Former executives of FTX, a well-known cryptocurrency exchange, have faced allegations of channeling funds toward ventures unrelated to their core business. Among these ventures is the notable “Pineapple House,” an extravagant expenditure amounting to an astonishing $1.8 million.
Quick facts:
- FTX cryptocurrency exchange faces a staggering $8.7 billion debt owed to customers.
- Senior executives of FTX are accused of misusing and commingling customer deposits since the exchange’s inception, with awareness of the situation dating back to August 2022.
- CEO John J. Ray III is leading efforts to recover funds for creditors, with approximately $7 billion in liquid assets recovered so far.
- Sam Bankman-Fried is set to face criminal charges in October.
The allegations, outlined in an investigative report by FTX restructuring chief and CEO John Ray, shed light on the purported misappropriation of customer funds.
According to the June 26 report, former executives at FTX, including Sam Bankman-Fried, allegedly lavishly used customer funds for ventures unrelated to cryptocurrency or Web3.
The report by FTX restructuring chief John Ray reveals that funds were misused through various means, including charitable donations made under the non-profit FTX Foundation.
These donations purportedly included $700,000 worth of grants, with $400,000 directed towards an entity producing animated YouTube videos on topics related to “rationalist and Effective Altruism material.”
The Mysterious Pineapple House
One of the most striking revelations in the report is the purchase of a property known as “Pineapple House.” Allegedly acquired using customer funds, this $1.8 million property finds its place among FTX’s extensive $243 million Bahamian real estate portfolio.
An internationally recognized broker, Sotheby’s, has listed a property in the Bahamas with a name resembling that of the aforementioned “Pineapple House.” However, it remains uncertain whether this property is the same as the one mentioned in the report.
According to the report, the FTX Foundation used commingled customer funds held in a number of bank accounts under the control of FTX, Alameda Research, and other organizations to fund its grants. Additionally, a $300,000 grant was purportedly given to an individual to write a book on understanding human utility functions.
FTX executives are also implicated in directing approximately $20 million to the non-profit organization Guarding Against Pandemics, Inc., and related entities. This organization, as its name suggests, advocates for investments aimed at preventing pandemics such as COVID-19.
The report also emphasizes the close connection between Guarding Against Pandemics and the political action committee Guarding Against Pandemics PAC, which Gabe Bankman-Fried, Sam Bankman-Fried’s younger brother, runs.
FTX Clients’ Debt Surpassed $8B with Insufficient Funds Identified as Early as August 2022
The troubled cryptocurrency exchange, FTX, owes its customers a staggering $8.7 billion, according to the report from the FTX bankruptcy team.
The report accuses the exchange of misusing and commingling customer deposits since its inception, with senior executives allegedly being aware of the situation as early as August 2022. Of the owed amount, approximately $6.4 billion is said to have been misappropriated in the form of fiat currency and stablecoins.
CEO John J. Ray III, who is leading the effort to recover funds for creditors, expressed his concerns regarding the handling of customer deposits, stating:
“From the inception of the FTX.com exchange, the FTX Group commingled customer deposits and corporate funds, and misused them with abandon at the direction and by the design of previous senior executives.”
Since its collapse in November, the exchange has been undergoing bankruptcy proceedings in Delaware, and Ray has been diligently working towards resolving the exchange’s financial obligations. So far, approximately $7 billion in liquid assets have been recovered, and further recoveries are expected.
Founder and former CEO Sam Bankman-Fried, who has been at the center of the controversy surrounding the embattled exchange, is set to face criminal charges in New York in October.
The investigation suggests that the company’s senior management, including Caroline Ellison, the former CEO of Alameda Research, were aware of the mounting debt owed to clients, surpassing $8 billion, and the lack of funds as early as August 2022.
