The $32 Billion FTX and Alameda Research Collapse
Last updated
Last updated
I spent a few minutes a day to follow the FTX Collapse to understand the things to avoid if I want to start a crypto company some time in the future.
The situation is something similar to Theranos with Elizabeth Holmes: huge valuations and being praised by the media. There's seems to be a pattern here.
He was in a talking spree recently even if his lawyers were against it.
Some speculations:
He has gone rogue coz he was against the bankruptcy
He's practicing for the actual hearing
⏱️ 00:30:30 - Start of Washington Post introduction
John Ray, the bankrupt expert and the current expert, is being paid $1,300 per hour
SBF's generous contributions to politicians will be donated to charity
Effective altruism - accumulate most amount of money and give that money to the best cause possible
The members of the committee have great backgrounds in the financial services
Some say that this one of the largest Ponzi Schemes ever
Authors of The Big Short and Social Network were supposed to write a book about SBF
Southern District of New York, SEC, and Commodity Futures Trading Commission have filed criminal charges
⏱️ 01:10:00 - Start of the hearing and introduction from the chairman
SBF was supposed to attend the hearing but he was arrested in the Bahamas
$32 billion valuation in 3 years then collapsed to zero in a day
Misused approximately $10 billion in customer funds
Owes creditors at least $3 billion
1 million users in the US are locked out in their funds
Similar collapses this year: Terra, Celsius, Blockfi, Three Arrows Capital.
⏱️ 01:18:00 - North Carolina
130 entities related to FTX and Alameda
⏱️ 01:22:45 - John Ray's opening statement and QA
Become CEO on November 11 and immediately filed for bankruptcy
Unacceptable management practices:
Senior management has access to customer assets without security controls in redirecting those assets
Private keys are not encrypted
Alameda Research can borrow unlimited client funds for investments
No proper record keeping of transaction
No proper governance
No internal controls
$5 billion was spent on investments and businesses. Many of which were worth a fraction
SBF had a large internal loans up to $1 billion
FTX and Alameda were not segregated
Alameda is a customer of FTX.com
FTX uses AWS
FTX US and International assets are distinct
SBF owns 90% of Alameda
⏱️ 01:38:15 - New York
No problems in retrieving offshore debtors coz most jurisdictions will cooperate with each other to protect the victims.
Secured over a billion dollars of assets stored in cold wallets and secured locations
Most creditors are located outside of the US
Basic regulations: records, controls, and segregate people's money
⏱️ 01:42:00 - Missouri 1
Budget requests are approved using emojis over Slack
QuickBooks for accounting. Not built for multi-billion dollar company.
No independent board.
FTX transferred several billions to Alameda. Full review is not yet done.
⏱️ 01:48:20 - California 1
Against crypto investments
SBF is just a 1 big snake in a crypto garden of eden.
To include Ryan Salame and Caroline Ellison in the investigation related to the bonuses and loans amount to $55 million
⏱️ 01:53:40 - Oklahoma
Some entities such as FTX Japan and LedgerX were not included in the bankruptcy since these entities are solvent.
LedgerX will be sold.
FTX customer funds are diverted to Alameda back accounts.
⏱️ 01:58:00 - Texas 1
Cases (SEC Complaint)
Wire fraud on customers
Wire fraud on lenders
Commodities fraud
Securities fraud
Money laundering
SBF attended Canada/USA math camp and has a bachelor's degree in Physics/Mathematics at MIT. Is this a one big mistake?
⏱️ 02:02:50 - Texas 2
Asking for specific affected dollars per entity. No specific numbers yet.
Working with Ernst & Young to properly review the company transactions
⏱️ 02:08:00 - Missouri 2
SBF's testimony is disrespectful.
There's more independent contractors over employees.
No employee insurance
⏱️ 02:12:35 - Missouri 3
FTX uses Alameda's bank account because FTX couldn't get its own bank account.
There's no accounting system that work in the crypto space.
FTX invested on Farmington State Bank at 10% stake. FTX paid 20x book.
⏱️ 02:17:40 - Colorado
Madoff Bankruptcy in 2008 just distributed the payment just last week of this hearing. 14 years after. How long would it take FTX to fix the situation?
How to evaluate fluctuation when paying the affected customers?
⏱️ 02:23:30 - Michigan
FTX shares findings to the SEC and Southern District of New York as the company is being reviewed
Small number of FTX US users are using FTX International
Investigating the involvement of SBF's parents in the company
The parents received payments from FTX
⏱️ 02:28:40 - Ohio
To limit the harm caused to the FTX users
How many users have lost money and when will they get their money back?
FTX is securing assets everyday by looking for wallets to maximize the recovery.
2.7 million users on FTX US and 7.6 million users on FTX.com
⏱️ 02:34:25 - Kentucky
Set-up independent board of directors
Governance structure applies to all entities
Investigating funds under the FTX Foundation (Climate and Community). Assets are still co-mingled
There are audits but can't be trusted
⏱️ 02:39:40 - California 2
Not into crypto.
⏱️ 02:44:12 - Texas 3
Recovered over $1 billion in assets
⏱️ 02:47:45 - Guam
Have you been able to pin point the specific cause of the collapse?
Unlimited ability to borrow customer funds
Margin trading
Excessive spending
Lost in excess of $7 billion
Wants to know the root cause to initiate a regulatory response
⏱️ 02:53:00 - Arkansas
Auditor of the FTX.com
First CPA firm of the Metaverse
Armanino
London-based
⏱️ 03:00:00
Smartest investors (Sequoia Capital) but didn't do due diligence properly
Extravagant marketing spend:
Superbowl ad
Tom Brady
Kevin O'leary
FTX Arena with Miami Heat
Baseball players
Formula One
🎥 New York Times Summit ()
🎥 Video:
Prager Metis ()
