where did all of FTX’s money go?

<span>Sam Bankman-Fried, co-founder of FTX, will leave court in New York on February 16, 2023.</span><span>Photo: Bloomberg/Getty Images</span>” src=”https://s.yimg.com/ny/api/res/1.2/O.PFI95EJrRz61pG84Nilw–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU3Ng–/https://media.zenfs.com/en/theguardian_763/aa74487ccdbd00eddfea72 1da4562ff2″ data src=”https://s.yimg.com/ny/api/res/1.2/O.PFI95EJrRz61pG84Nilw–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU3Ng–/https://media.zenfs.com/en/theguardian_763/aa74487ccdbd00eddfea721 da4562ff2″/></div>
<p><figcaption class=Sam Bankman-Fried, co-founder of FTX, will leave court in New York on February 16, 2023.Photo: Bloomberg/Getty Images

Sam Bankman-Fried, former CEO of the bankrupt cryptocurrency exchange FTX, presided over a spectacular collapse that cost his customers billions of dollars. He argues in court filings that anyone owed money by FTX “will eventually be paid in full.” The US government says he lives in a fantasy land.

Last week, FTX’s caretaker, John Ray III, appointed to oversee the company’s bankruptcy proceedings, reminded the court that Bankman-Fried masterminded a “colossal fraud,” had led a “life of delusions,” and called Bankman-Fried’s lawyers’ claim that no one had been harmed as “categorical, insensitive and demonstrably false.”

Related: The Rise and Fall of Sam Bankman-Fried: An unrepentant ex-mogul faces decades in prison

Bankman-Fried will be sentenced Thursday after being convicted of fraud and conspiracy to launder money in the collapse of his multi-billion dollar cryptocurrency exchange. If he receives the maximum sentence, he faces 100 years in prison. His lawyers have demanded six years in prison. The US government wants the 32-year-old ex-CEO, who defrauded his own customers of $8 billion, to be sentenced to 40 to 50 years.

Justice Department lawyers argue that Bankman-Fried’s sentencing shows attempts “to redefine his crimes as merely mistakes or misunderstandings” — and that if he is released at a young age there is a “significant likelihood” that he will commit fraud again will commit.

Whatever punishment Judge Lewis Kaplan hands out to Bankman-Fried, FTX’s bankruptcy proceedings have become as controversial as the successful lawsuit against its founder. These will likely continue long after he reports to prison.

FTX: new technology, old-fashioned blackout

The crypto entrepreneur imposed a smokescreen, spent millions of clients’ money on his lifestyle, attracted politicians and celebrities with donations and endorsement deals, and spearheaded a pseudo-philosophy of effective altruism that boiled down to the bigger the profit, the bigger it well.

Last year, Ray testified before Congress that the FTX collapse was “really old-fashioned embezzlement.” This is just taking money from customers and using it for your own purposes.” Justice Department prosecutors echoed his statements in the immediate aftermath of Bankman-Fried’s conviction.

During the trial, the court heard from an accounting expert who said $11.3 billion in client funds would be held at Alameda Research, the hedge fund arm of FTX. But only $2.3 billion could be located. The rest went to investments, political contributions, charitable foundations and real estate purchases. Remarkably, FTX had left almost no records of transactions.

“The damage was enormous. Repentance does not exist. Effective altruism, at least as practiced by Samuel Bankman-Fried, was a lie,” Ray said in a recent court ruling, adding that he and his team had “managed the estate against a metaphorical dumpster fire for more than a year ”.

Who gets paid in FTX’s bankruptcy, and how?

FTX collapsed in ten days in November 2022 and shortly thereafter filed for Chapter 11 bankruptcy — a statute used to reorganize a failing company “in the public interest.” The FTX exchange, its main product, was not so much reorganized as closed down.

On January 31, FTX announced that it would not reopen its exchange and would instead liquidate all of its assets. It has promised to pay its account holders the value of the deposited crypto in dollars.

However, a series of civil lawsuits have challenged decisions made in FTX’s handling after Bankman-Fried’s departure. The company says it will pay creditors based on the value of their cryptocurrency at the time of FTX’s bankruptcy, when Bitcoin was trading at just over $17,000. Bitcoin is currently four times more valuable and trades for over $67,000. Plaintiffs in the lawsuits claim that FTX owes them the higher value.

Bankman-Fried invested $500 million in AI startup Anthropic when it was valued at $3.4 billion. It is now valued at around $15 billion, and the stake could be worth $2 billion if FTX were to cash out.

