Good day everyone,
I hope you are all well and having a great day, welcome to CryptoGod-1's blog on all things crypto. In today's post I will be looking at the famed FTX bankruptcy case, and how it may have consequences to previously donated money from Sam Bankman-Fried and the exchange. Along with this, I will be going into detail on how the recovery of funds has gone so far, and how much more can be expected from it.
Previous Donations Under Threat
As we are all well aware of by now, FTX, the collapsed cryptocurrency exchange, is facing bankruptcy proceedings which will likely have major knock on effects upon multiple areas of society. There are of course the consumers who had their finances locked up in the exchange via difference cryptocurrencies, but there are other matters which will come into effect, including claw back payments made by its former management. These will involve a variety of payments to politicians, celebrities, and charities, which were given money as donations from FTX and its higher level officials and will be requested back as part of the bankruptcy proceedings in the US.
As part of the process, FTX's bankruptcy lawyers are looking to get ahead of the court system in requesting the return of donations, as interest can be incurred from the date any action is commenced by the court. In doing this, they are hoping that recipients will voluntarily return any money they had received off FTX to hasten the process and reduce any additional costs which made be applied.
Sam Bankman-Fried, along with other members of FTX group had developed a reputation for participating in corporate philanthropy to the tune of hundreds of millions of dollars, and as the FTX house of cards came crashing down, so does the benefit of all those donations. As added in a statement by the new management of FTX, John. J. Ray:
“Recipients are cautioned that making a payment or donation to a third party (including a charity) in the amount of any payment received from a FTX contributor does not prevent the FTX debtors from seeking recovery from the recipient or any subsequent transferee,”
Charities
As part of the donations, FTX and Bankman-Fried were known to donate a significant sum to charities via the FTX Foundation and FTX Future Fund. As of October, apparently around $140m (£115m) had been given away by the FTX Foundation to more than 110 non-profits, out of which $90m had gone to the Future Fund.
According the a previous version of the Future Fund website, which is now-defunct, many of these donations were granted to biotech startups and university researchers working on Covid-19 vaccines. Others included programs providing online resources and mentoring to STEM students in rural India and China, and non-profits developing solar panels. It also pledged around $5 million to the Atlas Fellowship, used to support scholarships and a summer program for high school students. The largest of all the donations was made to biotech start-up HelixNano, which received $10 million to conduct trials of a Covid-19 vaccine.
Some have announced they would be returning the funds asap, with the likes of machine learning-focused non-profit Alignment Research Center, announcing it would return the $1.25 million grant it received from the FTX Foundation. Another non-profit investigative media outlet, ProPublica, announced it would return the $1.6 million it received from Building A Stronger Future, SBF’s family foundation.
Issues arise however with those who have already spent some or all of the funding they received. Many charities, including good Food Institute, a non-profit think tank focussing on plant and cell-based meat alternatives, has spent the entire funds it received from two FTX grants. Another, Stanford Medicine, which received around $4.5 million, has spent some of the funds which were given to it. This raises many issues of how to get these funds back, as these charitable organisations used the money in good faith. They will now need to retain any remaining funds from FTX donations and await legal advice on how to proceed further.
Politicians
Bankman-Fried was one of the largest political donors in the United States, having reportedly given large sums of funding to Democratic politicians and to Republican causes. Along with Bankman-Fried, a significant number of his inner circle of close colleagues and friends are also known to have been high-profile donors, such as Ryan Salame, the co-chief executive of FTX’s Bahamian subsidiary. Apparently as much as $80 million was donated in a period of 18 months to politicians.
According to a statement released by FTX on the 19th of December 2022, a number of parties who had received donation's had made contact with the exchange with the wish to return the funds they had received from FTX and its affiliates.
U.S. Law
A spokesperson for Bankman-Fried is known to have informed the Wall Street Journal that the charitable donations were made from trading profits and not through the use of user funds, although how reliable this information is must be taken into consideration given the previous statements Bankman-Fried given by and his associates.
