ICYMI: What happened with FTX this week
As FTX’s bankruptcy progresses, fresh information has continued to trickle out around the crypto exchange’s balance sheet and the behavior of executives leading up to its collapse.
The exchange collapsed late last year, a period marked by a slew of bankruptcies from Celsius to Three Arrows Capital.
The failure of one of the world’s largest exchanges went from bad to worse as then-CEO Sam Bankman-Fried attempted to come up with liquidity as the SEC and CFTC investigated.
John J. Ray III, known for overseeing Enron’s bankruptcy, was tapped as CEO following FTX filing for bankruptcy.
This week, Ray released a second report on the state of FTX, and a claims portal could open as soon as July 3. A judge denied Bankman-Fried’s motion to dismiss charges.
Read more:What an FTX Reboot Could Look Like — And Is It Even Viable?
There are also reports that FTX has explored a relaunch. Here’s what we know.
Investigation has been ‘extraordinarily challenging’
The newest report uncovered $7 billion of previously unaccounted assets in an arduous process.
“From the inception of the FTX.com exchange, the FTX Group commingled customer deposits and corporate funds, and misused them with abandon,” Ray and his team wrote in the June 26 filing.
Despite uncovering $7 billion, debtors are still $1.7 billion short of nearly $9 billion needed to repay customers. The misuse and commingling of the funds has “complicated” efforts.
FTX created North Dimension to oversee customer deposits. A filing claimed they totaled at least $2 billion by late December 2921 — including approximately $1 billion in customer deposits.
Executives at FTX made over $100 million in political donations funded through “loans” from FTX. At least $12.7 million donated from an executive, Ray found, came from North Dimension accounts commingled with customer deposits.
Related: Yes, Prosecutors Will Claw Back FTX Money From US Lawmakers
Debtors target ex-attorney for FTX
A June 28 complaint alleged Daniel Friedberg, former chief regulatory officer, committed fraud at FTX and accused him of being a “fixer” for Bankman-Fried.
The complaint was filed after an unnamed senior attorney was accused of firing another attorney after they noticed “a lack of internal documentation and recordkeeping.” The unnamed attorney in Ray’s report was also accused of false documentation.
There is no direct indication in Ray’s report that the unnamed attorney is Friedberg.
The complaint against Friedberg alleges he “knowingly” failed to ensure proper risk mitigation or compliance.
“He not only settled the complaints for inflated amounts, in some instances he arranged for the FTX Group to retain the whistleblowers’ attorneys post-settlement, thereby buying or otherwise ensuring their silence,” the filing says.
While at FTX, Friedberg’s resume grew, working his way up into increasingly senior compliance positions that encompassed both FTX and Alameda roles.
Bankman-Fried was unable to set up a proper bank account for FTX in 2020, but the complaint alleges Friedberg “solved this problem.”
Friedberg also allegedly provided an auditor with a “false, backdated Payment Agent Agreement,” which led to the auditor creating a financial statement for an FTX unit that was provided to potential investors.
Judge denied Bankman-Fried’s motion to dismiss
Bankman-Fried’s bid to get certain charges dropped from the US government’s case against him was denied by a judge on Tuesday. He had asked Judge Lewis Kaplan to drop 11 of 13 counts.
Bankman-Fried aimed to dismiss the post-extradition charges and a charge of campaign finance because “they allegedly were charged in a manner” that violated the Extradition Treaty between the US and the Bahamas.
Read more: Drowning in Sam Bankman-Fried: A Survival Guide
Kaplan said Bankman-Fried’s claims presented “arguments [that were] either moot or without merit.”
Bankman-Fried’s trial is expected to take place in early October. He’s pleaded not guilty.