Where did the money go in the FTX crypto meltdown?

Where did the money go in the FTX crypto meltdown?

The collapse of FTX, a cryptocurrency exchange once valued at $32 billion – and the arrest on Monday of founder Sam Bankman-Fried on a number of charges alleging he defrauded its investors – have prompted many just asking – where did the money go?

Current FTX CEO John J. Ray III, a corporate restructuring expert who managed the restructuring of bankrupt energy trader Enron, appeared before the House Financial Services Committee on Tuesday. He told lawmakers they were still at a “very preliminary stage” of their investigation, but it was clear that Bankman-Fried and his colleagues were “extremely inexperienced and unsophisticated.” Ray indicated that clients and investors who put their money into FTX and its affiliates shouldn’t expect a full recovery, saying, “We’ll never get all those assets back.”

In bankruptcy filings and documents provided to Congress and regulators, the new executives of Ray and FTX have organized their efforts to recover what they can from customer and investor funds by examining four silos, or categories, in which corporate funds were channeled through Bankman-Fried and its associates: WRS, Alameda Research, FTX.com and various venture capital investments.

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Ray noted that the new management team believes that no outside investor has more than a 2% stake in a silo, but he has a low degree of confidence in FTX’s financial documents and noted on Tuesday that his team was essentially leaving. from zero because FTX had “almost zero”. “archiving infrastructure.

Here is an overview of what went into each silo:

WRS (aka FTX US)

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West Realm Shires (WRS) Inc. is the legal entity under which FTX US operated as a crypto trading company that bought, sold and stored virtual currency for clients around the world. According to the organizational chart, Bankman-Fried had a stake of about 53% in this silo; Former FTX executives Gary Wang and Nishad Singh owned about 17% and 8%, respectively; and third-party investors held just over 22%.

The US WRS/FTX silo contains LedgerX, a federal Commodity Futures Trading Commission (CFTC)-regulated crypto trading platform that FTX acquired and rebranded as FTX Derivatives; stockbroker FTX Capital Markets; Embed Clearing, a broker clearing house; FTX games; and FTXNFT.

This also includes loans to BlockFi, a crypto lender that received investments from FTX and also lent money to Alameda before going bankrupt amid the wider contagion in crypto markets caused by the FTX failed.

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Alameda Search

Caroline Ellison, CEO of Alameda Research

Caroline Ellison, CEO of Alameda Research, via Twitter (Twitter @carolinecapital)

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Alameda is a hedge fund specializing in trading within the crypto space. It was co-founded by Bankman-Fried and Tara Mac Aulay. Mac Aulay tweeted that she and “a group of others” all quit in 2018, in part due to concerns about risk management and business ethics. Bankman-Fried held a 90% stake in the company, which was led by Caroline Ellison before its collapse.

Reports indicate that Alameda wrongly received billions of dollars in funds from FTX clients and used those funds to make risky investments that were unsuccessful and led to the failure of the hedge fund and FTX when the businesses were unable to repay their lenders. Notably, BlockFi filed a lawsuit against a holding company associated with Bankman-Fried that broke its promise to pay off Alameda’s debts with shares of Robinhood Markets before the companies went bankrupt.

The Alameda silo contained cryptocurrencies, crypto ETFs, other digital assets, and treasury bills. Alameda has also made a number of venture capital investments in crypto-miner Genesis Digital Assets; Capital modulo; Pionic (throw); and others.

Investments at risk

FTX CEO Sam Bankman-Fried

Sam Bankman-Fried, founder and former CEO of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, U.S., Wednesday, August 17, 2022. Crypto exchange (Jeenah Moon/Bloomberg via Getty Images/Getty Images)

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The corporate silo includes a number of venture capital investments made by Bankman-Fried, which according to the org chart potentially held a 100% stake in this category, although Gary Wang and Nishad Singh may have interests. direct or indirect.

Entities that have received funds in this silo include security firm AI Anthropic; venture capital firm K5; the Dave Inc. financial app; Sequoia Capital, which is one of Silicon Valley’s oldest and largest venture capital firms; blockchain startup Mysten Labs; and other companies.

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FTX.com

FTX Logo Sam Bankman Fried

This photo illustration shows a smart phone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background in Arlington, Virginia on February 10, 2022 . (/Getty Images)

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Known as the “dotcom silo” in the org chart, approximately 75% of this category was owned by Bankman-Fried while third-party investors held a 25% stake. The parent company of the dot-com silo was FTX Trading Ltd., which operated as FTX.com.

In addition to holding the FTX exchange and a number of subsidiaries located in non-US jurisdictions, this silo contained a number of real estate assets. Bankman-Fried and other FTX associates have been accused of improperly purchasing homes and personal items in the Bahamas using corporate funds.

Ray noted in the bankruptcy filings that “there does not appear to be documentation for some of these transactions as loans, and some real estate was registered in the personal names of these employees and advisors in the Bahamian records. “.

Fox Business’ Kelly O’Grady contributed to this report.

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