Initial filings reveal damning evidence that now-bankrupt crypto exchange FTX misappropriated both investor and customer funds. John Ray, FTX’s bankruptcy expert who oversaw the Enron case, described the “unprecedented” situation. Revelations include the absence of trustworthy financial information, use of corporate funds to purchase personal property, and large personal loans including $1 billion to CEO Sam Bankman-Fried (SBF) and $543 million to Director of Engineering Nishad Singh.
In the wake of SBF’s bizarre and somewhat self-aggrandizing tweets, FTX’s new management released a statement that the former CEO was no longer acting on behalf of the company. More damning, a series of SBF’s Twitter DM’s with a Vox reporter exposed his true character: prior political donations and advocacy in Washington were “just PR”; regulators “don’t protect customers at all”; his biggest mistake was filing for bankruptcy, and “everything would be ~70% fixed” if he hadn’t. SBF also seemed to suggest that winning by any means is better than being clean and losing.
In response to the FTX bankruptcy, contagion spread, forcing institutional lender Genesis to pause customer withdrawals and curtail its retail crypto lending product. We expect other counterparties to surface as more details surrounding FTX and Alameda’s dealings emerge.
That said, our conviction in decentralized and transparent public blockchains is as strong as ever. In this case and others, decentralization and transparency are paramount as antidotes to the gross mismanagement associated with centralized intermediaries, not to mention fraudulent centralized intermediaries.