FTX Exchange Lacked Sufficient Funds to Repay User Deposits, Expert Reveals
In the trial of FTX founder Sam Bankman-Fried on charges of fraud and conspiracy, an accounting expert disclosed that as early as March 2021, the crypto exchange did not have enough funds to repay user deposits. According to University of Notre Dame accounting professor Peter Easton, by June 2020, FTX had a meager $2 billion in bank balances to support over $11 billion in customer deposits. Easton also presented evidence demonstrating how customer deposits were funneled into various business investments.
Easton specifically highlighted that the purchase of Modulo Capital, a Bahamian financial firm owned by FTX, was entirely financed using customer funds. Additionally, he revealed that customer funds played a crucial role in FTX’s significant investment in SkyBridge Capital, a company headed by Anthony Scaramucci.
AUSA Roos: GX 3006. Investment in Dave, Inc. in March of 2022.
Easton: A $100 million stake, an Alameda venture signed by Bankman-Fried.
AUSA Roos: GX 1029.
Easton: This flow involves Sam Bankman-Fried’s Paper Bird entity, to UBS
AUSA: Source?
Easton: Customers— Inner City Press (@innercitypress) October 18, 2023
FTX Customer Funds Directed To Company Owned By Bankman-Fried
FTX customers were also the main contributors to a $550 million investment by FTX in Genesis Digital Assets, a bitcoin mining firm. Professor Easton presented a chart that illustrated how funds from FTX users were channeled into a bank account belonging to Paper Bird, Inc., a company solely owned by Bankman-Fried.
Furthermore, Easton disclosed that a significant portion of the $100 million investment made by the FTX founder in Dave, Inc., a mobile banking platform, was funded by FTX users through Paper Bird.
Hot Take: FTX’s Misuse of Customer Funds Raises Serious Concerns
The revelations made during the trial of FTX founder Sam Bankman-Fried shed light on the misuse of customer funds within the exchange. The evidence presented by accounting expert Peter Easton demonstrates how customer deposits were diverted into various business investments, including the acquisition of Modulo Capital and investments in SkyBridge Capital and Genesis Digital Assets.
This misuse of funds raises serious concerns about the financial stability and integrity of FTX. Customers who deposited their assets with the exchange may now question whether their funds were properly safeguarded and used for their intended purpose. The outcome of this trial will have significant implications for the crypto industry and its regulation, emphasizing the need for transparency and accountability in cryptocurrency exchanges.
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