On Saturday morning, Reuters reported that FTX was missing at least $1 billion in client funds, according to two unnamed sources in senior positions at FTX who said they were briefed on the company’s finances. The sources claimed the funds were part of $10 billion in client funds that FTX founder Sam Bankman-Fried secretly transferred to Alameda Research, the hedge fund he owns. A later report from the Wall Street Journal added that it appeared the hackers had actually taken $370 million. The transfer of FTX funds to Alameda was one of a series of crises that led to FTX’s bankruptcy filing and Bankman-Fried’s resignation Friday. Bankman-Fried told Reuters he “disagrees with the characterization” of the transfer, saying: “We had confusing internal labeling and misread it.” When asked about the missing customer money via text messages by Reuters, Bankman-Fried responded with: “???” In a tweet on Saturday, FTX US general counsel Ryne Miller said the company had detected “unauthorized transactions” and had moved all digital assets into cold storage or offline as a precaution. Elliptic, a cryptocurrency analytics and compliance firm, estimates that $473 million in crypto assets were stolen from FTX last Friday night, although the exact amount has not been confirmed. Bankman-Fried, 30, was hailed as a crypto titan until FTX’s descent in the last week. He was a major donor to the Democratic party, with a net worth that was once $17 billion, and had goals to shape the way the world, especially policymakers in Washington, viewed cryptocurrencies. But FTX’s digital currency, FTT, collapsed within days. Investors, particularly Binance, the largest cryptocurrency exchange, learned that much of Alameda’s assets were held in FTT, making the company vulnerable to fluctuations in the currency’s value. Binance’s Changpeng Zhao, a crypto star in his own right, announced that his company would liquidate its FTT, a move that would eventually cause the asset to plummet and crash in value. FTX announced Friday that it had filed for bankruptcy and Bankman-Fried resigned. “I deeply regret getting into this place and my role in it,” Bankman-Fried told employees Tuesday morning, days before his resignation. “Fucked.” In an interview published by Bloomberg on Saturday, US Treasury Secretary Janet Yellen said the fiasco confirmed her view that cryptocurrencies need “very careful regulation”. “It shows the weakness of this whole sector,” Yellen said. He noted that on regulated exchanges, client assets are segregated, saying: “The idea that you could take the client deposits of an exchange and lend them to a separate business that you control to make leveraged investments – it wouldn’t be something that is allowed.” Yellen also said, “At least it’s not deeply integrated with our banking sector and, at this point, it doesn’t pose broader threats to financial stability.”
