Lawsuit: FTX’s Multibillion-Dollar Shortfall Was Known Months Earlier
A new lawsuit that FTX filed against its former C-Suite shows that the execs knew that $8 billion to $10 billion were missing.
As John J Ray III and his team work hard to get as much money back for FTX’s creditors as possible, new proof of intentional wrongdoing comes to light as piles of unorganized information about the company’s internal dealings are looked through.
At Least $8 Billion Could Not Be Repaid
The new lawsuit against FTX’s former C-suite, which accuses SBF, Ellison, Wang, and Singh of breach of fiduciary duty and other crimes, says that Bankman-Fried knew about a “liability of $8 billion in a hidden, poorly labeled fiat account” and told potential investors about it.
SBF’s earlier boast that FTX can’t be audited was a sign of arrogance. FTX’s new management accuses SBF of labeling customer funds as a liability, which suggests that these funds were mixed with FTX funds.
“Alameda is unauditable. I don’t mean this in the sense of “a major accounting firm will have reservations about auditing it”; I mean this in the sense of “we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.[”] We sometimes find $50m of assets lying around that we lost track of; such is life.”
Bloomberg says that Caroline Ellison did the math on the FTX Group’s transactions as far back as March 2022 and found that the crypto empire owed $8 billion to users that it couldn’t pay back. But this number was just a part of a bigger loss of about $10 billion.
The new people in charge of FTX can only guess where those funds went, but they do have some ideas, which were stated in the court document above.
Bonuses and Private Bunkers
Aside from the well-documented risky investments that FTX made, such as margin trading and investments in different startups, the company’s former leaders also used money to pay themselves large bonuses for, presumably, running the company in a good way.
Bloomberg says that soon after Ellison “discovered” the huge hole in FTX’s budget, she gave herself a $22.5 million bonus, which she used, among other things, to invest in an AI startup in her own name.
In a similar way, it is said that Nishad Singh got about $477 million worth of FTX shares for free.
But it was clear that these two executives didn’t think as well as their CEO, who put money into several useless projects when he wasn’t putting $546 million of his clients’ money into Robinhood.
The court document shows that the FTX foundation did things that were highly speculative or even straight-up science fiction. One internal letter shows that SBF wanted to buy the island of Nauru and build a bunker for members of the Effective Altruism movement, which he was a strong supporter of.
If there were a collapse, EAs could survive, come up with sensible rules for genetically enhancing humans, and build a lab there, among other things.
