FTX Continues to Move Funds Amid Ongoing Investigations

FTX, a cryptocurrency exchange, has reportedly moved around $145 million in stablecoins across various platforms, according to Lookonchain. Three wallets associated with FTX and its subsidiary, Alameda Research, transferred 69.64 million Tether (USDT) and 75.94 million USD Coin (USDC) to custodial wallets on platforms like Coinbase, Binance, and Kraken. FTX and Alameda are currently facing demands to return funds to different groups of investors as the cryptocurrency exchange continues to grapple with ongoing investigations and lawsuits.

The FTX bankruptcy case has been ongoing for some time, with the troubled exchange already recovering $5 billion in cash and liquid cryptocurrencies by January 2023, according to FTX attorney Andy Dietderich. However, the total liabilities of the exchange are said to exceed $8.8 billion.

In the latest development in the FTX bankruptcy case, Alameda Research sold its remaining interest in venture capital firm Sequoia Capital to a company owned by the government of Abu Dhabi for $45 million. Meanwhile, Alameda Research filed a lawsuit against Grayscale Investments in the Court of Chancery in Delaware seeking to “unlock $9 billion or more in value for shareholders of the Grayscale Bitcoin and Ethereum Trusts and realize over a quarter billion dollars in asset value for the FTX Debtors’ customers and creditors,” according to a statement.

As lawsuits and investigations continue to pile up against FTX, some plaintiffs requested the consolidation of lawsuits against the bankrupt exchange. However, United States District Judge Jacqueline Corley recently denied the request, stating that the defendants have not yet been allowed to respond.

FTX was founded in 2019 by Sam Bankman-Fried and Gary Wang and has quickly become one of the largest cryptocurrency exchanges by trading volume. The exchange offers a range of crypto trading products, including futures, options, and leveraged tokens. The exchange has also attracted significant investment, with firms like Paradigm, Sequoia Capital, and Thoma Bravo investing in the exchange.

However, FTX has faced a series of setbacks in recent months. In December 2021, the exchange suffered a security breach, leading to the theft of $95 million worth of cryptocurrencies. The exchange was also hit with a lawsuit in January 2022 by a group of investors claiming that FTX and its executives misled investors about the exchange’s financial health.

FTX’s troubles have continued to mount, with the exchange facing investigations by the United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over allegations of market manipulation and insider trading. In February 2022, FTX was also hit with a class-action lawsuit by investors alleging that the exchange engaged in illegal market manipulation.

In response to the lawsuits and investigations, FTX has hired a team of high-profile lawyers and public relations experts to defend the exchange and its executives. However, the ongoing investigations and lawsuits continue to cast a shadow over the future of the cryptocurrency exchange.

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FTX to Sell Remaining Interest in Sequoia Capital to Abu Dhabi Sovereign Wealth Fund

According to the papers filed with the court, Alameda Research, the investment division of FTX, has reached an agreement to sell the company’s remaining stake in Sequoia Capital to Al Nawwar Investments Company Ltd, which is controlled by the government of Abu Dhabi. The transaction is valued at $45 million, and its completion is anticipated by the 31st of March, provided that the Delaware bankruptcy judge John Dorsey gives his consent. FTX made the decision to enter into the agreement with Purchaser because Purchaser had a more attractive offer and was capable of carrying out the selling transaction in a shorter amount of time.

The remaining stake that FTX has in Sequoia Capital has been put up for sale as part of the company’s ongoing attempts to sell its investments and satisfy its financial obligations to its creditors. Previously, Dorsey gave his blessing for the firm to sell certain assets, such as LedgerX, Embed, FTX Japan, and FTX Europe. This allowed the company to go through with the sale.

After being sued by Alameda Research for unpaid loan repayments, Voyager Digital has decided to put aside $445 million in response to the lawsuit. Dorsey has given his blessing to the move, and as a result, the firm will have to put the money away in order to pay off its debt.

The recent developments in the bankruptcy case involving FTX bring to light the persistent difficulties that cryptocurrency exchanges must overcome and the need of preserving their financial stability. Since the cryptocurrency sector is expected to continue expanding in the next years, it is essential that businesses place a high priority on openness and accountability in order to safeguard the interests of creditors and investors. The decision by Voyager Digital to put aside $445 million and the sale of the remaining shareholding held by FTX in Sequoia Capital both reflect a commitment to financial discipline and might assist to recover trust in the sector.

