FTX creditor claims heat up as bankruptcy proceedings drive forward

October 23, 2023 Coin Telegraph

The market is warming to FTX claims, with one claim going for between 52 and 53 cents on the dollar at auction on Friday.

The market for FTX creditor claims has been heating up, with some claims now reportedly selling for more than 50 cents on the dollar, according to Thomas Braziel, partner at 117 Partners — a firm specializing in crypto bankruptcy claims.

Braziel told Cointelegraph that a claim worth more than $20 million recently sold for between 52 cents and 53 cents at auction on Oct. 20, though noted that only the best claims typically reach this price tag, adding:

“The market has really firmed up for smaller claims, with smaller claims being north of $500K to $800K and up."

“Those claims are now trading between the high-end of 30 cents and the lower end of 40 cents,” he added, reiterating that only the “cleanest” claims with the right buyer could sell at these prices.

The increased value of creditor claims appears to follow recent clawback efforts from the bankrupt crypto exchange, as well as capital-raising efforts from a company it had previously invested in.

In April 2022, Anthropic raised $580 million in a series B funding round led by Sam Bankman-Fried, the former CEO of the now-defunct FTX.

On Sept. 25, Amazon announced a $4 billion investment in Anthropic. Anthropic is looking to raise capital at a potential $30 billion valuation, making FTX’s investment in the company worth somewhere between $3.5 and $4 billion.

According to an Oct. 4 post from the FTX creditor coalition, this valuation could be enough to see FTX creditors made whole.

Anthropic to raise from Google at 20-30B valuation, putting FTX's stake at 3-4.5B.

FTX customers now stand to be made whole. pic.twitter.com/Vy9mZc8bEl
— FTX 2.0 Coalition (@AFTXcreditor) October 3, 2023

Despite the growing enthusiasm for FTX claims, Braziel added that there were still some concerns that needed to be addressed, but overall the increasing valuation of claims was a good sign for creditors.

“There’s still a lot to iron out. KYC and AML issues are still popping up.”

Braziel said that the recent Settlement and Plan Support announced by the Ad Hoc Committee of non-US FTX customers on Oct. 18 was a significant win for a number of firms who had been looking to sell their claims on the market.

A crucial element of the amended support plan is the “shortfall claim,” in which FTX debtors estimate that customers of FTX.com and FTX US would collectively receive 90% of distributable assets. The shortfall claim is estimated at approximately $8.9 billion for FTX.com and $166 million for FTX.US.

“They were kinda stuck with a bag they really couldn’t sell because it was really unclear how customer clawbacks were going be treated,” said Braziel. “For all the trading and market-making firms, the planned support agreement and the draft outline are really helpful for trading firms to be able to sell their claims.”

Since FTX first filed for Chapter 11 bankruptcy protection on Nov. 11, 2022, the FTX Debtors’ estate headed by new CEO John Ray III, has made a series of moves to regain lost assets, including the sale of FTX holdings as well as significant clawbacks from other crypto firms and former-FTX seigniorage.

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Secret Alameda recording reveals exact moment staff learned about FTX deposits

October 13, 2023 Coin Telegraph

Alameda Research

A 75-minute recording, obtained by Cointelegraph, shows the exact moment former Alameda Research CEO Caroline Ellison told employees about their use of FTX customer deposits.

A 75-minute secretly recorded audio clip of Caroline Ellison has revealed the exact moment 15 former Alameda Research staff found out the hedge fund was “borrowing” user funds from FTX.

The full-length recording, obtained by Cointelegraph, provides fresh insights into the palpable tension felt by Ellison and Alameda staff in the lead-up to FTX’s collapse.

“Alameda was kind of borrowing a bunch of money via open-term loans and using that to make various illiquid investments. So like a bunch of FTX and FTX US equity [...] Most of Alameda's loans got called in in order to meet those recalls,” Ellison explained during an all-hands meeting in Hong Kong on Nov. 9, 2022.

“We ended up like borrowing a bunch of funds from FTX, which led to FTX having a shortfall in user funds.”

“[FTX] basically always allowed Alameda to borrow users’ funds,” she added, speaking to the 15 or so staff in the meeting.

