The collapse of the virtual currency exchange 'FTX' is not an accident but a 'crime'


by

Bybit

FTX , a virtual currency exchange founded in 2019 by American entrepreneur Sam Bankmanfried, filed for Chapter 11 bankruptcy protection on November 11, 2022, effectively bankrupting management. did. The New York Times and the Wall Street Journal , which interviewed Mr. Bankman-Fried, reported this incident as an 'unfortunate accident,' but in reality it was an unprecedented attempt to steal user funds. CoinDesk, a news site specializing in digital currency, has accused it of being a huge fraud.

FTX's Collapse Was a Crime, Not an Accident
https://www.coindesk.com/layer2/2022/11/30/ftxs-collapse-was-a-crime-not-an-accident/

The CoinDesk article states, “After Sam Bankmanfried’s crypto empire turned out to be a hoax, major news outlets and commentators are trying to make it clear to readers.” I have failed to do so.'

CoinDesk's evaluation is based on the fact that 'FTX did not have a person in charge of customer position risk,' such as the New York Times and the Wall Street Journal, and that 'FTX does not know how much assets the company owns.' While clarifying important facts such as 'I was not even able to grasp whether I was holding a In addition, the media outlets reported Bankman-Fried's self-defense that ``there was no intention to commit fraud.''



However, unlike banks that run out of money if their customers withdraw their budgets all at once, even if they don't have long-term problems, FTX doesn't provide loans like banks do, and cryptocurrency exchanges don't get their money back from customers in the first place. You should never let your funds flow to a third party. Nonetheless, FTX made an opaque move to

Alameda Research , a cryptocurrency hedge fund launched by Bankman-Fried, shortly after the management problems came to light.

From this point of view, CoinDesk positioned the bankruptcy of FTX and the series of problems related to it as ``This is, in a nutshell, an unprecedented theft,'' and summarized the reasons as follows.

The connection between FTX and Alameda
According to CoinDesk, the core of Bankman-Fried's fraud lies in the deep and close connection between FTX and Alameda. Both companies were founded mainly by Mr. Bankman-Fried, but while FTX profits from commissions earned from customers' virtual currency trading, Alameda, a hedge fund, actively manages its own funds. There is a difference that it is a company that earns profits by operating in

Mr. Bankman-Fried has said that the two companies are completely separate entities, and he resigned as Alameda's CEO in 2019 as if to emphasize that. But executives from both companies often worked in the same penthouse in the Bahamas, and Bankman-Fried had a romantic relationship with Alameda CEO Caroline Ellison. had.



CoinDesk believes that this kind of honeymoon relationship between FTX and Alameda made FTX fraud possible. Specifically, a few days after the FTX problem surfaced, we moved a large amount of client assets to Alameda. According to Reuters

reports , the scale will be $ 10 billion (about 1.3 trillion yen). Sources familiar with the matter told Reuters that about $2 billion of the funds that flowed from FTX to Alameda are missing, but the loss is believed to have grown further since then. increase.

So far, it is unknown how Bankman-Fried betrayed the trust of users and sent customer funds to Alameda. On-chain analysis shows that most of the FTX-to-Alameda movement will occur in the second half of 2021, and the two companies are expected to post a loss of $3.7 billion in 2021. It is clear from the bankruptcy filing that In other words, FTX and Alameda were losing huge amounts of money before the crypto bear market began in 2022.

From this point, CoinDesk said, ``Long before the virtual currency Terra and the 3AC of the fund that invested in Terra collapsed, and the over- leveraged virtual currency players were fatally injured, Mr. Bankman-Fried et al. may have stolen money,' he said.



Suspicion of FTX tokens and “secured loans”
In the first place, the reason why the relationship between FTX and Alameda began to attract attention was that CoinDesk

discovered an internal document showing that part of Alameda's balance sheet was occupied by FTT (FTX tokens) . As a result, the FTT that was traded on the open market was a small part of the total, and the majority was owned by FTX and Alameda, and because FTT is effectively an illiquid asset, it is priced on the open market. Although it became clear that it was impossible, Mr. Bankman Fried said that FTT was recorded at a fictitious market price.