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FTX secretly lent Alameda Research $65B

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The New York Public Service Commission (PSC) was sued by environmentalists on January 13 for allowing the takeover of a bitcoin mining factory that was located within the borders of the state. According to the complaint, the Public Service Commission broke state law when it approved the takeover.

The state Public Service Commission (PSC), which is responsible for regulating public utilities, reportedly gave its approval in September of 2022 for the conversion of the Fortistar North power plant into a cryptocurrency mining facility. This was reported by The Guardian. The Public Service Commission is the agency that is in charge of regulating public utilities.

The Canadian cryptocurrency mining company Digihost had planned to acquire the facility, which is located in Tonawanda, a city that is less than sixteen kilometers from Niagara Falls. Tonawanda is a city that can be found in the state of New York.

The complainant’s main point is that the authorization violates New York’s climate legislation that was enacted in 2019, and this is what they consider to be their strongest argument.

The Climate Leadership and Community Protection Act (CLCPA) has a number of objectives, one of which is to cut the state’s emissions by 85 percent by the year 2050. This is just one of the many objectives. This is merely one of the many objectives that the act seeks to achieve. Another one of the goals is to completely do away with emissions produced by the electricity industry by the year 2040.

Earthjustice is the organization that will be representing the Sierra Club and the Clean Air Coalition of Western New York in this case. 

The organization known as Earthjustice is one that does not make a profit. In the complaint, they are making the argument that the Fortistar plant was only operated during the periods of time when there was a significant demand for power. For illustration, they are using instances in which there was severe weather as a case study.

If, on the other hand, it were to be converted into a facility for the mining of cryptocurrencies, it would be operational at all hours of the day and night, which would result in an increase in the emissions of greenhouse gases of up to 3,000 percent. Activists are of the opinion that environmental assessments need to be carried out whenever the state of New York analyzes proposed new projects.

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Alameda Research Problems Precede FTX For Sam Bankman-Fried

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Alameda Research, the now-defunct cryptocurrency trading business, was dangerously close to failing in 2018, far before FTX came into the scene, according to new investigations that investigate Sam Bankman-Fried and the exchanges that he caused to fail.

A study that was published in The Wall Street Journal and cited former workers stated that Alameda had significant financial losses as a result of the trading algorithm that it used. The program was developed to execute a high volume of transactions in a short amount of time in an automated fashion. Tthe company was losing money because of its incorrect predictions on how prices would fluctuate.

The decline in value of the XRP token in 2018 caused Alameda to lose approximately two-thirds of its assets, and the company came within a hair’s breadth of going out of business. Reports indicate that Bankman-Fried was successful in saving the trading company by soliciting financial support from lenders and investors and assuring them of profits of up to twenty percent on their investments.

Later in the month of April 2019, FTX was introduced with the intention of providing institutional investors with a secure refuge.

Bankman Fried leveraged Alameda as a growth engine with the introduction of the FTX, when the trading business became the primary market maker for the exchange. This allowed Bankman Fried to continue its expansion.

Some individuals who are knowledgeable with Alameda’s strategies assert that the exchange has on occasion taken the losing side of a bargain in order to attract customers.

In a previous statement, Bankman Fried said that Alameda and FTX have always functioned separately. However, a new complaint filed by the United States Securities and Exchange Commission (SEC) indicates that this is not the case. During the course of the case, it was discovered that Bankman Fried had given instructions to develop a piece of code in order to acquire an unfair advantage.

Regardless of the amount of collateral that Alameda put up with the exchange, the code would allow it for the company to keep a negative balance on the FTX. The Alameda has always been a ship that was doomed to sink from the very beginning.

However, Bankman Fried not only saved it in 2018 with borrowed money but also utilized it afterwards to construct the now-defunct FTX crypto exchange and fuel its expansion. In 2018, Bankman Fried rescued it with borrowed cash.

