# The $32 Billion FTX and Alameda Research Collapse

<figure><img src="/files/gM0w0O9oyvUKClWlufpD" alt=""><figcaption><p>Photo by CNBC</p></figcaption></figure>

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.

🎥 New York Times Summit (<https://www.youtube.com/watch?v=IyoGdwVIwWw>)

Some speculations:

* He has gone rogue coz he was against the bankruptcy
* He's practicing for the actual hearing

## Hearing Part 1

🎥 Video: <https://www.youtube.com/watch?v=ovhBvQ5-vCY>

**⏱️ 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&#x20;

**⏱️ 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&#x20;
* 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**&#x20;

* 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.&#x20;
* 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&#x20;
  * 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?&#x20;
* 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**&#x20;

* Prager Metis ([https://pragermetis.com](https://pragermetis.com/))
  * Auditor of the FTX.com&#x20;
  * First CPA firm of the Metaverse
* Armanino
  * [https://www.armanino.com](https://www.armanino.com/)
  * London-based

**⏱️ 03:00:00**&#x20;

* 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


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://ph.benjtupas.com/archives/the-usd32-billion-ftx-and-alameda-research-collapse.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.