The collapse of FTX, a cryptocurrency exchange once valued at $32 billion – and founder Sam Bankman-Fried’s arrest on Monday on a series of charges that he defrauded his investors – prompted many to simply ask: where are they? ran out of money?
Current FTX CEO John J. Ray III, a corporate restructuring expert who oversaw the restructuring of bankrupt energy trader Enron, appeared before the House Financial Services Committee on Tuesday. He told lawmakers they are still in a “very preliminary stage” in their investigation, but it is evident that Bankman-Fried and his colleagues were “grossly inexperienced and unsophisticated.” Ray indicated that clients and investors who put their money into FTX and its affiliates shouldn’t hope for a full recovery, saying, “We’re never going to get all of these assets back.”
In bankruptcy filings and documents provided to Congress and regulators, the new leadership at Ray and FTX organized their efforts to recover as much of client and investor funds as possible by examining four silos, or categories, where corporate funds they were channeled by Bankman: Fried and his partners: WRS, Alameda Research, FTX.com and a variety of venture investments.
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Ray noted that the new management team believes no outside investor owns more than a 2% stake in any silo, but has a low degree of faith in FTX’s financial records, and noted Tuesday that his team is essentially starting from scratch. because FTX had “almost zero” logging infrastructure.
Here’s a look at what went into each silo:
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West Realm Shires (WRS) Inc. is the corporate entity under which FTX US operated as a cryptocurrency trading company that bought, sold and stored virtual currency for clients around the world. According to the flowchart, Bankman-Fried had an approximately 53% stake in this silo; Former FTX executives Gary Wang and Nishad Singh held about 17% and 8%, respectively; and third-party investors held just over 22%.
US WRS/FTX silo contains LedgerX, a Federal Commodity Futures Trading Commission (CFTC) regulated cryptocurrency trading platform that FTX acquired and rebranded as FTX Derivatives; securities broker-dealer FTX Capital Markets; Embed Clearing, a clearing house for brokers; FTX game; and FTX NFTs.
It also includes loans made to BlockFi, a cryptocurrency lender that received investment from FTX and also lent money to Alameda before filing for bankruptcy amid broader contagion in the cryptocurrency markets caused by FTX’s bankruptcy.
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Alameda is a hedge fund that specializes in trading within the crypto space. It was co-founded by Bankman-Fried and Tara Mac Aulay. Mac Aulay tweeted that she and “a group of others” all resigned in 2018, in part over concerns about risk management and business ethics. Bankman-Fried held a 90% stake in the company, which was headed by Caroline Ellison before its collapse.
Reports say Alameda improperly received billions of dollars in FTX client funds and leveraged those funds to make risky investments which were unsuccessful and led to the bankruptcy of both the hedge fund and FTX when the firms weren’t able to. able to repay their lenders. Notably, BlockFi filed a lawsuit against a holding company associated with Bankman-Fried that failed to promise to repay Alameda’s debts with shares in Robinhood Markets before the companies filed for bankruptcy.
The Alameda silo held cryptocurrencies, crypto ETFs, other digital assets, and treasuries. Alameda has also made a number of venture capital investments in crypto miner Genesis Digital Assets; Capital Module; pionic (throwing); and other.
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The venture silo includes a number of venture capital investments made by Bankman-Fried, which the flowchart notes potentially held a 100% stake in this category, although Gary Wang and Nishad Singh may have direct or indirect interests.
Entities that have received funds within this silo include AI security firm Anthropic; venture capital firm K5; financial app Dave Inc.; Sequoia Capital, which is one of the oldest and largest venture capital firms in Silicon Valley; blockchain startup Mysten Labs; and other companies.
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Known as the “dotcom silo” in the flowchart, approximately 75% of this category was held by Bankman-Fried while third-party investors had a 25% stake. The parent company of the dot-com silo was FTX Trading Ltd., trading as FTX.com.
In addition to holding the FTX exchange and a number of subsidiaries located in non-US jurisdictions, this silo contained a number of real estate assets. Bankman-Fried and others associated with FTX were accused of improperly purchasing homes and personal belongings in the Bahamas using company funds.
Ray noted in the bankruptcy filings that “there appears to be no documentation for some of these transactions such as loans and that some real estate has been registered in the personal names of these employees and consultants in the Bahamian registries.”
Kelly O’Grady of Fox Business contributed to this report.
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