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Bankman-Fried May Plead Next Week Before Judge Lewis Kaplan In NY Federal Court

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According to a report published by Reuters on December 28 that cited court records, former CEO of the FTX cryptocurrency exchange Sam Bankman-Fried is scheduled to appear in court on the afternoon of January 3 to enter a plea on two counts of wire fraud and six counts of conspiracy related to the failure of the FTX cryptocurrency exchange.

In Manhattan, Bankman-Fried is scheduled to appear in front of District Judge Lewis Kaplan. After the initial judge on the case, Ronnie Abrams, was forced to disqualify herself because of links between FTX and the Davis Polk & Wardwell law firm, where her husband is a partner, Judge Kaplan was appointed to handle the case on December 27.

In the year 2021, the company offered consulting services to FTX.Kaplan is well-known for his unpretentious demeanor and his skillful management of the proceedings that take place in the courtroom. In 1994, President Bill Clinton of the United States nominated Kaplan for the position of Supreme Court Justice.

Before his arrest, Bankman-Fried expressed his disbelief on multiple occasions that he should be held criminally liable for the actions he took while serving as CEO of FTX. He claimed that the “unknowingly commingled funds” of customers of Alameda and FTX were the result of a simple accounting error that he committed.

“I don’t believe any such comments to be believable,” John Ray, who succeeded Bankman-Fried as CEO of FTX, testified during a hearing held by the Financial Services Committee of the United States House of Representatives.

Bankman-Fried is presently under house arrest in California with his parents as he awaits the outcome of his appeal of his $250 million bail, which includes a portion of the equity in his parents’ home.

Evaluation and therapy for mental health disorders as well as substance misuse were among the other prerequisites for Bankman-release Fried’s from custody.

Caroline Ellison and Gary Wang, both members of his inner circle at FTX and the related trading firm Alameda Research, have pleaded guilty to the charges against them and have agreed to cooperate with the prosecution, according to an announcement made by Damian Williams, the United States Attorney for the Southern District of New York, on December 22.

Nishad Singh, a former director of engineering at Alameda Research, and Sam Trabucco, a former co-CEO of Alameda Research alongside Larry Ellison who resigned on August 24, have not been charged as of this time. Bankman-close Fried’s allies Nishad Singh and Sam Trabucco were both fired on August 24.

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Why FTX May Not be the Only Scapegoat in its Own Downfall?

The bankruptcy of FTX Derivatives Exchange, the once crypto behemoth valued at about $32 billion, has served as a reference point for many to look at and engage with the industry with extreme caution.

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Last week, FTX still appeared normal despite revelations about inconsistencies in the balance sheet of its sister trading firm Alameda Research.

The journey toward the bankruptcy of FTX Derivatives Exchange did not prepare anyone, and as such, it caught many unaware. While we are still in the early stages of the proceedings, we are bound to see the ripple effect of these slumps over time.

FTX occupied a very pivotal position in the digital currency ecosystem, coming off as the lender of last resort to distressed firms in the entire course of the crypto winter and as an investor. FTX has investments in over 200 companies, all of which were listed in its bankruptcy filing.

While the collapse of FTX came off as a wildly shocking one, the fact that we saw some major players like Celsius Network, Voyager Digital, Three Arrows Capital, and Terraform Labs go under over the summer must have given attentive observers a clue that nothing is impossible in this space.

FTX and the Broad-based Heartbreak

A major difference in how the FTX’s demise shaped up when compared to a host of other bankrupt firms is perhaps what is breaking many people’s hearts at the moment. Despite promising the ethos of centralization, FTX notably dipped its hands into users’ funds in an unethical way which it used to fund unproductive business calls.

With the details we have seen thus far, FTX’s former CEO, Sam Bankman-Fried, transferred user deposits worth up to $4 billion to Alameda Research to prop up the firm for the failed intervention of Voyager Digital and other investments. 

“FTX now joins the infamous club of centralized crypto entities that went bust this cycle because they took enormous liberties not only with its customers’ funds but also with ethics, integrity, and the very ideals of crypto. Hopefully, both the industry as a whole and individual crypto users will be able to learn and grow from this experience,” said Anto Paroian, CEO and Executive Director at the cryptocurrency hedge fund ARK36, in an emailed statement to Blockchain.News.

