We read the 230-page investigation into FTX so you don’t have to

The examiner appointed in the FTX bankruptcy has released its report, highlighting a variety of bad behavior from the firm and its executives leading up to its collapse. The report contains allegations about how FTX paid off whistleblowers, dealt with ‘capital issues’ at its bank, and when various executives knew about the insolvency of FTX group entities.

Who knew?

The report contains allegations about which executives and firms were aware of the ‘hole’ in FTX Group’s books before the collapse. It alleges that Ryan Salame ‘assisted with the creation of the backdated payment agent agreement; made or directed other FTX Group employees to make misrepresentations to banks about the purpose of FTX Group bank accounts; misappropriated FTX Group assets to buy real estate, restaurants, and food service companies, and to make other purchases and investments, including a private jet; and withdrew millions of dollars from his FTX.com account shortly before FTX.com halted customer withdrawals.’

The debtors also identified millions of dollars of FTX Group-funded political contributions made by Salame.

Furthermore, seaman Samuel Trabucco received significant benefits shortly before bankruptcy, as ‘the FTX Group spent over $15 million for real estate, a yacht, and a marina slip for Trabucco during the preference period and found that Trabucco made substantial withdrawals from the FTX.com exchange in September 2022.’

In other communications, he was concerned about Alameda’s balance sheet, as he warned of an ‘exodus’ if employees were to understand Alameda’s net asset value without FTT.

Other executives were also investigated for this report, including ‘a former FTX Group employee who managed token investments for Alameda‘ and ‘certain sales related to those investments that were not properly documented. S&C also found that this employee made substantial withdrawals from his exchange account close to the Petition Date.’

Additionally, there was ‘a former FTX Group employee who was the subject of media reports regarding his transfer of $600,000 of FTT to a charity that he co-founded. Due to the need to prioritize other litigation and potential challenges with any claims against these individuals, the Debtors have not yet elected to proceed with actions against them.’

Additionally, the report details an already filed avoidance lawsuit against employees who made other withdrawals in the days before the collapse.

The report further concludes that FTX US wasn’t solvent at the petition date, despite Bankman-Fried’s frequent insistence. Allegedly, FTX.US’s ‘Bank Balance’ spreadsheet totaled $138.5 million and the ‘Wallet Balances’ spreadsheet — the customer balances — totaled $184.7 million.

Additionally, ‘Caroline Papadopoulos, FTX.US’s controller, pointed out that the calculation was off for another reason: it “includ[ed] [WRS] cash [which] should be considered independent of FTX US.” She characterized the ostensible reconciliation as “nonsense.“’

Interestingly, the report concludes that ‘the Examiner has seen no evidence to suggest that Sullivan &Cromwell (S&C) knew about the fraud at the FTX Group pre-petition or that S&C ignored red flags that would have required the firm to investigate statements made by the Debtors.’

The report reached this conclusion despite the fact that ‘because of the use of Signal auto-deletion features, it is likely — and 38 indeed appears to be the case — that the production of these messages is not and potentially could never be complete.’

Furthermore, despite CoinDesk reporting suggesting that Alameda Research was valuing assets at more than their entire market capitalization, five days after that report dropped, an S&C lawyer emailed Voyager to reassure it that the FTX group was ‘rock solid’ and that the current issues were ‘Binance silliness.’

The lawyer apparently claimed they hadn’t learned about the issues until the day after sending this email.

Lawyers and whistleblowers

The report describes the deep and interconnected relationship that FTX Group had with Fenwick & West (F&W), described as ‘Law Firm-1’ in the report. Allegedly, Joseph Bankman, the father of financial criminal Sam Bankman-Fried, recommended hiring F&W to help the FTX Group, and further recommended that the firm recruit both Daniel Friedberg and Can Sun. 

The report alleges that F&W ‘served as the FTX Group’s primary US outside counsel and advised the company on issues of employment, tax, lending agreements, acquisitions, regulatory matters, government investigations, compliance and risk mitigation, equity incentives, partnership agreements, trademark enforcement, intercompany services agreements, purchase agreements, and financing.

‘Between 2018 and 2022, Law Firm-1 received more than $22 million in legal fees from the FTX Group. In 2018, while Friedberg was a partner at Law Firm-1, Joseph Bankman encouraged Bankman-Fried to employ Friedberg in a central role at Alameda.