In addition, FTX is believed to have used FTT, which was evaluated at a fictitious price, as 'collateral for loans between FTX and Alameda.' CoinDesk pointed out the similarities between this technique and the fraudulent accounting that took place in the Enron scandal , which has been described as 'one of the largest scandals in American history.'



◆ Alameda's 'secret exemption'
With the bankruptcy of FTX, Mr. Bankman-Fried stepped down as CEO of the company. It was revealed that he had received the special treatment of receiving an exemption from secrecy.

FTX, like other cryptocurrency exchanges, provided users with margin services that could be used for trading. This means that users deposit fiat currency or virtual currency as collateral when making leveraged transactions with virtual currency, and if there is a large loss in margin trading, FTX will sell the collateral provided by the user. to make up for it.

Alameda's exemption from this margin confiscation was a huge advantage for Alameda and a significant disadvantage for other FTX users. This is because when a cryptocurrency transaction loses money, ordinary users have to lose their funds and withdraw, but Alameda can keep losing until the situation improves. CoinDesk denounced the secret agreement between FTX and Alameda as ``criminal from all perspectives,'' which greatly undermines the fairness of the exchange.



◆ Insider trading of FTX tokens by Alameda
According to a

report from Argus, a cryptocurrency market analytics firm, there is strong circumstantial evidence that Alameda was hoarding certain tokens even before FTX announced that they would be listed. The fact that tokens are traded on cryptocurrency exchanges generally drives up the price of tokens, so if this report is true, Alameda will buy up these tokens before they are listed on FTX and then price them after listing. It means that it was possible to sell out by taking advantage of the rise.

The tokens handled by FTX are not securities regulated by financial law, but this case may develop into a lawsuit under the Insider Trading Law. For example, in June 2022, an employee of OpenSea, an NFT marketplace, was charged with insider trading for purchasing NFTs in advance.

◆Large amounts of loans to individual executives
Bankman Freed and other FTX executives received a total of $ 4.1 billion (about 550 billion yen) in loans from Alameda, including many unsecured ones. For example, Mr. Bankman Freed received a personal loan of $ 1 billion (about 130 billion yen) from Alameda, and an organization called Paper Bird, which he has 75% control of, also has a $ 2.3 billion (about 310 billion yen) ) has been discovered in bankruptcy proceedings.

In addition, FTX's engineering director Nishad Singh is worth $ 543 million (about 74 billion yen), and Ryan Salame, co-CEO of FTX Digital Markets, a subsidiary of FTX, is worth $ 55 million (about 75 million yen). 100 million yen) in personal loans.

The use and whereabouts of these loans are unknown, and investigations into whether they are fraudulent are still to come, but CoinDesk reports that this money flow is ``Various by Mr. Bankman-Fried using secret money circulation, leverage, and fictitious capital. It certainly fits a broad pattern of fraudulently increasing the value of valuable assets.'



The possibility that Bankman-Fried's ``bailout'' was a loss concealment
In mid-2022, as the crypto market entered a bear market, Bankman-Fried was hailed as the savior of the crypto winter-stricken industry by offering to inject capital into the likes of bankrupt crypto lending giant BlockFi. .

“We take our duty to protect the digital asset ecosystem and its customers very seriously,” said Bankman-Fried.



However, there is a possibility that the purpose was not actually to rescue the virtual currency industry. In an article published in November 2022, Bloomberg suggested that FTX may have supported BlockFi with fictitious funds. While this is still speculation, Bankman-Fried's bailout may have been to cover up losses, as FTX and Alameda's debts to BlockFi would have surfaced earlier if BlockFi's bankruptcy had come to light earlier. notes CoinDesk.

CoinDesk further notes from these suspicious points, ``Bunkman-Fried's fraud, whether intentional or malicious, has similarities to the scandals of large corporations such as WorldCom and Enron. Both have been sentenced to prison or are on the run, and Bankman-Fried deserves to share their fate with them,' he said.

CoinDesk's parent company, Digital Currency Group (DCG), has suffered a loss of approximately $175 million (approximately 23.828 billion yen) due to the bankruptcy of FTX, according to DCG's subsidiary Genesis. It has been.

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