FTX splashed huge amounts of customers’ funds on non-crypto projects

Temitope Akintade

It’s over six months since the collapse of the infamous FTX crypto exchange but the scandal that has followed its implosion is enormous.

After filing for Chapter 11 bankruptcy in November, fresh revelations are coming out. The latest is that former executives of the crypto exchange allegedly splurged millions of dollars on “Pineapple house” ($1.8 million) and other niche projects unrelated to crypto or Web3, according to a Monday report from John Ray, FTX’s restructuring chief and CEO.

This  33-page report is in succession to an initial review conducted by Ray which unveiled multiple incidents of unscrupulous activity during the tenure of Sam Bankman-Fried (SBF).

The report 

John Ray stated in the new announcement:

“The release of this report furthers our stated objective of transparency, both about the facts uncovered about the operation of FTX.com and the important issues being navigated as we seek to maximize recoveries.”

The report lays out the uses of the allegedly misappropriated customer funds which included “charitable” donations made by the exchange’s co-founder Sam Bankman-Fried and other former executives under the nonprofit Foundation.

SEC charges Sam Bankman-Fried with fraud 
Sam Bankman-Fried, co-founder and chief executive officer of FTX, in Hong Kong, China, on Tuesday, May 11, 2021. FTX, the digital-assets trading platform launched two years ago by Bankman-Fried, said it handled enough volume last month to make it one of the largest crypto exchanges. Photographer: Lam Yik/Bloomberg via Getty Images

Specifically, $700,000, $400,000 and $300,000 worth of FTX Foundation “grants” were given out to YouTubers and a writer in a disguised scheme that commingled customer funds in various bank accounts controlled by the company, Alameda Research and various other entities.

Also, the new report lists a $1.8 million property branded “Pineapple House” among the exchange’s $243 million Bahamian real estate portfolio, which was purchased using customer funds. Some other uses of the  commingled customer funds included around $20 million sent to the nonprofit organization Guarding Against Pandemics and “related entities.”

Guarding Against Pandemics advocates for investments to prevent pandemics such as COVID-19 and the company worked closely with the political action committee which is run by Gabe Bankman-Fried, the younger brother of Sam Bankman-Fried.

John Ray stated that FTX blurred the lines between corporate and customer funds, misusing them under the guidance of former top-level executives.

Customers’ funds recovered 

Due to the mishandling and commingling of customer funds, FTX is in debt to its customers for $8.7 billion. Approximately $6.4 billion of the total owed to clients were misappropriated funds in stablecoins and fiat currency and the search efforts led by John Ray have recovered about $7 billion in liquid assets. 

The investigators are however optimistic about retrieving more. Ray clarified that FTX is currently seeking to recoup funds for creditors, stating:

The image that the FTX Group sought to portray as the customer-focused leader of the digital age was a mirage. From the inception of the FTX.com exchange, the FTX Group commingled customer deposits and corporate funds, and misused them with abandon at the direction and by the design of previous senior executives. We will continue to report our analysis and findings as our work progresses, and remain committed to recovering as much value as possible for creditors.”

Read also:

FTX launches customer balance withdrawal website 

Now, Ray’s efforts are aimed at settling the exchange’s liabilities as the company works through its Chapter 11 bankruptcy trial in Delaware. The search for additional assets is continuing. However, the extensive commingling of funds complicates their efforts.

What is next?

Whether the amount recovered by John Ray and his team is consequential and if more funds are going to be recouped is up for grabs. However, recent updates show that FTX might be on its way to recovery.

The ex-CEO of the exchange, Sam Bankman-Fried is expected to stand trial in New York this October on eight different counts of defrauding customers, bank fraud and other illicit and fraudulent activities. Former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang have already pleaded guilty to federal charges. They are cooperating with prosecutors.

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