‘Friedberg and Can Sun left Law Firm-1 to join the FTX Group, in January 2020 and August 2021, respectively. Friedberg served as both the Chief Compliance Officer for FTX.US and General Counsel of Alameda, and Sun was the General Counsel for FTX Trading. However, the relationship between Law Firm- 1 and the FTX Group went beyond Friedberg and Sun.

‘Joseph Bankman maintained unusually close personal relationships with various other Law Firm-1 lawyers, which sometimes translated into subsidizing perks for certain Law Firm-1 attorneys, such as paying for travel and admittance to sporting events.

‘This deep relationship included F&W helping with:

  • The FTX Group’s issuance of ‘founder loans,’ which were used to move at least $2 billion in cash and assets among FTX Group entities, as well as directly into the personal accounts of FTX Group leadership;
  • Friedberg’s creation of a backdated payment agent agreement between FTX Trading and Alameda;
  • FTX Group leadership’s efforts to obfuscate from government regulators and investors the close relationship between FTX Trading and Alameda;
  • FTX Group leadership’s efforts to use unconventional settlements to silence credible whistleblowers; and
  • FTX Group’s efforts to downplay its involvement with, and control over, the Serum Foundation.’

The exact details of that relationship are a little hard to discern precisely, in part because F&W ‘frequently used ephemeral messaging platforms such as Signal to communicate with individuals at the FTX Group and, to date, has only produced 144 individual or group chats between Law Firm-1 and FTX Group employees.

‘Only 18 of those chats still contained messages; the remainder only showed that a group message had once existed, but did not contain any content.’

The report further suggests that F&W may have been aware of issues years before the eventual collapse, with the investigation finding ‘a December 2019 communication from Bankman-Fried to members of that firm in which Bankman-Fried acknowledged that Alameda holds lots of FTT, which has a high market value but that market value could not be realized without crashing the market.’

Furthermore, the report alleges that F&W ‘created the Serum Foundation with systems that would allow certain employees of the FTX Group to continue to exercise control over the Serum Foundation and the SRM token. Quinn Emanuel also found that individuals associated with the FTX Group used [F&W] to create an entity called the Incentive Ecosystem Foundation in order to provide incentives for the SRM ecosystem and bolster SRM’s market price, while concealing that entity’s connection to the FTX Group.’

This is consistent with the previous allegation where ‘the Debtors reported that Friedberg — the former General Counsel of Alameda — commissioned the whitepaper for Maps and drafted significant portions of it in October 2020.’

Friedberg has already been the target of a lawsuit by the estate that alleges that he helped pay off whistleblowers.

Additionally, ‘Sun, in coordination with Friedberg, worked to avoid CFTC scrutiny by concealing information about entities with an interest in FTX Trading.’

The report also alleges that the FTX Group had a pattern it tended to fall into with whistleblowers: ‘FTX Group counsel did not properly investigate the substance of these whistleblower complaints but rather settled them for considerable amounts, and that these resolutions were principally handled by Friedberg, with the assistance of Sun, Miller, and Joseph Bankman.’

Generally, the FTX group would allegedly resolve these complaints without investigating their substance, often using large financial settlements and a ‘consistent pattern’ of hiring counsel who did not end up providing substantial legal services to the FTX group. These allegedly included:

  • Paying Orrick Herrington & Sutcliffe $20,762 for legal services related primarily to ‘Whistleblower-5’ separation from FTX.
  • Paying Holland & Knight $64,998 in fees related primarily to drafting a settlement agreement with a whistleblower.
  • Paying Silver Miller Law $760,000 in fees related to providing advice on regulatory matters and a whistleblower allegation.
  • Loaning Pavel Pogodin $1 million as part of a settlement related to dropping whistleblower complaints. Following this, he allegedly entered into two engagements with FTX, for a total of $3.3 million, and the investigation notes that it ‘found no evidence that Pogodin ever provided any legal services to the FTX Group.’
  • Paying ‘Law Firm-8’ $200,000 per month for five years after settling whistleblower-1’s complaint. The only work produced was apparently ‘a single, three-page memorandum prepared by a non-lawyer.’

Law firms were allegedly often instructed to skip due diligence on investments that the FTX group intended to make. Sometimes, like in the case of the law firm that aided in the acquisition of HiveEx in Australia, the firms were actually able to make ‘finder’s fees’ from helping FTX find the targets of these investments or otherwise help FTX.

