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The Almighty Buck

Reuters Reports $1B of Client Funds Missing at FTX (reuters.com) 61

Posted by EditorDavid from the moving-money dept.
Friday the Wall Street Journal reported: Crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange's implosion, a person familiar with the matter said.

FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said.

All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda.
And then Friday night Reuters reported that "At least $1 billion of customer funds have vanished from collapsed crypto exchange FTX, according to two people familiar with the matter.

"The exchange's founder Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Bankman-Fried's trading company Alameda Research, the people told Reuters. A large portion of that total has since disappeared, they said." One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $2 billion.

While it is known that FTX moved customer funds to Alameda, the missing funds are reported here for the first time. The financial hole was revealed in records that Bankman-Fried shared with other senior executives last Sunday, according to the two sources. The records provided an up-to-date account of the situation at the time, they said. Both sources held senior FTX positions until this week and said they were briefed on the company's finances by top staff....

In text messages to Reuters, Bankman-Fried said he "disagreed with the characterization" of the $10 billion transfer. "We didn't secretly transfer," he said. "We had confusing internal labeling and misread it," he added, without elaborating.

Asked about the missing funds, Bankman-Fried responded: "???"

FTX and Alameda did not respond to requests for comment....

At the heart of FTX's problems were losses at Alameda that most FTX executives did not know about, Reuters has previously reported.... FTX legal and finance teams also learned that Bankman-Fried implemented what the two people described as a "backdoor" in FTX's book-keeping system, which was built using bespoke software. They said the "backdoor" allowed Bankman-Fried to execute commands that could alter the company's financial records without alerting other people, including external auditors...

In his text message to Reuters, Bankman-Fried denied implementing a "backdoor"....

On Friday, FTX said it had turned over control of the company to John J. Ray III, the restructuring specialist who handled the liquidation of Enron Corp — one of the largest bankruptcies in history.
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Reuters Reports $1B of Client Funds Missing at FTX More

Reuters Reports $1B of Client Funds Missing at FTX

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  • Just saw a twit about the CEO heading south (Score:5, Interesting)

    by Revek ( 133289 ) on Saturday November 12, 2022 @10:45AM (#63045561)
    Heading south [twitter.com]

  • as a result of this ? Maybe not if some of this was used as down payment to some expensive lawyers.

    • On Friday, FTX said it had turned over control of the company to John J. Ray III, the restructuring specialist who handled the liquidation of Enron Corp — one of the largest bankruptcies in history.

      Looks like he's signed up a lawyer specialized in this type of thievery.

    • Re:Will someone get jail time (Score:4, Interesting)

      by Nrrqshrr ( 1879148 ) on Saturday November 12, 2022 @11:40AM (#63045625)

      Interestingly, the guy is Joe Biden's second biggest donor, and his mother runs Mind The Gap, the super PAC. It would be interesting to see if anyone at all would go to jail over this and, most importantly, if they would survive it.

      • If he's broken the law, then he should go to jail. Under current legislation, there's no issue with taking donations from companies or people engaged in legal (and hopefully ethical) business. The fact that Democrats were already gearing up legislation to regulate the crypto industry points towards any crimes being punished appropriately. It's not like asking the Republicans to regulate the oil industry after yet another pollution leak/scandal/death.

    • When Bank of America and Goldman Sachs, General Motors and co did the exact same thing, they were bailed out. Dollars are just printed on the regular nowadays, no reason to make anyone less rich as a result of this.

  • They stole the money and then lost it (Score:5, Insightful)

    by Ed Tice ( 3732157 ) on Saturday November 12, 2022 @10:54AM (#63045583)
    That's a heck of a long article to say that they stole what was supposed to be customer money and then lost it by "investing" in their equally morally-bankrupt sister company.

    • These customers should still be grateful, since they managed to avoid losing their money due to a global collapse of fiat currencies. And in fact, now they will never lose this money due to the vagaries of fiat currencies.

      Wasn't that was the whole idea in the first place?

      • That's one way to put a positive spin on it!

      • Re: (Score:3)

        by GBH ( 142968 )

        This just perpetuates a tired incorrect rhetoric.

