FTX managed to get $400 million in funding after Sam Bankman-Fried and an attorney invented a ‘sham’ agreement to explain close ties with Alameda, new CEO says

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  • Sam Bankman-Fried and an FTX attorney created a false document to explain close relations with Alameda, its CEO said.
  • Alameda had a $65 billion line of credit to draw on customers’ money for lavish purchases.
  • The false agreement was then shown to investors as part of FTX’s $400 million Series C fundraising, the CEO said.

FTX managed to raise $400 million in funding while showing false documents to investors, according to the crypto exchange’s new CEO.

John J Ray III made the accusation in a report about the company which was filed with the Delaware Bankruptcy Court on Monday.

He said that Sam Bankman-Fried and one of the company’s attorneys created “sham agreements” to make improper financial arrangements with Alameda, its sister hedge fund, look legitimate. 

This is a particularly interesting detail because the crypto exchange’s implosion last November was provoked by the apparent commingling of funds between FTX and Alameda.

Crypto news outlet CoinDesk reported the financial sheets showed the crypto trading firm, which was supposed to be separate from FTX, was actually reliant on it for funding.

And then when customers tried to withdraw their deposits, FTX went bankrupt because there wasn’t enough money to cover demand — partially due to lavish spending by executives including Alameda’s $65 billion line of credit to draw from the exchange, bankruptcy lawyers said.

“In January 2021 as FTX prepared for an audit, Attorney-1 asked an outside law firm to prepare a ‘cash management’ agreement that could provide an ‘explanation’ for why Alameda held ‘FTX cash . . . for the benefit of the FTX customers,'” the document says.

Basically, this “Payment Agent Agreement” made it seem to auditors that there was nothing wrong with the close ties between the two companies. 

Bankman-Fried also didn’t use DocuSign — which records the date and time of a signature — as he usually did, and it was backdated by nearly two years, Ray said.

“The FTX Group proceeded to share the false and misleading audited financials with potential investors in connection with its $400 million Series C financing that closed in January 2022,” he added.

A spokesperson for Bankman-Fried declined to comment when contacted by Insider.

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