Execs Knew About FTX’s Multibillion-Dollar Shortfall Months Earlier, According To New Lawsuit

As John J Ray III and his team scramble to recoup as much value as possible for FTX creditors, new evidence of willful wrongdoings surface as the troves of disorganized information on FTX’s interior dealings are combed through.

At Least $8 Billion Could Not Be Repaid

The new lawsuit filed against FTX’s former C-suite – which accuses SBF, Ellison, Wang, and Singh of breaches of fiduciary duty and other crimes – alleges that Bankman-Fried was well aware of a “liability of $8 billion in a hidden, poorly internally labeled fiat account”, which he made potential investors aware of.

FTX’s new management accuses SBF – who, in a show of hubris, had previously boasted that FTX is unauditable – of labeling customer funds as a liability, implying that these were comingled with FTX funds.

“Alameda is unauditable. I don’t mean this in the sense of “a major accounting firm will have reservations about auditing it”; I mean this in the sense of “we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.[”] We sometimes find $50m of assets lying around that we lost track of; such is life.”

Coincidentally, Bloomberg reports that Caroline Ellison had run the numbers on the FTX Group’s dealings as far back as March of 2022 and had arrived at the conclusion that the crypto empire owed customers $8 billion that it could not repay. However, this figure was part of a larger deficit of about $10 billion in total.

FTX’s new management can only speculate just where those funds went – however, they definitely have some ideas, which were mentioned in the court document linked above.

Private Bunkers And Self-Awarded Bonuses

Aside from the well-documented speculative investments that FTX engaged in, ranging from margin trading to various startups, the former leadership of FTX also diverted money towards generous bonuses for presumably running the company with stellar conduct.

According to Bloomberg, shortly after Ellison “discovered” the gaping hole in FTX’s budget, she awarded herself a $22.5 million bonus, which she used, among other purposes, to invest in an AI startup in her own name.

Similarly, Nishad Singh was reportedly granted about $477 million worth of FTX shares absolutely for free.

However, these two executives obviously did not think on the same level as their CEO, who invested in multiple spurious projects when he wasn’t busy investing $546 million worth of Alameda client’s money into Robinhood.

The court filing shows that the FTX foundation engaged in wildly speculative and outright sci-fi ventures. One internal memo shows SBF had a plan to purchase the island of Nauru in order to build a doomsday bunker for members of the Effective Altruism movement, of which he was an avid proponent.

Assuming a collapse would happen, EAs “could survive, and develop sensible regulation around human genetic enhancement, and build a lab there,” among other pursuits.