Where did the money go in the FTX collapse?

• Author: Randolph Hane
• Posted: 2024-06-07

How did $32 billion disappear after the cryptocurrency exchange FTX went down and its founder, Sam Bankman-Fried, was arrested on Monday for allegedly scamming investors?

On Tuesday, John J. Ray III, the CEO of FTX and an expert on how Enron restructured, testified in front of the House Committee on Financial Services. He told MPs that Bankman-Fried and his associates were "massively incompetent and uninformed." Ray scolded FTX and its investors, saying, " We will never be able to recover all of these funds."

FTX.com, Alameda Research, WRS, and different venture initiatives are the four categories or silos that Ray and the new FTX leadership have focused on to recover the corporate revenue that Bankman-Fried and his allies had stolen.

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Given that FTX's infrastructure for keeping track of transactions was "near nil," Ray added that the current leadership team believes no external investor has more than a 2% stake in any category. However, Ray has little faith in FTX's financial paperwork and said Tuesday that his crew is starting from scratch.

Here's a breakdown of what was included in each category:

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Under West Realm Shires, FTX US bought, sold, and held virtual currency for people worldwide. According to the ownership structure diagram, 53% of the silo was owned by Bankman-Fried, 17% by former FTX executives Gary Wang and Nishad Singh, and 8% by unaffiliated investors.

LedgerX is a crypto trading platform bought by FTX and renamed FTX Derivatives. FTX Gaming, FTX NFTs, FTX Gaming, and FTX Capital Markets are all examples of FTX products. The Commodity Futures Trading Commission of the United States maintained an eye on it (CFTC). It is located in the FTX/WRS US category.

Included in this category are loans made to BlockFi. This cryptocurrency lender obtained funding from FTX and lent money to Alameda just before both companies declared bankruptcy due to the widespread ripple effect felt in the cryptocurrency markets following FTX's downfall.

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The Alameda Group operates as a hedge fund that deals primarily in bitcoin. Tara Mac Aulay and Bankman Fried started it. Mac Aulay tweeted that she and "a number of people" left their jobs in 2018 due to concerns over corporate ethics and risk management. Caroline Ellison's firm, Bankman-Fried, held 90% of it before its breakup.

By taking billions of dollars in customer assets and using them as leverage in hazardous ventures that ultimately failed, Alameda drove the FTX hedge fund and the company itself into bankruptcy.

Following the bankruptcy of Alameda and Robinhood Markets, BlockFi sued a Bankman-Fried holding company for failing to reimburse Alameda's Robinhood Markets share-based debts.

Alameda was the first place people started to put money into digital assets, crypto ETFs, treasuries, and digital currencies. A few companies in which Alameda has invested are Modulo Capital, Pionic, Genesis Digital Assets and others.

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According to the diagram, Bankman-Fried may have sole ownership of the venture's silo, while Nishad Singh and Gary Wang might have held indirect or direct holdings.

Investment firms such as Sequoia Capital, the oldest and largest Silicon Valley venture capital firm, blockchain startup Mysten Labs, and the AI safety firm Anthropic were all supported by funds from this category.

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Based on the diagram, Bankman-Fried controlled 75% of the "dotcom silo" while outside investors held the remaining 25%. It was FTX Trading Ltd. that had the dot-com silo and managed FTX.com.

This silo housed real estate holdings, the FTX exchange, and other non-US firms. Bankman-Fried and others at FTX are accused of misusing corporate cash to purchase Bahamas real estate and personal items.

Ray's insolvency filings allege that "some of these transactions do not appear to have loan documentation, and certain real estate was recorded in these employees' and advisors' own names on Bahamas records."