NEW YORK, Nov. 11 (Reuters) – At least $1 billion in customer funds disappeared from collapsed cryptocurrency exchange FTX, according to two people familiar with the matter.
The exchange’s founder, Sam Bankman-Fried, secretly moved $10 billion in client funds from FTX to Bankman-Fried’s trading firm, Alameda Research, people familiar with the matter told Reuters.
Much of it has disappeared, they say. One source said the missing amount was about $1.7 billion. Another said the gap was between $1 billion and $2 billion.
While FTX is known to move client funds to Alameda, this is the first time the lost funds have been reported.
Records shared by Bankman-Fried with other executives on Sunday revealed financial flaws, according to two sources. They said the records provided an update on the situation at the time. Two sources, who had held senior positions at FTX until this week, said they had been briefed by senior staff on the company’s financial health.
Bahamas-based FTX filed for Chapter 11 bankruptcy on Friday after a large number of customers pulled their funds earlier this week. The failure of a rescue deal with rival exchange Binance led to the cryptocurrency’s most high-profile collapse in recent years.
Bankman-Fried said in a text message to Reuters that he “disagrees with the description” of the $10 billion transfer.
“We have no secret transfers,” he said. “We confused the internal label and misread it,” he added, without elaborating.
When asked about the lost funds, Bankman-Fried replied: “???”
FTX and Alameda did not respond to requests for comment.
In a tweet on Friday, Bankman-Fried said he was “piecing together” what happened with FTX. “I was shocked to see things unravel the way they did earlier this week,” he wrote. “I’ll be writing a more complete article soon, one by one.”
At the heart of FTX’s problems, Reuters previously reported, was Alameda’s losses that most FTX executives were unaware of.
On Sunday, Changpeng Zhao, CEO of major cryptocurrency exchange Binance, said that “due to recent revelations,” Binance will sell its entire stake in FTX digital tokens worth at least $580 million, after which customers’ Withdrawals surged. Four days ago, news outlet CoinDesk reported that the bulk of Alameda’s $14.6 billion in assets is held in tokens.
That Sunday, Bankman-Fried held a meeting with several executives in Nassau, the Bahamas capital, to calculate how much outside money he would need to cover FTX’s funding gap, two people familiar with FTX’s finances said.
Bankman-Fried confirmed to Reuters that the meeting had taken place.
Bankman-Fried showed the heads of the company’s regulatory and legal teams several spreadsheets showing that FTX had moved about $10 billion in client funds from FTX to Alameda, two of the people said. They said the spreadsheet showed how much FTX lent to Alameda and for what purpose.
The documents show that between $1 billion and $2 billion of those funds were not included in Alameda’s assets, the sources said. The spreadsheet did not say where the money went, and sources said they had no idea where it went.
During a subsequent inspection, the FTX legal and finance team also learned that Bankman-Fried had implemented what the pair described as a “backdoor” into FTX’s bookkeeping system, which was built using custom software.
They said the “back door” allowed Bankman-Fried to execute orders that could alter the company’s financial records without alerting others, including external auditors. That setup meant that moving the $10 billion to Alameda did not trigger FTX’s internal compliance or accounting red flags, they said.
In a text message to Reuters, Bankman-Fried denied implementing a “backdoor.”
The U.S. Securities and Exchange Commission is investigating FTX.com’s handling of customer funds and its crypto lending activities, a source with knowledge of the investigation told Reuters on Wednesday. The Justice Department and the Commodity Futures Trading Commission are also investigating, the sources said.
The bankruptcy of FTX marks a stunning reversal for Bankman-Fried. The 30-year-old founded FTX in 2019 and has led it to become one of the largest cryptocurrency exchanges, amassing an estimated personal wealth of nearly $17 billion. FTX was valued at $32 billion in January, with investors including SoftBank and BlackRock.
The crisis has reverberated in the crypto world, with the prices of major coins plummeting. FTX’s collapse is being compared to earlier major business collapses.
On Friday, FTX said it had handed over control of the company to restructuring specialist John J. Ray III, who handled Enron’s liquidation — one of the largest bankruptcy cases in history.
Reporting by Angus Berwick; Editing by Paritosh Bansal and Janet McBride
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