FTX Used Corporate Funds to Buy Homes in Bahamas, Bankruptcy Documents Show

A smart phone screen displaying the logo of FTX, in Arlington, Va., on Feb. 10, 2022. Photo by (Olivier Douliery/AFP via Getty Images

The collapsed cryptocurrency exchange FTX—in another example of financial impropriety—was discovered to have used corporate funds to buy homes in the Bahamas and other personal items in the names of employees and company advisers, according to new court documents.

In a 30-page bankruptcy declaration to the U.S. Bankruptcy Court for the District of Delaware (pdf), newly appointed FTX CEO John Ray III confirmed that a paucity of corporate controls for accounting purposes resulted in spending that wasn’t “appropriate for a business enterprise.”

Ray, who had managed Enron’s bankruptcy proceedings and restructuring, noted that corporate housing arrangements are common, particularly for companies that are located in opulent areas. However, he stated in the documents that “certain real estate was recorded in the personal name of these employees and advisors” in an unusual arrangement.

It would be difficult to reclaim these homes since they aren’t in the company’s name, and there are no records of these transactions, Ray said.

He wrote in the documents that the crypto exchange failed to maintain disbursement or security controls and proper books and records, noting that employees submitted reimbursement requests through an online chat platform and with personalized emojis.  

The FTX website is seen on a computer in Atlanta on Nov. 10, 2022. Michael M. Santiago/Getty Images

“The debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise,” the new CEO said. “For example, employees of the FTX Group submitted payment requests through an online ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.”

Ray conceded that he doesn’t possess any confidence in the balance sheet statements of FTX and its affiliated companies, including Alameda Research.

“The debtors do not have an accounting department,” he said, noting that it might take time to prepare reliable financial statements.

Ray revealed that he hadn’t been able to locate some of FTX’s employees, suggesting that they either fled or didn’t exist.

“At this time, the debtors have been unable to prepare a complete list of who worked for the FTX Group,” he said. “Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.”

Earlier this month, FTX filed for Chapter 11 bankruptcy protection.

Alameda Research Loans Billions  

It was recently reported that Alameda Research, an investment fund started by (former) FTX CEO Sam Bankman-Fried, quietly borrowed billions in FTX client funds and then traded the deposits without explicit consent.

That violated FTX’s terms of service.

“You control the Digital Assets held in your Account. Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading,” Section 8.2 of the terms of service states. “None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading.”

Alameda Research CEO Caroline Ellison admitted that she, Bankman-Fried, and other executives knew about transferring customer funds to the investment firm, The Wall Street Journal reported, citing people familiar with the situation.

At the same time, a bankruptcy court filing revealed that Bankman-Fried and others received $4.1 billion in combined loans from Alameda. This included a $1 billion loan to Bankman-Fried and $2.3 billion to FTX subsidiary Paper Bird. Alameda also extended a $543 million loan to Nishad Singh, head of engineering at FTX, and $55 million to Ryan Salame, head of FTX Digital Markets.  

A Black Hole  

The FTX saga continues to unfold, with new developments regularly revealed. But what comes next?

Rep. Greg Steube (R-Fla.) told The Epoch Times that the link between FTX, Ukraine, and the Democratic Party is suspicious and that House Republicans will most likely look into it during the next session of Congress.

According to Gabriella Kusz, CEO of the Global Digital Asset and Cryptocurrency Association, many firms have been public about their exposure to FTX and its native token, FTT. But her organization is going further by writing an open letter to the crypto industry about core principles that can help the sector move forward and renew its health and reputation.

“This is not the end for the crypto industry—the Global DCA is already moving to advance industry discipline and the vehicle for ensuring alignment with the six core principles—credible self-regulation oriented in the public interest,” she told The Epoch Times. “What does this mean, exactly? Good industry actors coming together in a public-private partnership with government regulators and legislators to help drive industry standards, guidance, and stewardship.”

Despite the doom and gloom surrounding the crypto industry, Giorgi Khazaradze, CEO of the crypto platform and ecosystem Aurox, thinks the decentralized finance space will “shine.”

“We are seeing tokens leaving exchanges and people withdrawing from custodial services because trust is lost with cryptocurrency. Decentralization and being transparent to users will reestablish that trust over time (open-sourcing contracts, open-sourcing wallets, etc.),” he told The Epoch Times.

Platforms and users will need to return to the core decentralization objective of cryptocurrency rather than functioning as an ecosystem of only tokens, Khazaradze said.

“It’s so much more,” he said. ”The dot-com bubble is minor to what’s just happened in crypto.”