It is not every day that you get a peek at the finer details of a billionaire’s shopping spree. But with the FTX bankruptcy filings, you can have a look at how the crypto firm indulged itself with the billions at its disposal. New documents that were released on January 17 show the true extent of Sam Bankman-Fried’s retail expedition that is now under review.
The crypto exchange’s bankruptcy documents reveal a tale of hedonistic indulgence and financial mismanagement by Sam Bankman-Fried’s company. From once being a person who wanted to maximize his wealth so he could make larger donations to charity to trying to claw back its charitable donations, Bankman-Fried’s company is now the epicenter of a financial tornado.
The new team charged with fixing the FTX bankruptcy scandal is led by Enron veteran John J Ray who has, in the past, expressed his disbelief at the colossal mess that is FTX. He has called it “a paperless bankruptcy” that is the result of an “unprecedented lack of documentation.”
Well, while that might be true, let us take a look at what has been documented and how FTX managed to vaporize its billions so quickly and efficiently.
FTX’s Bankruptcy Filings
Despite seeing the worst in finance over his illustrious career, John J Ray has admitted to being fairly stupefied at the rampant mismanagement of FTX. In disbelief, the current FTX CEO admitted to the court that the exchange was using the accounting software QuickBooks, used by small to medium-scale companies, for financial records.
Read on if you have ever wondered how a crypto firm could burn through a mind-boggling $32 billion. It is like watching a train-wreck. You don’t want to stare but you can’t look away either.
Liquid Assets Recovery
FTX’s lavish spending encompassed everything from luxurious Bahamian real estate to strategic political donations. This unchecked spending binge was a result of lack of internal financial controls, which are usually in place in big companies.
“[It was] kids leading kids,” said one former employee to the Financial Times. “The entire operation was idiotically inefficient, but equally mesmerizing,” they added. “I had never witnessed so much money in my life. I don’t think anybody has, including Sam Bankman-Fried.”
Attorneys for the crypto firm told the Delaware court that FTX has managed to recover some of its assets. Recent filings show that it is $5.5 million worth of liquid assets that include cash and digital assets. In documents filed Friday, it was revealed that out of the total, $1.7 billion is in cash.
What will be difficult to recover is the $3.5 billion tied up in crypto assets and the $426 million seized by the Bahamian government.
The main challenge will be liquidating FTX’s token coin FTT that has cratered in value in the last year. The exchange had valued its FTT holdings at $529 million while filing the FTX bankruptcy case. As of today, the FTT token to USD value hovers around $2. Another token, Serum, by FTX is listed under illiquid holdings.
Previously, Ray had admitted that at least $8 billion worth of customer assets were unaccounted for.
Political and Charitable Donations
You know it is a sordid affair when lawyers are trying to recoup donations.
The FTX bankruptcy case has stained both Democrats and Republicans alike, with some politicians choosing to return funds and distancing themselves from the broke brokerage.
As per recent documents, FTX shelled out $93 million in political donations, transactions that are now under review.
Between 2020 and 2021, the crypto exchange also gave out $2 billion in loans to insiders. A $2.1 billion payment was also made to rival Binance to buy out its stake in the company.
The FTX management is also eyeing charitable donations made by former CEO Sam Bankman-Fried. Ray admitted that it is difficult to track everything due to the shoddy record-keeping but the company is urging beneficiaries to return the money voluntarily.
Charities that have returned funds include Alignment Research Center, a research organization focused on machine learning, and ProPublica, a non-profit newsroom. They have collectively returned $1.25 million and $1.6 million respectively.
Some donation recipients have already spent the money given to them, including Good Food Institute and Stanford Medicine. It is unclear how things will proceed in such cases.
Brokerage and Real Estate
Earlier, the Bahamas was popular tourist destination known for its pristine white beaches and turquoise waters. Today, it’s also famous for FTX’s lavish real estate in the island country.
In November, lawyers for the beleaguered company told the US bankruptcy court that the firm spent at least $300 million on real estate in the archipelago. Most of these purchases were related to homes and vacation properties used by senior executives.
FTX’s hedge fund arm Alameda Research holds $268 million in securities, with a majority held by asset management company Grayscale. Out of this, $197 million is invested with Grayscale’s Bitcoin Trust ETF. The trust is currently facing a lawsuit by Fir Tree Capital Management for potential mismanagement of funds and conflicts of interest, over the $10.7 billion Bitcoin fund.
New documents on FTX bankruptcy also revealed that the crypto brokerage had over $250 million in real estate in the Bahamas.
In November, The Block reported that FTX Property Holdings spent $74,230,193 on property in the Bahamas over 2022. The bulk of that money, $67,440,193.99, went to entities surrounding Albany Bahamas, a luxury condo resort in New Providence. The new filing shows that FTX held $166.1 million in over 15 properties in Albany.
The crypto exchange also built sand castles, as evidenced by the $28.8 million spent on its planned corporate headquarters, for which construction never began.
FTX’s collapse, amongst other things, has been a result of unchecked spending and a lack of record-keeping. Its trading arm Alameda Research could not have liquidated its position at full book value, especially when a majority of its stake is tied up in FTT tokens.
The FTX bankruptcy case is a cautionary tale on how bad decisions and poor financial controls blow up in due time. “At the end of the day, we’re not going to be able to recover all of the losses here,” stated Ray in December. But creditors and customers are hopeful that liquidating the company’s assets will at least help them partially recover their funds.
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