In less than two weeks, Sam Bankman-Fried has gone from hero to villain in the crypto industry. Once seen as a proponent for regulation who had the ear of politicians, Bankman-Fried is now at the center of a $32 million meltdown.
The Timeline
On November 2, a report came out that suggested SBF’s two companies, Alameda Research and the FTX Exchange, were very closely intertwined. In fact, it appeared that a significant portion of Alameda’s assets were funded by FTT, the native token of sister company FTX.
When this report came out, Binance Holdings, the chief rival of FTX, decided to withdraw all of their FTT investment. Its value was $580 million. This essentially set off a fire alarm as countless others followed suit. FTX did not have enough liquidity to support the mass exodus, resulting in FTT plummeting in value.
In a twist of fate, Binance made an initial offer to buy FTX to provide a lifeline to the investors. Upon closer examination of SBF’s books, Binance walked away. The ship had sunk past the point of saving, and FTX filed for bankruptcy on Friday, November 11th.
Missing Money
The plot thickened on Saturday, November 13 when news broke that at least $1 billion in FTX customer assets had vanished. Two sources reported to media outlets that Bankman-Fried transferred $10 billion in client funds from FTX to Alameda.
Both Reuters and The Wall Street Journal have confirmed this exchange did take place.
As for the close ties between Alameda and FTX, they are currently under investigation by agencies including the Securities and Exchange Commission and the Department of Justice. Between $1-$2 billion of the initial $10 billion has disappeared per the two sources.
Both of these parties held senior positions at FTX prior to its collapse and had been briefed on internal finances by senior staff just days ago. While SBF insists the money was not transferred in secret, there are questions if the former CEO had in fact moved the funds through a clandestine back door.
Gathering in Paradise
The amount of $10 billion is significant as Alameda had $8 billion in liabilities on its balance sheet. Last Sunday, November 6, SBF held a meeting with his top brass in Nassau to determine how much money was needed to cover the loss. Per Reuters, Bankman-Fried confirmed this meeting took place.
That same day, FTX clients requested $5 billion in withdrawals. Financial documents reviewed at this meeting detailed that $10 billion had been transferred from FTX to Alameda. Yet the missing billion(s) could not be located in Alameda’s assets.
A Secret Door
In what had become a financial discovery, a “back door” was uncovered in FTX records. It had been created with custom software so changes to financial records would not be flagged internally or externally.
In essence, that means the $10 billion transfer would be undetected by Bankman-Fried’s own compliance office, much less external auditors.
While SBF vehemently denies setting up this “back door”, this does not chance the fact of its existence. Nor does it answer the ultimate question: where is the missing money?
