Sam Bankman-Fried's trading firm borrowed $65 billion from FTX via a 'secret backdoor' to fund donations and a luxury lifestyle, bankruptcy court hears
Bankruptcy lawyers revealed Sam Bankman-Fried’s Alameda had access to $65 billion from FTX.
The customer loans were made available via a backdoor created by FTX cofounder Gary Wang, they said.
The money was used for luxury purchases like planes, parties, and political donations.
Sam Bankman-Fried spent a fortune. Now, lawyers say ‘the emperor had no clothes.’ Here’s where the money went.
At his peak, Sam Bankman-Fried’s net worth was $26 billion.
He spent his money on properties, political donations, and funding sports teams.
Here’s a list of many of the places where Bankman-Fried is reported to have spent his money.
Sam Bankman-Fried told Bloomberg in April that years down the road, he’d subsist on $100,000 a year — that’s it.
He’d keep a small percentage of the billions he had generated from his cryptocurrency empire and donate the rest.
Bankman-Fried billed himself as an effective altruist, a person who would rack up stacks of money — or coins— to one day put it all toward the betterment of the world. And he donated money to several organizations founded on the principles of so-called effective altruism.
But Bankman-Fried also wrote out big checks to sports teams, property owners, and political leaders. His spending appeared to reflect a desire to buy influence as much as it has reflected his philosophical beliefs.
It all came crashing down in early November, when Bankman-Fried saw the bulk of his net worth drop from $15.6 billion to $1 billion in a single day — after news broke that his cryptocurrency exchange, FTX, needed a bailout.
Sullivan & Cromwell restructuring partner James Brumley, a lawyer on FTX’s bankruptcy team, told a US court this week that “substantial amounts of money were spent on things not related to the business,” a recording of the Tuesday hearing reviewed by Insider showed.
Meanwhile, Bankman-Fried will likely not be making major donations any time soon. Here’s a list of how he spent some of his once-massive fortune.
Properties
FTX spent around $300 million buying houses in the Bahamas for senior executives, according to a bankruptcy lawyer.
Sullivan & Cromwell restructuring partner James Bromley, a lawyer on FTX’s bankruptcy team, said that one of the US arms of the company “purchased almost $300 million worth of real estate in the Bahamas.”
Bankman-Fried reportedly lived with 10 roommates in a 600-acre ocean-front property in New Providence, Bahamas known as Albany.
Media investments
Bankman-Fried has invested in a handful of media companies, according to Crunchbase. He invested in Semafor, a news startup launched by former New York Times columnist Ben Smith and former Bloomberg Media CEO Justin Smith.
Smith, the site’s editor-in-chief, has acknowledged the investment and has said it will continue to cover Bankman-Fried “aggressively” and disclose his stake every time the site writes about him.
Meanwhile, Bankman-Fried provided seed funding to Trustless Media, a production company at the intersection of Web3 and television production. Bankman-Fried also donated $5 million to investigative news outlet ProPublica, according to the AP.
Bankman-Fried also poured money into several startups through FTX, its research arm Alameda Research, and as an angel investor, according to Crunchbase.
Those include financial technology companies like TrueFi and Chipper Cash, crypto platforms like Liquid Global, and blockchain companies like Faraway, which makes games.
Politics
Bankman-Fried spent more than $10 million backing Joe Biden’s presidential campaign, according to Politico.
In 2022 alone, he spent more than $40 million on campaigns, according to Federal Election Committee filings reviewed by Politico.
He also gave $1 million to the Senate Majority PAC and $6 million to the House Majority PAC— two super PACs that are dedicated to keeping Congress in the hands of Democrats, according to The Los Angeles Times.
Philanthropy
Bankman-Fried has made philanthropic donations, too. While working at Jane Street he gave half his money to so-called effective altruism charities, and also to animal welfare groups, according to Bloomberg.
He gave away $50 million in 2021 to pandemic relief in India and anti-global warming initiatives Bloomberg reported.
He’s also made COVID-19 prevention a top issue as the principal funder of Guarding Against Pandemics, a nonprofit run by his brother Gabe, according to Politico.
In his new home country of the Bahamas he donated $1.4 million worth of K95 masks and COVID-19 testing kits, according to the Nassau Guardian.
7/7 SLIDES
Sam Bankman-Fried instructed his FTX cofounder Gary Wang to create a “secret” backdoor to enable his trading firm Alameda to borrow $65 billion of clients’ money from the exchange without their permission, the Delaware bankruptcy court was told Wednesday.
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Wang was told to create a “backdoor, a secret way for Alameda to borrow from customers on the exchange without permission,” according to FTX’s lawyer, Andrew Dietderich.
“Mr Wang created this back door by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent,” he added. “And we know the size of that line of credit. It was $65 billion.”
The CFTC made similar allegations when it brought charges against Wang in December. But the value of that line of credit hasn’t been revealed before now. The CFTC then described it as “virtually unlimited.”
And in November, Reuters reported that SBF had moved $10 billion between the two companies, with a further $2 billion still unaccounted for.
Dietderich told the court that with the $65 billion back door, Alameda “bought planes, houses, threw parties, made political donations.”
The rest of the money went towards personal loans, sponsorships, and investments, according to Dietderich.
“We know that all this has left a shortfall, in value to repay customers and creditors,” he added. That amount “will depend on the size of the claims pool and our recovery efforts.”
