- Since Sam Bankman-Fried stepped down as CEO and FTX filed for bankruptcy, a number of unusual details have come to light.
- Recently, it emerged that FTX allegedly told its customers to wire money to a fake, little-known electronics retailer website.
- FTX executives also allegedly hid $8 billion in debt in what Bankman-Fried called “our Korean friend’s account.”
Crypto critics and proponents consider the fledgling sector a Wild West, but the collapse of Sam Bankman-Fried’s FTX has given new weight to the term.
The connections between coins in his crypto empire — which included exchange FTX, hedge fund Alameda Research, and dozens of smaller subsidiaries — remain complex. Ever since FTX filed for bankruptcy on Nov. 11, bizarre new details surrounding shady finances continue to emerge.
SEC Complaint Says FTX Told Clients to Wire Money to Little-Known Affiliate fake online electronics retailer. North Dimension, as it was known, played a vital role in utilizing FTX client funds in Alameda’s business activity.
The site was taken down, but it was full of misspelled words and what appeared to be misreviewed articles. For example, an electronic item had a “sale” price of $899, even though it had a regular price of $410.
The revelations only get stranger from there. FTX executives hid $8 billion in debt in a client account that Bankman-Fried called “our korean friend’s accountsays a Commodity Futures Trading Commission lawsuit.
And court documents show that Bankman-Fried and FTX co-founder Gary Wang borrowed $546 million in promissory notes from Alameda earlier this year to buy shares of Robinhood.
Then Alameda took out a loan and pledged those same shares as collateral.
Bankman-Fried is now stuck in a foursome legal battle with the new management of FTX, as well as bankrupt crypto lender BlockFi and creditor Antigua, for control of this Robinhood stake.
Meanwhile, the SEC also alleges that FTX used $200 million in user deposits for venture capital investments. Half of that went to fintech company Dave, while the other half went to Web3 company Mysten Labs.
“FTX was an opaque company that was so centralized that it relied entirely on one person,” said Andrew Yeoh, chief marketing officer of the Web3 company. Nillion, said Insider. “The whole point of decentralization is to prevent results like FTX where one person can take advantage of trust. I think the public and certainly the industry is waking up.”
A centralized player in a decentralized environment
The SEC alleged that Bankman-Fried orchestrated a fraud scheme that had been going on for years. He was denied criminal liability and is due to appear in federal court in New York on January 3 on charges of wire fraud and conspiracy.
According to Jeffrey Blockinger, general counsel at quadrata. The resulting fallout, he told Insider, could end up driving investors away from similar and rival exchanges.
To Darren Sandler, Senior Counsel at Crypto Republicthe whole saga is ironic and highlights the shortcomings of a centralized player in an ostensibly decentralized environment.
“The point of crypto is that it’s completely decentralized and trustless,” he told Insider. “Acts of fraud and embezzlement should in fact be impossible or extremely difficult to commit. Everyday participants should not have to blindly trust crypto companies or based on their reputation.”
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