The learning Anto was referring to may be necessitated following the demise of FTX, as thousands of investors will be affected. Notably, we can agree that FTX will not be the only scapegoat for its collapse, a fact that is bound to be unravelled in due course.

Exchanges Scrambling to Rebuild Trust

The collapse of FTX has placed a number of crypto trading platforms on edge. Starting with Binance, many outfits are now publishing the details of their reserves in a bid to regain the trust of customers across the board.

This position aligns with Anton’s recommendation that “users should consider every exchange potentially insolvent unless proven otherwise through proof-of-reserves.”

The published Proof-of-Reserve (POR) has thus far shown that Binance is the most healthy exchange, but keen observers have started finding faults in some crypto firms’ PoR. One such is Crypto.com, whose on-chain data shows that funds were deposited shortly before publishing its reserve.

Industry leaders, including Binance CEO Changpeng “CZ” Zhao, have indirectly advised how users should stay cautious.

Acts like this are highly antagonistic to the trust exchanges are trying to build, and a reflection of the distrust in Crypto.com has stirred a massive slump in the price of Cronos (CRO), the exchange native coin. CRO was down by 17.86% to $0.06472, corresponding to 48.49% over the trailing 7-day period.

The industry is at a pivotal time when investors will re-assess their short- and long-term goals. Many may even steer clear of the market for a while until normalcy, a highly relative word in this regard, is restored to the market.

By the time the FTX contagion has been fully manifested, and the worst of this crypto winter is finally over, only exchanges that have given investors reasons to trust it continually will likely remain in business.

The Place of Regulation

Regulators have been wading into the FTX saga, with lawmakers in various crypto-active countries calling for tighter scrutiny of the industry.

Many regulators were shaken by the collapse of Terra (LUNA), and South Korean lawmakers are still neck deep into the investigations into founder Do Kwon who is still at large. The bankruptcy of FTX only reiterates the positioning of these watchdogs over time that the industry is highly speculative and requires adequate oversight.

Gary Gensler, the United States Securities and Exchange Commission (SEC) Chairman, pointed out that the industry is non-compliant with the existing laws, and more enforcement is bound to surface moving forward.

With many already hurt by the bankruptcies in the crypto industry thus far this year, the SEC and other regulators will undoubtedly step in to wade off further losses shortly.

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FTX Enters Bankruptcy as Sam Bankman-Fried Steps Down as CEO

Troubled crypto exchange FTX filed for Chapter 11 bankruptcy protection in the U.S., with Sam Bankman-Fried resigning as the CEO. 

The bankruptcy application included approximately 130 more affiliated companies including Alameda Research, the exchange’s trading firm, and FTX US, the company’s U.S. subsidiary. 

According to an FTX statement posted on Twitter, John J. Ray III took over as the CEO of the FTX Group.

Ray pointed out:

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders.”

FTX also indicated that it comprised at least 100,000 creditors, with assets ranging between $10 billion and $50 billion. Liabilities were valued at a similar range. 

Ray noted:

“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to assure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness, and transparency.”

In a matter of days, FTX’s valuation nosedived from $32 billion to bankruptcy based on a liquidity crisis, given that customer withdrawals went through the roof. Reportedly, a giant withdrawal surge of $6 billion in cryptocurrencies was witnessed in just 72 hours.

Furthermore, the Binance takeover bid was halted, citing FTX’s misappropriation of customer funds, Blockchain.News reported. 

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance stated.

Therefore, the liquidity crunch at FTX might have emanated from Sam Bankman-Fried secretly transferring at least $4 billion to boost Alameda Research, with part of the funds being customer deposits.

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Was the Secret Transfer of $4 Billion to Alameda, FTX’s Undoing?

The liquidity crunch facing FTX might have emanated from Sam Bankman-Fried, the crypto exchange’s CEO, secretly transferring at least $4 billion to boost Alameda, with part of the funds being customer deposits, according to Reuters.

Per the report:

“Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc. Bankman-Fried did not tell other FTX executives about the move to prop up Alameda.”

