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In his testimony before the House Financial Services Committee current FTX CEO Jay J. Ray III laid out the most convincing case that fraud was committed while former FTX chief executive Sam Bankman-Fried held the reins at the bankrupt crypto exchange. Evidence strongly suggests FTX user funds were commingled, Ray wrote, in part to fund a lavish “spending binge” by the “FTX Group” beginning in late 2021.
Some $5 billion alone was spent by SBF’s “hedge fund” Alameda Research, with billions more currently unaccounted for as Ray traces outflows from FTX, SBF and various shell companies. Some of that money – used to invest in startups, line politicians’ pockets and pay out personal loans to employees – conceivably came from profits made by the exchange and trading shop.
The rest, presumably, were misappropriated funds from customers and financiers – FTX, since its founding, had raised at least $2 billion (supposedly from some of the sharpest investors around). This is just one leg of the case brought by U.S. investigators against Bankman-Fried on Dec. 13, in addition to claims of money laundering, campaign financing violations as well as wire and securities-related conspiracies. (He has pleaded not guilty.)
To a large extent, these allegations are now concerns for the court to weigh. But there is a separate, extra-judicial question for those bankrolled by Bankman-Fried to decide: whether to proactively return the money they received from the millennial Bernie Madoff. FTX liquidators have said they’ll be pursuing clawbacks in and out of court, though the legal situation is murky if people accepted and spent funds in good faith.
Ethically, however, things could not be more clear: Anyone who took funds from Bankman-Fried should feel compelled to return them. Upwards of a million customers were impacted by the collapse of FTX. Their money was likely misappropriated to fuel one of the largest financial frauds in history. If “dollars were fungible” in Mr. Bankman-Fried’s universe, then all money that flowed out of his coffers should be considered tainted.
– D.K.