According to U.S. law, all and any payments or transfers made within 90 days of bankruptcy are eligible to be clawed back in the proceedings, meaning getting the money back from the politicians and charities is likely to be one of the easier parts of the bankruptcy process. The criminal charges filed in the state of New York, the Department of Justice alleged that the donations had been the result of criminal money laundering as the money had been effectively taken from customers accounts. The charges also state that Bankman-Fried “and others known and unknown” broke donation limits by making contributions in the names of other people. This is certainly another dark stain on the already tarnished reputation of Bankman-Fried and FTX, and should raise further questions, especially regarding the politicians, of how donations like this are allowed to happen.
Experts believe that a major factor in whether or not the donations will need to be returned or not will depend on the solvency of the exchange at the time of donation, meaning some may have additional protection. However, should the courts decide that FTX was nothing more than a Ponzi scheme, as alleged by prosecutors, then all funds may be required to be returned, regardless of what has already been spent or not.
Soon after the arrest of Bankman-Fried, the U.S. Attorney for the Southern District of New York Damian Williams announced that Alameda Research and FTX had made use of "dirty money" which had been stolen from users and accounted for millions in donations to political parties, done so in an attempt to “buy bipartisan influence.”
Sam Bankman-Fried Expenses
According to reports FTX have spent in and around $7 million on food, and another $15 million or so on luxury hotels in The Bahamas in the nine months preceding its bankruptcy. More users funds taken and spent on the companies account, according to reports, as FTX and Bankman-Fried were not in a position to be spending this amount themselves along with the fact the exchange was involved in such risky bets with did not work out.
In terms of the donations, Bankman-Fried told the Wall Street Journal in an interview how most of his charitable donations were sincere, although some were done to gain public favour, stating:
“When I pledged to give away $2,000 to some brand name charity as part of some promotion related to FTX’s business, that was as much PR as anything else.”
At this stage, John. J. Ray, currently heading FTX management, has stated that they have found it challenging to figure out the firm’s total assets and liabilities, going on to state they are unsure of how many bank accounts the exchange even had.
$5 billion in Cash, Liquid Crypto, and Liquid Investment Securities
So far the exchange has managed to recover over $5 billion in different assets, which is not including the $425 million in crypto held by the Securities Commission of the Bahamas. Currently it is unclear what the exact sum owed to customers is, but Landis Rath & Cobb attorney Adam Landis, working on behalf of FTX, stated:
"We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities measured at petition date value. It just does not ascribe any value to holdings of dozens of illiquid cryptocurrency tokens, where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token"
This is a substantial sum more than origianlly claimed by new FTX leadership in December, where they had believed that just over $1 billion in assets was available. When the original bankruptcy filings were made, the company's management checked off the box indicating a figure between $1 billion and $10 billion. Where has the money owed to customers and creditiors gone? Currently there is a shortfall in the amount available and the amount owed, and from ongoing research through FTX and Alameda Research accounts it is clear the "line of credit worth $65 billion borrowed" to Alameda from FTX out of customer funds, without their permission, was spent on:
"planes, houses, threw parties, made political donations. It made personal loans to its founders. It sponsored the FTX Arena in Miami, a Formula One team, the League of Legends, Coachella and many other businesses, events and personalities"
A deadline has been set by Judge John Dorsey of the Delaware Bankruptcy Court for the 15th of March 2023 to have all the work necessary to estimate recoveries for the purposes of a plan of reorganization. This could include up to 9 million creditors according to Brian Glueckstein of Sullivan & Cromwell.
The Securities Commission of the Bahamas has also recently agreed to cooperate with the bankruptcy proceedings in an attempt to align all matters in terms of ensuring the funds from all parts of FTX holdings are put towards a maximized joint recovery.
Very tough news for all involved with FTX, and also some light to be seen at the end of the tunnel in knowing that a deadline has been set and things are progressing. How and in what way customers will receive their assets back is still unknown, but it seems like e=genuine attempts are being made to ensure as much as possible from Sam Bankman-Fried and his associates, politicians, and even charity donations, will be put towards getting the customers their money back.
Have a great day.
Peace. CryptoGod-1.
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