously hinted several times before the exchange collapsed that he was considering a full takeover.

🚨 FTX TRADING LTD BALANCE SHEET IN FULL 🚨Spreadsheet was dated Thursday, the day before FTX Trading (main international exchange), FTX US, and Alameda were put into bankruptcy protectionhttps://t.co/NAfRS2gpW4 pic.twitter.com/uw0Funqgmv — kadhim (＾ｰ^)ノ (@kadhim) November 12, 2022

FTX’s balance as of November 10

The second-largest liquid asset was $200 million in the accounts of Ledger Prime, owned by Alameda. The document lists an unidentified asset called “TRUMPLOSE” worth $7 million. No bitcoins are listed, though FTX’s BTC liabilities total $1,4 billion.

The documents do not list any other US dollar balances owned by FTX. Overall, the spreadsheet shows that FTX Trading had $900 million in “liquid” assets, $5,5 billion in “less liquid” tokens, and $3,2 billion in venture capital investments. SOL, MAPS, OXY, and a number of other tokens are also listed among the “less liquid” assets. Each of them lost about 20% in value after the publication of the documents.