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FTX Bankruptcy: strange money movements, thefts and consequences for the crypto market

The bankruptcy of FTX. A review by a Bitcoin mixer: mixer.money
FTX Bankruptcy: strange money movements, thefts and consequences for the crypto market

  1. FTX bankruptcy is being investigated in the Bahamas
  2. “Confusing internal labeling”
  3. Strange theft
  4. Bankruptcy procedure
  5. The consequences of bankruptcy are already coming
  6. The final touch from Binance

On November 11, the FTX exchange filed for bankruptcy under Chapter 11 of the US Bankruptcy Code. This will allow it to get protection from creditors’ claims for the duration of the proceedings. But the scandals do not stop.

FTX bankruptcy is being investigated in the Bahamas

The Bahamian security regulator froze the assets of FTX Digital Markets on November 10. On Saturday, the regulator announced that the exchange had begun processing the withdrawal of Bahamian funds for which permission had not been received. On Sunday, November 13, the Bahamian police also issued a statement saying they were working with the country’s securities regulator to check FTX for criminal misconduct.

After declaring bankruptcy, Bahamian law enforcement agencies force Sam Bankman-Freed to stay in the Bahamas. At the beginning, the media suggested that Bankman-Fried and other top managers of the company — technical director Gary Wang and director of engineering Nishad Singh – were trying to escape.

“Confusing internal labeling”

During the inspection, more than a billion dollars were found missing. According to Reuters, Bankman-Fried transferred $10 billion of customer funds from FTX to his Alameda Research cryptocurrency trading platform. Most of this money has disappeared, according to Reuters. According to various sources, 1 to 2 billion dollars are missing.

“We had confusing internal labeling and misread it,” Bankman-Fried told an agency in a text message in which he “disagreed with the characterization” of the transfer. “We didn’t secretly transfer,” he wrote in response.

The financial hole was discovered in the records that Bankman-Fried shared with other top managers on November 6, even before the bankruptcy announcement. Reuters also claims that FTX financial reports show that there is a “backdoor” in the books, created with the help of “special software”.

Strange theft

On November 11, the day before the bankruptcy filing, $447 million disappeared from the exchange’s wallets. John J. Ray III, the new chief restructuring officer and CEO who was appointed less than 24 hours earlier, said in a statement the next morning, “Unauthorized access to certain assets has occurred.”

“FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don’t go on FTX site as it might download Trojans,” wrote an account administrator in the FTX Support Telegram chat. The message was confirmed by FTX General Counsel Ryne Miller.

A few hours later, Miller tweeted that FTX US and FTX.com are moving all their digital assets to cold storage due to Friday’s bankruptcy. “Process was expedited this evening – to mitigate damage upon observing unauthorized transactions.”

Miller's Twitter post. A review by a Bitcoin mixer: mixer.money

Some of the funds were found on the wallets of the Kraken exchange, which immediately froze them and announced its readiness to cooperate with law enforcement agencies. Since all clients of the exchange undergo the KYC procedure (Know Your Client), the identity of the criminal must be established. There is an assumption that it was someone from FTX employees.

Bankruptcy procedure

According to experts, the bankruptcy of the largest exchange will affect the entire crypto system.

According to Greg Plotko, legal partner at Crowell & Moring, FTX will be dealing with the same “big legal issue” as crypto lenders Celsius Network and Voyager, regardless of whether the crypto stored in customer accounts belongs to the customers themselves or to the competitive mass. Unlike Celsius and Voyager, where the ownership line was less clear, the terms of service on FTX.com states to customers that “none of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading.”

“There’s also almost certainly massive amounts of criminal fraud that led to this scenario and as a result, we can expect this will be a very messy public trial that will lead to bad publicity and regulatory backlash for the [crypto] industry,” Haseeb Quershi, a managing partner with venture firm, DragonFly Capital, said.

Like Quershi’s firm Dragonfly, several large crypto hedge funds and market makers have assets locked on FTX, including Galaxy Digital, Multicoin Capital, Jump Trading, Wintermute and Galois Capital.

“I don’t think it’s an understatement to predict that the FTX bankruptcy will be the most complex in US history. These were leveraged players who were just rolling the dice. This was a casino. Good riddance to them,” Caitlin Long, founder and CEO of Custodia Bank, commented.

The consequences of bankruptcy are already coming

From Friday to Sunday, the capitalization of the global crypto asset market decreased by 3% from $856 billion to $831 billion. According to Coinmarketcap, since November 1, it has fallen by 18% from just over $1 trillion.

The first calls from those who were somehow connected with FTX have already been heard. For example, crypto lender BlockFi has been silent since it officially announced the freezing of withdrawals from customers on Thursday evening. Since then, a number of customers have noted that their BlockFi credit cards no longer work.

AFTX bankruptcy. Consequences: BlockFi credit cards no longer work

Although BlockFi is not included in FTX’s chapter 11 filing, the firm is expected to become a major lender after it received a $400 million emergency line of credit from FTX at the end of June.

Most recently, on Monday, BlockFi tried to relaunch its “yield” product. On Tuesday, November 8, Chief Operating Officer Flori Marquez announced that the firm was “fully operational.”

The Huobi crypto exchange stated that $18.1 million worth of tokens were deposited on FTX. About $13.2 million are customer assets, about $4.9 million are Hbit assets. Controlling shareholder Li Lin has agreed to provide the group with an unsecured loan of up to $14 million “to cover the obligations on the client’s assets,” if necessary. The group’s financial performance could be “significantly and negatively affected” if funds get stuck in FTX.

Crypto-hedge fund Galois Capital is another company that has confirmed its connection with the FTX exchange. A representative of Galois Capital said that their risk is between $40 and $45 million. On Friday, Galois Capital announced on Twitter (banned in Russia) that they have “significant” funds in FTX.

The final touch from Binance

Binance has stopped FTT deposit, “to prevent potential of questionable additional supplies affecting the market.” CEO Zhao said in a tweet. Zhao said he would encourage other exchanges to do the same. Justin Sun said that Huobi Global will follow Zhao’s advice.

Zhao added that FTT contract developers have moved all remaining FTT shipments worth $400 million, “which should be unlocked in batches.” Binance reported that it noticed a “suspicious movement” of a large number of FTT by the token’s contract deployers.


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