The folks handling the ongoing FTX bankruptcy admitted Thursday it is still on the hook for around $US9 ($AU13) billion in customer funds that it simply cannot locate under the morass of financials left over from the exchange’s collapse.
In a presentation titled Preliminary Analysis of Shortfalls at FTX.com, the company said it has finally inventoried all the wallets associated with FTX.com where it said there is a “massive shortfall” since it has only been able to identify just under $US2.2 ($AU3.26) billion in customer assets, but of that only $US694 ($AU1,027) million is considered actual liquid currencies. Compare that to the $US11.2 ($AU16.58) billion in outstanding funds that were locked to customer accounts, and you’re left with around $US9 ($AU13.32) billion still lost to the machinations of FTX’s former bosses.
The presentation implies much of this stemmed from ex-FTX CEO Sam Bankman-Fried’s alleged scheme to move customer funds from FTX to his hedge fund Alameda Research. The presentation showed that Alameda borrowed a net $US9.3 ($AU13.76) billion from FTX.com wallets and accounts, though it remains unclear just how much of the shortfall is related to missing customer funds. The Securities and Exchange Commission had previously claimed Alameda had more than $US8 ($AU11.84) billion of FTX customer funds tied up in its own accounts.
These numbers are based on the price of crypto from when the company declared bankruptcy back in November, but it’s also the first time the bankrupt exchange has admitted just how much in outstanding funds it’s dealing with. Of those $US2.2 ($AU3.26) billion the company was able to recover, just $US880 ($AU1,302) million are “liquid assets,” which are related to dollars, stablecoins, or other major crypto currencies. The $US1.5 ($AU2.22) billion in other “illiquid” assets are items like the FTT token. In the end, the company has an outstanding deficit of billions of dollars in multiple tokens, including bitcoin, ethereum, as well as smaller amounts of leftover money in coins like FTX’s native token FTT.
Court documents filed by a law firm working for FTX back in January showed that it had located $US5.5 ($8) billion in assets in customer accounts and in other parts of the company, both in crypto and cash. The lawyers argued that those digital currencies should be easily transformed into cash assets, but it remains unclear how much of those identified funds have been accounted for in this recent presentation.
John J. Ray III, the man leading the exchange through its Chapter 11 bankruptcy proceedings, said in a release the information is still preliminary, but that FTX’s books are full of holes “and, in many cases, totally absent.” Ray has been very open about just how insane things had gotten over at FTX just before its collapse. He called the company “a complete failure” of corporate controls.
Although FTX customers have been sitting on pins and needles for months at this point, the company said it released this information now because it wanted “transparency.” Furthermore, the failed exchange said it’s currently impossible to tell how much customers might be able to recover from all this mess since there’s still so many liabilities, prominent stakeholders, and creditors shadowing the company and looking for their money back, plus the liquidation and reorganization of “over a hundred companies” comprised of Bankman-Fried’s West Realm Shires former crypto empire.
Last month, FTX Japan finally unfroze its customer funds, letting a few of its customers access their (now-likely depreciated) funds. It remains unclear when, or even if, other FTX customers around the world will ever gain access to their accounts again. The company said in its presentation it will keep updating customers about goings-on, though it also claimed “the information should not be relied upon for any purpose including, but not limited to, estimating recoveries in the FTX Debtors’ Chapter 11 cases.”
Federal prosecutors originally charged Bankman-Fried with eight counts of fraud and conspiracy, but they recently upped that to 12 with additional allegations of making hundreds of illegal political donations. The failed FTX founder has pleaded not guilty. His trial date is set for Oct. 2.