Related: FTX scrap plans to revive the exchange and refund billions to customers

In a lawsuit filed in January, four of FTX’s creditors said the plan to return customer money did not reflect the company’s obligations under Chapter 11 bankruptcy law. Some have objected to their crypto holdings being converted into dollars – “dollarization” – and the transparency that comes with it.

Last week, Ray put aside disagreements over visibility. The CEO said he could not return the crypto assets because they do not exist. “A jury concluded beyond a reasonable doubt that Mr. Bankman-Fried stole them and converted them into other things,” he wrote in a court filing.

Furthermore, FTX bankruptcy claims have become a hot commodity, with London-based distressed investor Attestor buying up the company’s assets at rock-bottom prices. Attestor is now in a New York court defending himself against a Panamanian FTX account holder who wants the bankruptcy claim – now worth more than double – back.

FTX shareholders get zero

One category of creditors is unlikely to get any of their money back: FTX shareholders. Millions of shares were owned by the management of Tiger Global, Ontario’s teacher pension plan, Sequoia Capital, New England Patriots owner Robert Kraft, NFL quarterback legend Tom Brady and his ex-wife Gisele Bündchen, both of whom advertised for the company. Their stake, once valued at tens of millions, is considered worthless.

Bankrupt FTX has also had little success recovering Bankman-Fried’s charitable and political donations, including $44.6 million that went to Democratic candidates and causes and at least $23.9 million to Republicans during the last election cycle. In total, FTX distributed $93 million in political donations between March 2020 and November 2022. In February 2023, the exchange asked for the return of its donations and claimed it would file a lawsuit, but did not follow through on the threats.

But some benefactors of FTX’s PR largesse, which some claim to influence crypto regulation, have returned their donations: New York’s Metropolitan Museum of Art has returned $550,000 it received from FTX in 2022. Stanford, where Bankman-Fried’s parents work as legal ethics professors, pledged to return a $5.5 million donation.

Academics raise questions about FTX’s bankruptcy

A recently published academic paper claims that FTX was placed in the hands of legal counsel Sullivan & Cromwell, who had disclosed “potential conflicts of interest” in its dealings with the company and Bankman-Fried “as a result of apparent errors, omissions and deceit”.

Law professors Jonathan Lipson of Temple University and David Skeel of the University of Pennsylvania argue that “FTX is a cautionary tale about the power lawyers have to frame, control, and profit from public interest claims,” and that the bankruptcy is “bargain ” included. -sale of cellar assets to favorite insiders”.

In their paper, the academics called for an independent investigator to look into how the steep bankruptcy was handled.

“The public record does not show that they have made any serious attempt to restart the exchanges,” Lipson told the Guardian. “Sullivan & Cromwell had an unusually long and important relationship with FTX and with Bankman-Fried before the bankruptcy, so our concern is that the appearance of a conflict of interest caused them to panic and mislead Bankman-Fried into taking control of the company to give up. which may then have distorted the criminal case and harmed depositors and creditors.”

‘His Redemption Story’

In a text exchange with Vox reporter Kelsey Piper, Bankman-Fried appeared to undermine the foundations of the effective altruism ideology he had once championed.

“I feel sorry for those who get fucked by it, by this stupid game that Westerners play where we say the right shibboleths and so everyone likes us.”

Related: Dramatic fall for Sam Bankman-Fried and ‘unkempt visionary’ personality

Last month, SBF replaced its trial lawyer with Marc Mukasey, who represented Donald Trump and Alex Mashinsky, former CEO of bankrupt Celsius cryptocurrency exchange Celsius, another mogul accused of fraud. Mukasey has described Bankman-Fried as a hard-working billionaire who avoided the trappings of great wealth and fame, and whose brusque social behavior could be attributed to “neurodiversity.”

In January, Yale Law professor Ian Ayres and Stanford Law professor John Donohue, two friends of the Bankman-Fried family, published an essay in Project Syndicate arguing that FTX had enough assets to make its customers whole.

And Daniel Chapsky, former head of data science at FTX, wrote that SBF was only interested in helping bankruptcy lawyers and had been “working almost around the clock, to the point of exhaustion.”

But the government has pushed back on these efforts. “The point is that the defendant is motivated to launch his redemption story and has already thought about how to twist the story. It is realistic that he will settle for a story, delve into it and convince other people to part with their money based on lies and the promise of false hope,” prosecutors said in a filing.

Leave a Comment