Select segments of the audio recording of the meeting were also played before the court on the eighth day of Sam Bankman-Fried’s criminal trial on Oct. 12, which was part of a witness testimony from Christian Drappi, a former software engineer at Alameda.

Drappi’s appearance on the witness stand came immediately following nearly three days of Ellison’s testimony. It is understood that before the meeting, Drappi and many other Alameda employees had no idea that the hedge fund had allegedly been using FTX customer deposits to prop up its trading activity.

In the recording, Drappi is also overheard asking Ellison when she became aware that FTX user deposits were being misused by Alameda, and who else at the company had known about it.

Initially Ellison flinched away from answering, but Drappi pressed again:

“I’m sure this wasn’t, like, a YOLO thing, right?”

According to court reporting from the trial, the playback of this audio led to one of the more humorous moments in court, where Drappi had to explain the term “YOLO” to everyone in attendance, saying that he wanted Ellison to confirm that the use of FTX deposits hadn’t just been a “spontaneous” decision.

In his testimony, Drappi also described Ellison’s conduct at the meeting as “sunken” and didn’t display much in the way of confidence to Alameda employees. He said that he was “stunned” to learn about the extent of the relationship between FTX and Alameda, and he quit the next day.

Speaking to Cointelegraph, Alameda Research engineer Aditya Baradwaj, who was also present at the meeting said the room was “extremely tense,” with Ellison surfacing a wealth of new information that had “never been discussed internally” — including the later-abandoned acquisition of FTX by its then-largest competitor Binance.

“It became pretty clear that there was no future for the company and that we all had to leave. And we did that right after,” said Baradwaj.

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Ex-Alameda CEO Caroline Ellison Says Sam Bankman-Fried Directed Her To Commit Crimes As Trial Enters Week Two

October 12, 2023 The Daily Hodl

FTX used Python code to fake its insurance fund figure: Gary Wang

October 9, 2023 Coin Telegraph

Coin Telegraph

FTX’s so-called “Backstop Fund” figure was a big lie, according to the former chief technology officer of the crypto exchange

Crypto exchange FTX used hidden Python code to misrepresent the value of its insurance fund — a pool of funds meant to prevent user losses during huge liquidation events — according to testimony from FTX co-founder Gary Wang.

In a damning new testimony on Oct. 6, FTX's former chief technology officer, Gary Wang, said that FTX’s so-called $100 million insurance fund in 2021 was actually fabricated, and also never actually contained any of the exchanges’ FTX tokens (FTT) as claimed.

Instead, the figure shown to the public was calculated by multiplying the daily trading volume of the FTX Token by a random number close to 7,500.

The 5.25 million FTT we put in our insurance fund in 2019 now makes the fund worth over 100 million USDhttps://t.co/tMYgJOAdqI pic.twitter.com/vQDkmkufD2
— FTX (@FTX_Official) February 14, 2021

When the prosecution surfaced the above tweet — among other public statements of its value — and asked Wang whether this amount was accurate he replied with a single word: “No.”

“For one, there is no FTT in the insurance fund. It's just the USD number. And, two, the number listed here does not match what was in the database.”

An exhibit in the Oct. 6 trial shows the alleged code used to generate the size of the so-called "Backstop Fund” or public insurance fund.

From yesterday's exhibits in US v. Sam Bankman-Fried:

The prosecution shows that the "insurance fund" that FTX bragged about was fake, and just calculated by multiplying daily trading volume by a random number around 7500 pic.twitter.com/EDiVPOHODP
— Molly White (@molly0xFFF) October 7, 2023

FTX's insurance fund was designed to protect user losses in case of huge, sudden market movements and its value was often touted on its website and social media.

According to Wang’s testimony, however, the amount contained within the fund was often insufficient to cover these losses.

For example, in 2021, a trader was able to exploit a bug in FTX's margin system to take an outsized position in MobileCoin, which resulted in a loss to the tune of hundreds of millions dollars for FTX, according to Wang.

