FTX Used Customer Funds To Fund Risky Bets, Leading To Its Downfall: Report

Zinger Key Points
  • Earlier on Monday, FTX chief Sam Bankman-Fried disclosed to an investor that Alameda owes FTX nearly $10 billion, WSJ reports.

Cryptocurrency exchange FTX used customer assets worth billions to support risky trading bets by its sister trading firm, Alameda Research, which ultimately led to the exchange's collapse, according to a new report.

What Happened: Quoting an anonymous source, a Wall Street Journal report said that FTX chief Sam Bankman-Fried disclosed to an investor that Alameda Research owes FTX $10 billion and the beleaguered cryptocurrency exchange lent its sister firm users funds for risky trading purposes.

The source quoted Bankman-Fried terming this decision as a “poor judgment call.”

According to the Journal's source, FTX had $16 billion in total client assets; therefore, FTX lent more than half of its customer cash to its sister business, Alameda.

Benzinga has contacted Bankman-Fried for comment. 

How FTX Got Here: FTX halted customer withdrawals earlier this week after receiving withdrawal requests totaling over $5 billion Sunday.

The surge of withdrawal requests led FTX to seek out an urgent investment.

On Tuesday, FTX agreed to sell itself to its rival exchange Binance. Less than 24 hours later, Binance backed out of the agreement, stating that FTX's troubles were "beyond our control or ability to help."

FTX has enough to cover all client holdings, Bankman-Fried tweeted on Monday, as concerns about the company's stability began to surface.

“FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries),” he stated.

He later deleted the tweet.

Bankman-Fried On Thursday took to Twitter on to explain how his liquidity concerns came to light after remaining silent for several days during rival Binance's imminent takeover of his ailing cryptocurrency trading platform.

Bankman-Fried said on Twitter that the $32-billion business poorly labeled bank-related accounts.

This caused the CEO to think that user margins were lower than they actually were, he said.

In other words, the company’s liquidity was far lower than Bankman-Fried believed, he said.

Photo via Shutterstock. 

Market News and Data brought to you by Benzinga APIs
Posted In: CryptocurrencyNewsTop StoriesMarketsMediaAlameda ResearchBinanceFTXSam Bankman-FriedWall Street Journal
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!