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The FTX exchange lent billions of dollars to Alameda Research.
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Under a pseudonym account on FTX, the firm’s liabilities were masked.
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A number of fraud charges have been filed against Caroline Ellison and Gary Wang.
Crypto exchange FTX is beginning to unravel the mystery of “where did the money go” for a reason that has yet to be revealed.
In 2011, the exchange’s founder, Sam Bankman-Fried, filed for Chapter 11 bankruptcy protection on behalf of FTX as well as about 130 of its affiliated companies. There was a scurry of withdrawals that led to a lack of liquidity on the exchange as a result of the decision.
In the early hours of Wednesday, Bankman-Fried arrived on American soil after he had been extradited from the Bahamas. Associated Press reported on Friday that a US judge kept secret that two of his former associates, Caroline Ellison, CEO of Alameda, and Gary Wang, co-founder of FTX, had pleaded guilty to fraud charges. Bankman-Fried may fight extradition if he knows his partners are against him.
Bankman-Fried’s trading and investment fund, Alameda Research, borrowed billions from the exchange, losing it through bad deals and trades. Customer deposits provided that money.
The Commodity Futures Trading Commission filed a lawsuit on December 13 alleging that Bankman-Fried directed FTX executives to move Alameda’s approximately $8 billion in liabilities to an unknown account.
According to the lawsuit, Bankman-Fried later referred to that account as “the weird Korean account” or “our Korean friend’s account.” Although this was a sub-account of Alameda, it did not have the typical email address “@alameda-research.com.” Notes tied to the account said “FTX fiat old.”
According to the lawsuit, this masked Alameda’s negative FTX balance. Nevertheless, the account was exempt from liquidation characteristics like Alameda accounts.
Bloomberg reported the next day that Nishad Singh, FTX’s former engineering director, created a code to hide Alameda’s ballooning liabilities.
Crypto community shocked by FTX implosion. Before its downfall, Bankman-Fried assured investors that the worst of crypto’s liquidity crunch was over. To help struggling firms that could further destabilize the digital asset market, he still had “a few billion” available.
A $250 million bail was posted on Thursday for Bankman-Fried.
On December 18, Ellison pleaded guilty to seven counts of federal fraud charges, including conspiracy to commit wire fraud and money laundering. Despite facing up to 110 years in prison, she agreed to fully cooperate.
A similar charge was pleaded guilty to by Wang. He has agreed to cooperate with Federal authorities and he could face up to 50 years in prison.
