# The $32 Billion FTX and Alameda Research Collapse

Photo by CNBC

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 () Some speculations: * He has gone rogue coz he was against the bankruptcy * He's practicing for the actual hearing ## Hearing Part 1 🎥 Video: **⏱️ 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** * Prager Metis ([https://pragermetis.com](https://pragermetis.com/)) * Auditor of the FTX.com * First CPA firm of the Metaverse * Armanino * [https://www.armanino.com](https://www.armanino.com/) * 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