        Crypto is many things. This is actually an example of EXACTLY what most advocates of crypto as an alternative to FIAT currencies have been saying. FTX was a *CENTRALISED* crypto exchange. As many advocates have said for a long time, this is just a bank with none of the safeguards. Centralised exchanges like FTX hold your wallets and control your keys. This is *EXACTLY* the same as placing your money in a bank. They hold your assets and you are relying on THEM

        • The reason I keep my money in a bank is that stuffing it under my mattress opens me up to having it stolen and perhaps violently. Depositing my money in a regulated bank is safer. That money is firstly protected by the regulations and secondly by the full faith and credit of the United States government.

          Crypto was hyped as the great new thing. But stories of lost keys, stolen wallets, et cetera abound. How about that guy who accidentally discarded his disk drive with his crypto wallet? Nobody wants t

          • Re: (Score:2)

            by GBH ( 142968 )

            This gets to the core of where the problem lies with the entire financial system and the confusion around crypto.

            I'm just going to briefly mention that the *MILLIONS* of people worldwide who lost their entire life savings, their house and/or their entire pension in the 2008 crash (or any of the previous ones) would beg to differ with you over how safe the banks are but that's a whole book in itself.

            First your statement is somewhat incorrect - you don't need to be a billionaire to secure your crypto. If you

            • Yes, fraud is perpetuated through crypto but guess what, it's a MINUTE amount compared to fraud perpetuated with FIAT currency.

              As a total number, the amount of fraud perpetuated through crypto compared to non-crypto is very low because crypto is relatively small compared to FIAT currencies. But as a percentage, it's much higher.

              I'm not going to address the rest of your post as you are mixing and matching things in a way that doesn't add up. Nobody who had their money deposited in banks in savings accounts or CEDARS (if they have enough to exceed the single-bank deposit insurance limit) lost their life savings.

              People who m

  • so capitalism means..... (Score:3, Funny)

    by dowhileor ( 7796472 ) on Saturday November 12, 2022 @10:58AM (#63045589)

    Put $1 in a shoebox, spin around until dizzy, touch your elbows, and $1.50 comes out of the shoebox?

    • You get person A to put $1 in the box. You get person B to pay $3 to open the treasure box. Person A gets $1.50, you get $0.50, Person B gets screwed and looses $2. Or say fuck it, take as much as you can and head for Argentina.

  • Meanwhile, still on the /. front page .... (Score:5, Informative)

    by whoever57 ( 658626 ) on Saturday November 12, 2022 @11:07AM (#63045597) Journal

    FTX Crypto Wallets See Mysterious Late-Night Outflows Totalling More than $380M [slashdot.org]

    Just in case anyone might think that article was discussing a different issue, from the summary of that article:

    At least $1 billion of customer funds have vanished from collapsed crypto exchange FTX, Reuters reported separately. From the report:

    The exchange's founder Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Bankman-Fried's trading company Alameda Research, the people told Reuters. A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $2 billion.

    • All these amounts are stated in $USD. What form are these funds actually in? Are they still crypto, but now controlled by a key held by Alameda? Or gaps in accounting reflecting money that has already been spent on hookers and blow and fuel for private jets? Or in a $USD-denominated bank account in Panama?

      • All these amounts are stated in $USD. What form are these funds actually in?

        Does it matter? They are supposedly crypto currency which will be worth fractions of a cent soon.

        • It matters because if they spent it the money is gone.
          If it's in crypto, the coins might be trackable, for whatever value they still have.
          If it's in dollars in a bank, it might actually be recoverable.

  • Four crypto snakeoil stories on the front page (Score:3, Informative)

    by terrorubic ( 7709666 ) on Saturday November 12, 2022 @11:14AM (#63045609)
    Four crypto snakeoil stories on the slashdot front page /s
  • When one individual can make transfers of this size with neither scrutiny, transparent reporting nor another person's approval, it is impossible to have any confidence in any crypto exchange - and by extension crypto, itself.
    Is "compliance" even in the crypto dictionary?

    The financial hole was revealed in records that Bankman-Fried shared with other senior executives

    and since it appears none of those senior executives blew the whistle, there should be quite a few jail cells being prepared.

    • But the whole point of crypto is you don't need to rely on an exchange, you can keep your life savings somewhere safe from corporate grifters and hackers, such as a hard drive that may or may not be in the dump under 10 years's worth of of garbage. [cbsnews.com]

      • you don't need to rely on an exchange

        Yet so many people do! I suppose you don't need to rely on banks, you can just keep your cash, or gold, or whatever, under the mattress.

