FTX.com was a cryptocurrency exchange and trading platform. It was founded in 2019 by Sam Bankman-Fried and Gary Wang, FTX quickly became one of the largest and most popular crypto exchanges in the world.
The platform offers an extensive range of financial products, including Buying and selling cryptocurrencies directly, Trading futures and options on various cryptocurrencies, Tokens, Prediction Markets, and more.
What Is FTX Scam?
The FTX scam refers to the collapse of the FTX cryptocurrency exchange, which was revealed to be due to mismanagement and misuse of customer funds. Sam Bankman-Fried, the CEO, was convicted and ordered to repay billions.
In late 2021 and early 2022, as Bitcoin and other cryptocurrencies declined, FTX continued to grow by competitors. FTX’s leaked balance sheet revealed major financial mismanagement, with $9 billion in debts.
Alameda Research borrowed a lot from FTX, using customer deposits, without proper financial reporting. Initially, Binance planned to buy FTX but because of mishandled customer funds and U.S. investigations. This led to FTX going bankrupt and facing legal action.
FTX Failure
The failure of FTX, a major cryptocurrency exchange, occurred in November 2022 over ten days. It started with a CoinDesk article revealing a leaked balance sheet, showing that Alameda Research was heavily dependent on FTX’s token, FTT.
As FTX faced an $8 billion shortfall, it stopped withdrawals and later declared bankruptcy. Mismanagement, not enough money on hand, and misusing customer funds were major reasons for its failure. CEO Sam Bankman-Fried faced serious legal trouble.
Lawsuits and criminal charges
Authorities arrested Sam Bankman-Fried on December 12, 2022, charging him with multiple counts of fraud, including money laundering, wire fraud, campaign finance violations, and securities fraud. He was released on a record $250 million bond.
By January 2023, $5 billion in cash and liquid assets had been recovered, although $8 billion was still missing. FTX investors filed a class action lawsuit on November 15, 2022, against FTX and its celebrity endorsers, accusing the company of false representation, deceptive conduct, and operating a Ponzi scheme.
Debtors Report
The FTX debtors’ report, released on April 9, 2023, revealed significant management and control failures at FTX. The FTX debtors’ report highlights several points.
- Financial Overview: Over $4 billion in assets vs. $11.6 billion in claims as of November 2022.
- Management Failures: Bad management, governance, and organizational structure.
- Security Lapses: Unencrypted private keys, unsecured crypto assets in hot wallets, and lack of multifactor authentication.
- Accounting Issues: No experience in financial reporting, risk management, audits, or accounting.
- Intercompany Transactions: No formal procedures, allowing unchecked transfers between insiders and FTX entities.
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Laura Kemmis is a passionate trendsetter and reviewer, dedicated to researching the latest scams and frauds while sharing her insights with the world. She provides valuable information to keep her audience aware and informed about the latest scams. Additionally, Laura discovers and analyzes trends in fashion, technology, and lifestyle, offering a fresh and honest perspective in her reviews.