When Bankman-Fried realized that the insurance fund had all but been exhausted, Wang said he was told to make Alameda “take on” the loss. This was supposedly in an attempt to hide the loss, as Alameda’s balance sheets were more private than those of FTX.

In addition to revealing the allegedly fraudulent nature of FTX’s insurance fund, Wang claimed that he and Nishad Singh were prompted by Bankman-Fried to implement an “allow_negative” balance feature in the code at FTX, which allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange.

On Oct. 5 Wang — who has already pleaded guilty to all charges pressed against him — admitted to committing wire fraud, commodities fraud and securities fraud with Bankman-Fried, former Alameda Research CEO Caroline Ellison and former-FTX director of engineering Nishad Singh.

Magazine: How to protect your crypto in a volatile market — Bitcoin OGs and experts weigh in

SBF was ‘very resistant’ to investors on FTX board: Paradigm co-founder

October 6, 2023 Coin Telegraph

Coin Telegraph

Matt Huang said he was led to believe that Alameda Research was not being provided any special treatment by FTX.

Sam Bankman-Fried was “very resistant” to having investors join the board of directors at FTX, claims Matthew Huang, the co-founder and managing partner of crypto investment firm Paradigm.

The sudden collapse of FTX saw more than a few investors burned, with Paradigm joining a number of venture capital firms including Sequoia, Temasek and BlackRock in funding the rise of the now-bankrupt crypto exchange.

Testifying on the third day of Bankman-Fried’s trial in a New York Federal Court, Huang claimed Bankman-Fried believed having investors on FTX's board of directors wouldn’t bring much to the table.

Huang engaged in a handful of conversations with Bankman-Fried ahead of Paradigm making a $125 million investment in the exchange’s staggering $900 million Series B funding round it closed in July 2021.

Huang admitted to not conducting enough due diligence and that he relied too heavily on information supplied by Bankman-Fried.

Despite being concerned by the lack of formal structure at FTX and its potential entanglement with its sister hedge fund Alameda Research, Huang said investors were lured in by the rapid expansion of FTX's market share in the crypto industry.

Still, Huang noted he and other investors at Paradigm were concerned that Bankman-Fried may have been spending more time working on Alameda instead of FTX, a distraction that would have been at the expense of Paradigm’s investment.

Additionally, Huang noted there were concerns that Alameda may have been receiving preferential treatment from FTX. If these concerns turned out to be true Huang said he was fearful of the reputation damage it may inflict on the company.

Huang said he was led to believe by Bankman-Fried that Alameda was not being provided with any privileged treatment by FTX. The same day, FTX co-founder Gary Wang testified that Alameda was given access to a near-unlimited flow of capital from the exchange.

Additionally, Huang said he had no knowledge of the alleged commingling of funds between FTX and Alameda Research.

The prosecution asked Huang if his decision to invest in FTX would’ve changed if he’d been told the exchange was allegedly using customer deposits for investment purposes.

“Yes,” Huang replied. “It's generally understood that customer deposits are sacred.”

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Sam Bankman-Fried’s political donations can be surfaced in trial, rules judge

September 27, 2023 Coin Telegraph

Coin Telegraph

Despite campaign finance charges being dropped in July, the prosecution has been granted permission to present evidence of Bankman-Fried’s political donations in his upcoming fraud trial.

Prosecutors from the United States Department of Justice will be allowed to surface the details of Sam Bankman-Fried’s political donations as the evidence is directly relevant to his fraud charges, ruled U.S. District Judge Lewis Kaplan.

The decision was part of a series of rulings made by Kaplan in a 16-page pretrial order on Sept. 26, where he cleared up which evidence would be admissible in court during the FTX founders’ fraud trial, currently scheduled to begin on Oct. 3.

Federal prosecutors initially charged Bankman-Fried with conspiring to break United States campaign finance laws, as well as seven other fraud and conspiracy charges — however, later dropped the charges as part of an extradition agreement with the Bahamas.

"Evidence that the defendant spent FTX customer funds on political contributions is direct evidence of the wire fraud scheme because it is relevant to establishing the defendant's motive and allegedly fraudulent intent.”

