The Second FTX Asset Recovery Report Is Packed With Bombshells

The 2nd study of John J. Ray III and his FTX restructuring squad (the “debtors”) was released connected Monday, June 26, and it’s a doozy. The study firms up our consciousness of circumstantial fiscal flows, including the usage of lawsuit funds for governmental donations and task superior investments astatine defunct crypto speech FTX and related hedge money Alameda Research. Among those are galore flows to entities controlled by friends and household of Sam Bankman-Fried, reinforcing the representation of a immense and coordinated transgression effort.

More explosively, the study claims that FTX executives were alert arsenic aboriginal arsenic August 2022 that the speech was missing much than $8 cardinal successful lawsuit funds. This recasts galore statements made by executives similar Caroline Ellison, and particularly by FTX CEO and co-founder Sam Bankman-Fried himself, successful the pursuing weeks and months.

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Even much damning, the study describes Bankman-Fried getting precise hands-on successful furtherance of the wide fraud.

Two notes earlier diving in: First, each of the pursuing are allegations made by the FTX liquidators. The claims whitethorn oregon whitethorn not aboveground oregon beryllium confirmed successful the abstracted transgression proceedings against Sam Bankman-Fried, presently scheduled to statesman successful October. And second, for clarity, I’ll beryllium referring passim to “customer funds” interchangeably with “commingled funds,” due to the fact that by their nature, the immense bulk of commingled funds would apt person been lawsuit funds.

While the details are spicy, the main people of the study is the pursuing large vessel of spaghetti, representing the flows of FTX lawsuit funds. Note however galore flows extremity astatine “to beryllium determined” – the betterment team’s work, clearly, is not yet done.

Highlights of this messiness see the assertion that $20 cardinal of FTX lawsuit funds went to Guarding Against Pandemics (GAP), a quote-unquote “nonprofit” tally by Gabe Bankman-Fried, Sam’s brother. Though this backing was already known, the study seems to beryllium the archetypal authoritative assertion that backing to GAP came from circumstantial slope accounts afloat of commingled (that is, customer) funds. This deepens existing questions astir the Bankman-Fried family’s cognition of and information successful the fraud.

Throughout the report, we spot SBF’s closest friends and associates eagerly gobbling up what were stolen funds. The FTX Foundation, different quote-unquote “nonprofit” entity that was itself funded with lawsuit money, donated $400,000 to an unnamed Effective Altruism enactment that made YouTube videos promoting that troubling ideology.

Then determination are the (again quote-unquote) “venture investments.” These were seemingly not existent investments, but alternatively fiscal cutouts chiefly created to recycle and obscure stolen FTX idiosyncratic funds. The caller study specifically describes the “investment” of $450 cardinal worthy of FTX lawsuit funds into an entity called Modulo Capital.

Modulo Capital had been founded by 2 known Bankman-Fried associates, Duncan Rheingans-Yoo and Xiaoyun “Lilly” Zhang. According to the New York Times, Yoo was lone 2 years retired of college, and Zhang (like Caroline Ellison) was a erstwhile romanticist spouse of Bankman-Fried.

Finally connected the wealth front, we get immoderate caller penetration into the monolithic idiosyncratic loans that went to FTX executives, galore meant to money political donations (themselves wildly illegal). The debtors study makes the important assertion that “the grounds identified by the Debtors indicates the transfers were ‘loans’ successful sanction only.”

Way backmost successful November of past twelvemonth I described these loans arsenic a “smoking bazooka” indicating wide transgression intent – the caller study appears to beryllium confirmation of that assessment. And there’s much wherever that came from – the study is packed with tidbits that suggest goings-on astatine FTX were overtly and intentionally criminal.

For one, the study claims that “by August 2022, the FTX Senior Executives and [Caroline] Ellison privately estimated that the FTX.com speech owed customers implicit $8 cardinal successful fiat currency that it did not have. They did not disclose the shortfall.” This $8 cardinal shortfall was hidden successful a fake relationship with a antagonistic $8 cardinal balance, referred to internally arsenic belonging to “our Korean friend.”

That relationship was known, but I’m not alert of immoderate likewise authoritative root making circumstantial claims that execs knew astir the shortfall arsenic aboriginal arsenic August. This would beryllium incredibly atrocious for Sam Bankman-Fried, who made countless representations to FTX’s rock-solid finances aft that, further clarifying his fraudulent machinations.

But the study besides makes a assertion that would someway beryllium adjacent worse for SBF if it were demonstrated successful his transgression case. It describes a “Payment Agent Agreement” intended to marque the travel of FTX lawsuit deposits done Alameda Research slope accounts look intentional, alternatively than immoderate premix of negligence and fraud.

While the debtors recovered that the outgo statement papers was created successful April of 2021, it was backdated to an “effective date” of June 1, 2019. This was seemingly intended to make the content that FTX lawsuit funds had ever flowed done Alameda. In fact, of course, that travel was an exigent strategy to circumvent banking controls, and it seems to person underpinned the larger fraud.

In short, the outgo cause statement papers is grounds of a transgression conspiracy.

And according to the debtors report, Sam Bankman-Fried signed the fraudulently backdated papers with his own, existent hand: “Notably, portion Bankman-Fried regularly executed agreements electronically utilizing DocuSign, which electronically records the day and clip of execution, Bankman-Fried signed the Payment Agent Agreement with a bedewed signature.”

This is conscionable radioactively atrocious for Bankman-Fried’s transgression defense, for 2 reasons. First, the one-time usage of a carnal signature indicates a wide strategy to debar generating Docusign metadata that mightiness uncover the papers was not signed successful 2019. That intelligibly indicates Bankman-Fried was engaging successful conspiracy to perpetrate and conceal fraud.

Second, a carnal signature means it’s imaginable idiosyncratic really saw Bankman-Fried motion the document, and/or that it tin beryllium intelligibly established that the signature is his. This would destruct adjacent the farfetched hypothetical defence that Bankman-Fried’s physics signature was someway faked and helium was really unaware of the document.

To reiterate, it’s not definite that these and different facts claimed successful the debtors study volition go portion of Bankman-Fried’s transgression trial, but it seems precise apt astir will.

So portion we were already beauteous definite Sam Bankman-Fried was cooked, it’s starting to look similar he’s downright deep-fried.