Lucas Nuzzi, the head of research & development at CoinMetrics, shared similar sentiments and stated:

“I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them. 40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared.”

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Source: LucasNuzzi

FTX’s downfall was also prompted by Bankman-Fried’s decision to save struggling crypto firms as the bear market continued to bite. The report noted:

“Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing.”

Part of the losses that Alameda Research endured entailed a $500 million loan agreement with collapsed crypto lender Voyager Digital. 

FTX’s future is in jeopardy after Binance halted acquisition plans, citing misappropriation of customer funds, Blockchain.News reported.

Binance disclosed that this decision was reached based on corporate due diligence and reports of alleged U.S. agency investigations and mishandled client funds. 

Based on a shortfall of up to $8 billion, Bankman-Fried acknowledged that FTX needed $4 billion to remain solvent to avoid bankruptcy. 

The rain started beating FTX after experiencing a “giant withdrawal surge” of $6 billion in cryptocurrencies in just 72 hours. The crypto exchange was accustomed to daily withdrawals that amounted to tens of millions of dollars. 

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Was the Secret Transfer of $4 Billion to Alameda, FTX’s Undoing?

The liquidity crunch facing FTX might have emanated from Sam Bankman-Fried, the crypto exchange’s CEO, secretly transferring at least $4 billion to boost Alameda, with part of the funds being customer deposits, according to Reuters.

Per the report:

“Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc. Bankman-Fried did not tell other FTX executives about the move to prop up Alameda.”

Lucas Nuzzi, the head of research & development at CoinMetrics, shared similar sentiments and stated:

“I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them. 40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared.”

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Source:LucasNuzzi

 

FTX’s downfall was also prompted by Bankman-Fried’s decision to save struggling crypto firms as the bear market continued to bite. The report noted:

“Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing.”

Part of the losses that Alameda Research endured entailed a $500 million loan agreement with collapsed crypto lender Voyager Digital. 

 

FTX’s future is in jeopardy after Binance halted acquisition plans, citing misappropriation of customer funds, Blockchain.News reported.

 

Binance disclosed that this decision was reached based on corporate due diligence and reports of alleged U.S. agency investigations and mishandled client funds. 

 

Based on a shortfall of up to $8 billion, Bankman-Fried acknowledged that FTX was in need of $4 billion to remain solvent if it was to avoid the bankruptcy route. 

 

The rain started beating FTX after experiencing a “giant withdrawal surge” of $6 billion in cryptocurrencies in just 72 hours. The crypto exchange was accustomed to daily withdrawals that amounted to tens of millions of dollars. 

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FTX Denies Rumours of Merging between Alameda Research and FTX VC

Sam Bankman-Fried, founder and CEO of cryptocurrency exchange FTX, has denied reports that his two companies, FTX ventures and Alameda Research, are merging venture capital operations.

The news comes after Sam Trabucco, co-CEO of crypto asset fund Alameda Research, announced on Twitter on Aug. 25 that he would be stepping down from his leadership role.

Caroline Ellison will be the company’s sole CEO following the departure of Sam Trabucco.

Sources said the merger is part of an effort to strengthen billionaire Sam Bankman-Fried’s empire in response to a prolonged decline in cryptocurrency prices.

Sam Bankman-Fried tweeted back, “This seems like a big misinformation to me!”

He added, “FTX’s venture capital is concentrated under FTX Ventures — unlike Alameda’s venture capital, which is not.”

The venture capital arm of FTX and the venture capital business of sister company Alameda Research are not combined but operate independently as two companies.

Amy Wu, CEO of FTX Ventures, said that the FTX Cryptocurrency Exchange, FTX Ventures, and Alameda all operate entirely as separate entities from each other.

Alameda CEO Caroline Ellison explains that Alameda will focus primarily on exchanges, OTC, and decentralized finance.

She added, “We’re arm’s length and don’t get any different treatment from other market makers. The Alameda team isn’t working too much on the venture side day-to-day.”

FTX Ventures launched earlier this year and raised $2 billion in January, during which no money changed hands between FTX and Alameda.

FTX manages assets through Alameda Research, a quantitative cryptocurrency trading firm, founded by Sam Bankman-Fried in October 2017.

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