In addition to allowing discussion of Bankman-Fried’s campaign donations, Kaplan also approved the prosecution’s motion to bring forward evidence that details Bankman-Fried’s alleged role in the creation of the FTX Token (FTT), and the ways in which he allegedly directed Alameda Research and its then-CEO Caroline Ellison to manipulate the price of the token.

*Judge Kaplan’s ruling on Bankman-Fried’s political donation evidence. Source: CourtListener*

"The alleged manipulation of the cryptocurrency tokens, which resulted in an alleged manipulation of Alameda’s balance sheet, was an act 'done in furtherance of the alleged conspiracy' and therefore is considered 'part of the very act charged,’” wrote Kaplan.

“Moreover, defendant’s alleged directive to Ms. Ellison to manipulate the price of FTT is direct evidence of their “relationship of mutual trust.” The probative value of this evidence outweighs any risk of unfair prejudice. It is admissible,” Kaplan concluded.

While Kaplan approved many submissions of evidence for the DOJ, he also approved Bankman-Fried’s lawyers to question government witnesses about their recreational drug use, as long as they provided prior notice to the court.

Government witnesses include Caroline Ellison, former FTX engineer Nishad Singh and FTX co-founder Gary Wang.

Kaplan also denied the DoJ's motions to block the defense from cross-examining witnesses on certain “privileged” issues. Additionally, he ruled that Bankman-Fried would not be able to discuss any details of his pre-trial detention, family background, wealth, or age before a jury.

Big Questions: What’s with all the crypto deaths?

SBF’s lawyers signal need to push back October criminal trial

March 9, 2023 Coin Telegraph

Caroline Ellison

Sam Bankman-Fried’s lawyers said they’re still waiting on evidence from federal prosecutors and may need more time to prepare a defense.

Lawyers representing FTX founder Sam Bankman-Fried have flagged that it may be necessary to delay the criminal trial for the former crypto exchange executive to give him more time to prepare his defense.

In a March 8 letter to United States District Judge Lewis Kaplan, Bankman-Fried’s lawyers said they weren’t formally requesting a date change just yet, but it may be needed, as they’re still awaiting a “substantial portion” of evidence to be turned over to them and more charges had been laid against the FTX founder in late February.

The criminal trial is scheduled to begin on Oct. 2 and will focus on the fraud charges brought by the Department of Justice.

According to the letter, DOJ prosecutors are holding evidence from devices belonging to Caroline Ellison, the former CEO of FTX’s sister trading firm Alameda Research, and Zixiao “Gary” Wang, an FTX co-founder.

Both Ellison and Wang have pleaded guilty to fraud charges and are cooperating with the DOJ.

Bankman-Fried’s lawyers said they are also waiting for contents from “computers belonging to two other former FTX/Alameda employees.” They anticipate the production of the evidence from the devices “will be voluminous and critically important to the defense.”

*Excerpt from the letter to Judge Kaplan requesting an amended trial schedule. Source:* *CourtListener*

The letter also noted the superseded indictment against Bankman-Fried unsealed on Feb. 22 that bumped the number of charges from eight to 12, with new charges relating to conspiracy and fraud.

Bankman-Fried pleaded not guilty to the original eight charges brought against him in December.

One of Bankman-Fried's lawyers, Christian Everdell, wrote in the letter:

“Depending on the volume of the additional discovery and the timing of the productions, it may be necessary to request an adjournment of the trial, currently scheduled to begin on October 2, 2023.”

“While we are not making such an application at this time, we wanted to note this issue for the Court now,” Everdell added.

Bankman-Fried is currently released on a $250 million bond. He has been under house arrest in Palo Alto, California at his parent's house and his online activities are restricted.

What is Sam Bankman-Fried doing in this photo? Wrong answers only pic.twitter.com/q7UfaRt8f6
— Genevieve Roch-Decter, CFA (@GRDecter) February 24, 2023

The schedule for the trial and bail conditions will be discussed at a hearing on Friday, March 10.

The FTX founder also faces separate fraud-related civil lawsuits from the Commodities Futures Trading Commission and the Securities Exchange Commission. Both have been delayed until after Bankman-Fried’s criminal trial.

ftx trial