FTX Diverted Customer Funds to Buyback Stake from Rival Company Binance
It was disclosed that FTX customers’ money was spent on business investments, political and charity donations, and real estate.
Beleaguered cryptocurrency exchange FTX spent customer’s deposits for business investments, political contributions, charitable donations, real estate, and the buyback of shares from competitor exchange Binance.
During a hearing on Wednesday at the ongoing Sam Bankman-Fried (SBF) trial, professor Peter Easton, an accounting officer hired by the US Department of Justice (DOJ) to investigate the company’s financial records, revealed that the exchange spent billions of dollars repurchasing its stakes from Binance.
CZ Confirms Binance Received Billions from FTX
Last year, Binance CEO Changpeng Zhao (CZ) confirmed in a post on X (formerly Twitter) that the exchange received approximately $2.1 billion from the exchange in relation to its deal with FTX back in 2021.
In November 2022, Binance liquidated its FTT position worth over $580 million after speculations that FTX could be solvent. The firm received the token back in 2019 after its partnership with the exchange.
Recent revelations from Professor Easton confirmed that over a billion dollars at approximately $1.2 billion spent on the buyback program came from FTX’s customer funds.
[Deed of property to SBF’s parents is shown to jury]AUSA Roos: Have you analyzed the spending out of the “Allow Negative” accounts?
Easton: Yes.
AUSA Roos: What about the Binance buy-back?
Easton: Over a billion dollars came from customer funds from FTX exchange— Inner City Press (@innercitypress) October 18, 2023
Further scrutiny into the company’s bank accounts and crypto wallets involving BNB, BTC, ETH, LINK, LTC, MATIC, UST, USTP, and other cryptocurrencies showed that the exchange started borrowing money from customers’ deposits in January 2021.
Easton also testified that the amount of customer funds held in Alameda and FTX is nowhere close to what the company currently owes customers.
According to him, the amount held in FTX hot and cold wallets was far less than what was owed to customers, and the difference between what the exchange had and what it owed to customers was around $8.8 billion.
“The amount of customer deposits held in Alameda and FTX bank accounts was far less than what was owed to FTX customers,” said he.
Alameda Used FTX’s Customer Funds for Business Expenses
Easton also found that when customers deposited funds to their wallets, the funds would be pulled to the “FTX sweep wallet”, a secret wallet created by FTX to siphon customer’s funds. As of October 2022, the difference between what the exchange owed customers and what they had was $10.3 billion. Although the account should have had $11.4 billion, the company only had $1.1 billion.
During the Wednesday hearing, he also said that Alameda Research, a hedge fund and sister company of FTX, used customer fiat deposits to pay for its business expenses.
The professor disclosed that FTX customers’ money was spent on business investments, political and charity donations, and real estate. Some of the investments included Genesis Digital Assets, K5 Global, Anthropic, Robinhood Shares, and Skybridge Capital, and the funds were moved through Alameda’s bank account from customer funds at FTX.
In addition, Alameda created a sham company named Emergent Fidelity Technologies, which was used to channel money to insiders, including FTX CEO Sam Bankman-Fried’s brother’s non-profit organization.
According to the professor, $150 million of customer funds were also moved to Alameda accounts, with $100 million from the funds being transferred to SBF’s entity in the Bahamas called FTX Digital Markets. The funds were then used to purchase real estate upon SBF authorization.
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Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.
