FTX execs hid $8 billion in liabilities in a customer account that Bankman-Fried...
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FTX execs hid $8 billion in liabilities in a customer account that Bankman-Fried referred to as 'our Korean friend's account,' CFTC prosecutors allege
Alameda Research borrowed billions of dollars of customer funds from FTX exchange.
The firm's liabilities were then masked under a pseudonym account on FTX.
Caroline Ellison and Gary Wang have pleaded guilty to numerous counts of fraud.
The case of "where did the money go" is beginning to unravel for crypto exchange FTX.
On November 11, the exchange's founder, Sam Bankman-Fried filed for Chapter 11 bankruptcy protection for FTX and about 130 of its affiliated companies. The decision came after a scurry of withdrawals left the exchange illiquid.
On Wednesday, Bankman-Fried arrived on US soil after he was extradited from the Bahamas. On Friday the Associated Press reported that a US judge had kept secret that two of his former associates, Caroline Ellison, CEO of Alameda and Gary Wang, co-founder of FTX, pleaded guilty to fraud charges and were cooperating with the feds. Prosecutors feared Bankman-Fried would fight extradition if he knew his partners had turned on him.
Alameda Research, a trading and investment fund started by Bankman-Fried, had borrowed billions of dollars from the exchange, losing it to a series of bad deals and trades. It was later revealed that that money came from customer deposits.
A lawsuit filed by the Commodity Futures Trading Commission on December 13 states that Bankman-Fried directed FTX executives to move Alameda's approximately $8 billion in liabilities to an unknown customer account on FTX's systems.
The lawsuit also claimed that Bankman-Fried would later refer to that account as "our Korean friend's account" and/or "the weird Korean account." It added that although it was a sub-account of Alameda, it did not have the typical investment firm's email identifier "@alameda-research.com." Notes tied to the account labeled it as "FTX fiat old."
The suit claims that this helped mask Alameda's negative balance on FTX. However, the account had the same privileges as those of Alameda accounts, including exemption from liquidation characteristics.
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