Where the Money Went

The former chief executive of Alameda and star witness in the trial of her boss and former romantic partner, FTX co-founder Sam Bankman-Fried, described…

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When Caroline Ellison started her job at crypto hedge fund Alameda Research in 2018, she found a firm in disarray long before its implosion.

The former chief executive of Alameda and star witness in the trial of her boss and former romantic partner, FTX co-founder Sam Bankman-Fried, described how she and her colleagues were unhappy living in Sam’s turbulent world. According to one of her other bosses, who was trying to run the company with Bankman-Fried, “Sam was demanding and expecting everyone to work 18-hour days and give up anything like normal life, while he would not show up for meetings, not shower for weeks, have a mess all around him with old food everywhere and fall asleep at his desk.”

“The firm’s finances were already in a state of chaos,” author Michael Lewis wrote in his book on the rise and fall of Bankman-Fried, “Going Infinite.”

As it turns out, there were a lot of canaries in this coal mine. According to Lewis, Bankman-Fried shrugged when his company misplaced $4 million of the cryptocurrency Ripple. Alameda’s trading system, at one point, was losing roughly half a million dollars a day. And the firm also noticed some additional millions had “simply vanished,” according to Lewis. Sam’s reaction: “Eh, it’ll probably turn up somewhere.”

Against this backdrop, it probably isn’t too surprising that billions of dollars of customer funds were wildly mishandled at the cryptocurrency exchange FTX, but only in recent days has it emerged where the money actually turned up.

The nearly $9 billion of customer funds that went missing ultimately ended up as investments in Anthony Scaramucci’s SkyBridge Capital, Lily Zhang’s Modulo Capital and a number of other places, according to Peter Easton, a forensic accountant and professor at the University of Notre Dame, who testified at Bankman-Fried’s trial.

In other words, as suspected, the billions of dollars of customer funds were funneled into a range of investments, allegedly at the behest of Bankman-Fried – who is now set to testify in his defense.

“Customer funds were used in various ways,” such as political contributions, high-risk investments, charity donations and expensive real estate, Easton said.

An estimated $11.3 billion of FTX customer funds, which were meant to be held at Alameda for safekeeping, were drained away, leaving only $2.3 billion in its bank accounts, he added.

After scouring Alameda’s wire transfers and bank statements on behalf of government prosecutors, Easton said a sizable chunk of customer funds went to hedge fund Modulo Capital through an investment made by Alameda, while customers’ crypto assets were used to repay an FTX loan to the lender Genesis Capital. (Modulo Capital reportedly agreed to return $404 million to FTX, as part of its bankruptcy case.)

Of course, this is only what is known so far. The trial isn’t over yet and, if Bankman-Fried does testify – and is true to his chatterbox reputation – who knows what he will say before it’s over.