FTX Says $413 Million Worth of Cryptocurrency Was Stolen From Failed Exchange

Cryptocurrency exchange FTX announced its bankruptcy recently. Stefani Reynolds/AFP

Debtors for the bankrupt cryptocurrency exchange FTX have said that around $413 million worth of cryptocurrency was stolen from the company through “unauthorized transfers.”

In a report to creditors on Jan. 17, the company said that FTX debtors have identified approximately $1.6 billion of digital assets associated with FTX.com, of which $323 million of which was “subject to unauthorized third-party transfers” and $426 million of which was “transferred to cold storage under the control of the Securities Commission of The Bahamas.”

Another $742 million is in “cold storage” under the control of the FTX debtors, and $121 million of which is pending transfer to “cold storage” under the control of the FTX debtors.

The term “cold storage“ refers to keeping cryptocurrency keys offline and unconnected to a network or the internet in order to improve security.

With regards to the FTX US exchange, the debtors identified roughly $181 million of digital assets, $90 million of which was “subject to unauthorized third-party transfers post-petition, $88 million of which is in cold storage under the control of the FTX debtors, and $3 million of which is pending transfer to cold storage under the control of the FTX debtors.”

FTX founder Sam Bankman-Fried leaves Manhattan Federal Court after his arraignment and bail hearings in New York, on Dec. 22, 2022. David Dee Delgado/Getty Images

‘Substantial Shortfall of Digital Assets’

Overall, the debtors have identified approximately $5.5 billion in liquid assets, including $1.7 billion in cash, $3.5 billion of crypto assets, and $300 million in securities since the firm filed for Chapter 11 bankruptcy in November 2022.

The company stopped short of providing an estimate of total liabilities, but added that based on current estimates of the amount of digital assets associated with the FTX.com and FTX US, there is a “substantial shortfall of digital assets at both exchanges.”

FTX, which was founded in 2019 and once valued at $32 billion, filed for bankruptcy protection on Nov. 11 following a spectacular collapse amid a liquidity crisis after it was revealed that the hedge fund Alameda had been using FTX customer assets to keep itself propped up.

A potential rescue deal by larger rival Binance was also pulled, adding further woes to the company as traders quickly raced to pull billions of cryptocurrency from the exchange.

According to a court filing, FTX owed its 50 largest creditors almost $3.1 billion while an estimated $8 billion in customer funds disappeared.

The firm’s founder, Sam Bankman-Fried, was subsequently arrested on Dec. 17 in the Bahamas, where the company was headquartered, and he was extradited to the United States, where he was released on a $250,000 bail and placed under house arrest at the California home of his parents, who were both law professors at Stanford University.

In January, Bankman-Fried pleaded not guilty to charges of fraud, conspiracy, campaign finance law violations, and money laundering.

Bankman-Fried Says He Didn’t Steal User Funds

Bankman-Fried is scheduled to go on trial in October 2023.

“We are making important progress in our efforts to maximize recoveries, and it has taken a Herculean investigative effort from our team to uncover this preliminary information,” said John J. Ray III, the chief executive officer and chief restructuring officer of the FTX debtors.

However, Ray stressed that the information is still preliminary and could change.

In his first statement since his arrest in the Bahamas, Bankman-Fried vowed to get customers their money back while doubling down on his previous claims that he did not steal users’ funds.

“I didn’t steal funds, and I certainly didn’t stash billions away,” the former founder wrote on his Substack blog on Jan. 12. He also claimed that FTX US was “fully solvent” and should be able to return all customers’ funds.

“It’s ridiculous that FTX US users haven’t been made whole and gotten their funds back yet,” Bankman-Fried wrote.

FTX debtors are also reviewing the roughly $2.1 billion equivalent in cash that cryptocurrency exchange Binance received as part of its exit from FTX in 2021, CNBC reports.

Binance chief executive Changpeng Zhao brushed off concerns that the exchange may have to hand the money back during an interview with the the media company in December, stating that the firm is “financially OK” and has a “very solid revenue.”