        But the other point is that no matter where your crypto is, it is still vulnerable to enormous price instability when a lone individual does something like this on an exchange that you have nothing to do with. Just as every crypto holder gets hit by the downsides when there is a massive hack or anything else that causes a loss in confidence in the system as a whole.
        It sim

        • Re: (Score:2)

          by Entrope ( 68843 )

          It lacks the checks and balances we all expect from those who look after our money. It seems to have few, or no, controls and is just too risky.

          That's a feature, not a bug! ... according to the people who are trying to unload tulip futures.

    • Right with the ones from BoA and Goldman Sachs then? The fed has been playing the exact same game since getting rid of the gold standard. Why are dollars any more trustworthy than this?

  • The prison sentence should be simple. (Score:1)

    by Anonymous Coward
    Sit in prison until you provide where the money is.

    Even if that thief admits it is gone with proof, the money can't be returned so automatic life sentence. Why isn't he detained yet?

    Tomorrow's headline will be 'where is Bankman-Fried', authorities can't find him....

  • The beginning (Score:3, Insightful)

    by fabriciom ( 916565 ) on Saturday November 12, 2022 @12:06PM (#63045663)
    of the end for crypto?
    • I'm going to say that it won't end UNLESS real money stops coming the front door. They need a certain amount of real money coming and going to keep the illusion alive. It's like a parasite and it has to keep the host alive, or it will die too.

    • Re: (Score:2)

      by HiThere ( 15173 )

      That's clear. No. (Crypto is short for cryptographic, and applies to a lot of things other, and more important than, cryptocurrencies.)

      If we're lucky it's the beginning of the end of cryptocurrencies, but I wouldn't bet on that, either.

      • If we're lucky it's the beginning of the end of cryptocurrencies, but I wouldn't bet on that, either.

        I guess it would take more than one exchange going bankrupt. A total collapse of one of the major coins might do it, perhaps in the form of all Bitcoin or all Ethereum becoming worthless over night.
        Even then, some fraudsters might start a new crypto-coin and find people to rip off. But I believe the vast majority of potential customers would have enough.

      • Crypto as an adjective, yes. Not as a noun.
    • Actually, that was back in the beginning.

  • Sit back and wait for the shitshow. It's gonna be lit.

  • Cool (Score:2)

    by boulat ( 216724 )

    Never bought crypto, never will.

    Hope you all lost your money.

    • I've got some I mined a few years ago on a lark, but I"ve always viewed it as a ridiculously risky nonsense. I've got no money in it, so if it goes to zero, I don't really care.

  • BlockFi just notified customers that they cannot make withdrawals.

    I am curious to see if the failures of these companies register at the government level -- will they make BlockFi or Gemini buy crypto.com or FTX in order to claim "stability"?

  • Massive scandal in this (Score:3)

    by Walt Dismal ( 534799 ) on Sunday November 13, 2022 @02:56AM (#63046907)
    Money laundering. FTX made massive donations to which political party. These is a massive scandal lurking in this.
    • Why do you assume that any political donations were involved? As far as I know, cryptocurrencies and their companies are mostly unregulated at the moment. Their companies will fight any efforts to regulate them. From the beginning of the this boom, many here were warning that crypto was highly risky. While it is unfortunate for the investors, this is more of a foreseen consequence than massive scandal.
      • Bankman-Fried is a massive donor: he's the Democrats second largest donor, has been "assisting" them in writing legislation regarding cryptocurrencies, and his mother is a co-founder of the political fundraising organization Mind the Gap, which advocates for Democratic Party candidates and funds get-out-the-vote groups. He's pretty heavily tied to one particular political party.
        • Please cite the legislation that has been written for cryptocurrencies. As far as I am aware crypto is largely unregulated which allows means neither party has any say in shenanigans that might be legal.
  • FTX scam..... It's getting to the point that people with $$$ in crypto aren't feeling uneasy, they better wake ! Try selling and getting their money out now no matter where it is to see if they can. FTX moved $$ even after declaring bankruptcy......
  • I wonder how many of these cryminals get away with the rug pull.

    This whole thing reminds of a conversation in Archer: "Do you know why they're called bearer bonds? Because...the legal owner of a bearer bond is whatever asshole physically holds the piece of paper". Crypto exchanges have somehow proven themselves to be less trustworthy than Paypal. As soon as the currency is exchanged, it should be immediately transferred to a wallet that you manage in the case of crypto, or a real account in the case of

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