$9 Billion In Customer Funds Missing As Dust Settles From FTX Collapse

An inventory of the FTX wallets where there may be a “massive shortfall” has finally been completed and the findings are bleak. The company handling the FTX bankruptcy admitted they have located less than $2.2 billion in client assets, and of that, only $694 million is deemed to be in liquid currencies. This leaves $9 billion unaccounted for when subtracted from the $11.2 billion in outstanding customer funds.

Preliminary Analysis of Shortfalls at FTX.com

In a presentation given this week titled Preliminary Analysis of Shortfalls at FTX.com, the blame was placed firmly on the shoulders of disgraced ex-CEO, Sam Bankman-Fried. Findings show that Bankman-Fried’s hedge fund, Alameda Research, borrowed $9.3 billion from FTX wallets.

These figures are based on the value of cryptocurrencies when FTX filed for bankruptcy in November 2022. However, this marks the first time the failed crypto exchange has conceded the extent of missing funds.

When you drill down into the $2.2 billion in funds that have been recovered, $880 million are in liquid assets related to stablecoins or major altcoins. The remaining $1.5 billion are in illiquid assets such as FTX’s native token, FTT.

It is worth noting that a law firm representing FTX said last month that it had found $5.5 billion in customer accounts and other areas of the firm. However, it is not clear whether these funds have been included in this week’s presentation.

“A Complete Failure”

John J. Ray III is in charge of taking FTX through Chapter 11 bankruptcy proceedings and has been vocal in his criticisms of the infamous exchange.

In the run-up to FTX’s demise, he said the firm had showed “a complete failure” of corporate controls with books that “in many cases, [were] totally absent.”

Will Customers Get Their Money Back?

Whilst FTX claims they are releasing this information for “transparency”, it doesn’t look promising for customers out of pocket. The company must contend with a catalogue of liabilities, creditors and key stakeholders. Then there is the liquidation and subsequent reorganization of more than 100 companies that formed Bankman-Freid’s shadowy empire.

It is true that FTX Japan unfroze its customer accounts last month, meaning users could access what was left of their depreciated assets. However, it is not clear whether FTX customers elsewhere in the world will ever be able to sign into their accounts again.

In the meantime, US prosecutors have upped Bankman-Fried’s charge count from 8 to 12, adding allegations of illegal political donations to the existing charges of fraud and conspiracy. The FTX-ex CEO has pleaded not guilty and his trial will begin on 2 October.

An Alternative?

The last 12 months have seen a wave of scandals in the crypto space, most notably the demise of high-profile exchanges like FTX and BlockFi. This has shone a spotlight on the unscrupulous practices of crypto exchanges which have demonstrated that they cannot be trusted to manage customer funds.

With this in mind, some traders are now considering an alternative, crypto brokers. These online brokerages typically have a track record of stock, forex and commodity trading and now also offer derivatives in popular cryptocurrencies. The result is that traders can speculate on big tokens like Bitcoin without having to actually buy and store Bitcoin – they can simply bet on whether the price will rise or fall.

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Interactive Brokers
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