SBF Fraud Trial: How FTX Used Customer Funds to Reclaim Its Stake from Binance
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In an unprecedented legal saga, revelations have surfaced about bankrupt crypto exchange FTX using customer funds to buy back its stake from rival exchange Binance. The disclosure emerged during a recent court hearing, and it could prove to be the knockout punch for FTX founder Sam Bankman-Fried, who is currently under trial.
Peter Easton, an accounting professor at the University of Notre Dame, was hired by the U.S. Department of Justice to trace the movement of billions between Alameda Research and FTX. In his testimony, Easton disclosed that over a billion dollars from FTX’s customer funds were used to buy back Binance’s stake in FTX. This shocking admission fuels the debate about the ethics and legality behind FTX’s financial management.
Binance’s Previous Investment
In 2019, Binance and FTX formed a strategic partnership, with Binance investing an undisclosed amount in FTX. The budding FTX processed $500 million in daily trades at the time. Fast forward to its peak, and FTX was clocking in over $50 billion. Binance CEO Changpeng Zhao mentioned in a 2022 post that Binance had received over $2.1 billion in Binance USD (BUSD) stablecoins and FTX’s FTT tokens as part of the repurchase.
[Deed of property to SBF’s parents is shown to jury]AUSA Roos: Have you analyzed the spending out of the “Allow Negative” accounts?
Easton: Yes.
AUSA Roos: What about the Binance buy-back?
Easton: Over a billion dollars came from customer funds from FTX exchange
— Inner City Press (@innercitypress) October 18, 2023
The court hearing also unveiled that these customer funds were used for share buy-back and reinvested in businesses, real estate, and even political contributions. The proceedings also saw references to companies like Celsius, Abra, Maple, and Anchorage that received funding “all from customer funds.”
Capitol Hill Drama
As the trial progresses, Bankman-Fried’s Capitol Hill testimony is under scrutiny. On the one hand, FTX is portrayed as mingling with politicians and royalty; on the other, the exchange is facing hard-hitting questions about its questionable financial transactions. Easton’s flowchart further incriminates FTX, showing money flowing through various entities like Alameda to Alameda, Prime Trust, and even as much as $491 million to stock-trading platform Robinhood.
In messages between Bankman-Fried and others, it was mentioned that they were tired of “unethical shit,” which now sounds ironic given the recent allegations. When asked about lobbying for regulation, Bankman-Fried’s blunt response was “F*ck regulators,” which could echo the sentiments he’ll have to confront.
With customer funds being carelessly diverted for various investments and now a billion-dollar Binance stake buy-back, FTX faces legal and reputational turmoil. As we wait for more revelations in the trial of the year, one thing is sure: The cryptocurrency world will never look at FTX—or perhaps even the broader exchange landscape—the same way again.
Filed under: Bitcoin - @ October 19, 2023 10:22 am