In that case, ‘eventually, Law Firm-5’s role grew to include negotiating settlements to avoid negative publicity for the FTX Group. For example, in July 2021, Law Firm-5 arranged for the incorporation of a Cayman Islands company, 707,016 Ltd., to pay off the creditors of Alex Saunders, an Australian crypto-influencer. Saunders was alleged to have used borrowed funds to trade on FTX.com, but lost the funds that he traded.

‘To mitigate any reputational harm and avoid potential litigation, FTX Trading loaned Saunders $13.2 million through 707,016 Ltd. to enable Saunders to pay off his debts. Saunders has not repaid this loan. A partner at Law Firm-5, who was the FTX Group’s primary contact at the firm, personally received at least $727,402 in “finder’s fees” for certain acquisitions that he suggested.’

Read more: Genesis Block Ventures was entangled with FTX

Another law firm was retained ‘in connection with responses to SEC and CFTC document requests related to the entities’ relationship with Tether/Bitfinex.’ Unfortunately, perhaps due to the use of Signal, some of the documents from that engagement that relate to market manipulation cannot be located. 

Some firms did raise issues with FTX leadership about conduct, with Skadden Arps Slate Meagher & Flom supposedly repeatedly warning about ‘undisclosed political contributions by FTX.US.’


FTX struggled to maintain consistent and open access to banking, relying on a pattern of misrepresentations to maintain its access. These included failing to ‘properly designate all FBO accounts.’ Furthermore, they often commingled customer and corporate funds in the accounts. 

Salame allegedly intervened to help Deltec Bank and Trust with ‘capital issues’ by issuing ‘two $50 million loans involving Salame, Alameda, and two other companies, Deltec International Group (Deltec) and Norton Hall Ltd. (Norton Hall). The investigation concluded that the loans were intended to ameliorate Deltec’s capital issues while ensuring that Deltec would ‘owe’ the FTX Group as a result, and the related promissory notes were structured to conceal Alameda’s role in the loans.’

FTX and Alameda Research also cooperated with Deltec when it came to Moonstone Bank. ‘Although Moonstone Bank was a small regional bank with only a few million dollars in assets, debtor entity Alameda Research Ventures invested $11.5 million in Moonstone Bank’s holding company, FBH Corporation. The discussions around the staking program did not prove fruitful, but FTX Group entity FTX Trading nonetheless deposited $50 million in a Moonstone Bank account.’

Read more: Executive texts claim Deltec moved customer funds from FTX to Alameda

Bad investments

Alameda Research and the rest of the FTX group were poor investors, skipping diligence and throwing money into projects with massive red flags.

These included Embed, a security clearing firm that it acquired for $300 million, and when the estate tried to sell, the highest bid was only $1 million from the founder of the firm. The report alleges that FTX ‘conducted minimal due diligence.’

In another case, the FTX Group spent $376 million to acquire DAAG, despite the fact that it was not an active business and the acquisition ‘did not include the rights to key pieces of intellectual property.’ The estate found that ‘a sale would not be possible because the company had no meaningful saleable assets.’

Some investments were important for other reasons, like when ‘FTX Group acquired nearly the entire economic stake in Genesis Block, but almost all of the shares of Genesis Block were transferred to an entity controlled by Genesis Block’s co-founder and CEO.’

Genesis Block was found to be connected to the ‘Korean Friend‘ account on FTX.

Modulo Capital was another investment fund with romantic ties to Bankman-Fried that received $500 million in investment.

Genesis Digital Assets, described as Venture Investment-1 in the report, received approximately $1 billion, but members associated with Genesis Digital Assets allegedly ‘were aware of potential inaccuracies in the company’s financial statements and valuation materials provided to potential investors.

‘There was also evidence that co-founders of Venture Investment-1 had been involved in criminal conduct in Kazakhstan. And while the FTX Group’s due diligence process identified many of these issues, the FTX Group nevertheless chose to invest.’

Broadly, the report reiterates that FTX was a criminal enterprise engaged in a variety of irresponsible and inappropriate behaviors, with a swarm of executives and lawyers working extraordinarily hard to keep the FTX ship afloat.

Got a tip? Send us an email or ProtonMail. For more informed news, follow us on XInstagramBluesky, and Google News, or subscribe to our YouTube channel.