Daniel Harrison After the crypto platform FTX went bankrupt last year, its new management began exerting pressure on hundreds of politicians and political organisations to return millions of dollars donated by the platform or its founders.
After declaring bankruptcy in November and becoming the subject of a massive federal fraud investigation, the company claimed it was sending “confidential messages” to political figures, political action funds, and other recipients in an effort to recover assets and repay its estimated 1 million creditors. On Sunday, FTX released a statement reminding donors that they have until the end of the month to return their contributions. If they aren’t, FTX has threatened legal action.
The FTX Debtors “reserve the right to commence actions before the Bankruptcy Court to require the return of such payments, with interest accruing from the date any action is commenced,” the statement reads. The company clarified that the recipients are still responsible even if they donated the money to a charity or another organisation.
Sam Bankman-Fried, FTX’s founder and an influential figure in DC politics during the company’s heyday, advocated for gentle oversight of the emerging cryptocurrency sector and was a major donor to the Democratic Party. According to the Federal Election Commission, during the midterm election cycle of 2022, Bankman-Fried himself donated around $40 million to campaigns and political action committees, primarily supporting Democrats.
Later, Bankman-Fried revealed to journalist Tiffany Fong that he gave the same amount to the Republicans, but called his support for the GOP’s cause “dark.”
Federal prosecutors claim that Bankman-Fried ordered FTX to steal money from customer deposits so that he could cover losses at his hedge fund, Alameda Research, and make political contributions and purchases of high-end real estate.
In a court hearing last month, Bankman-Fried entered a not guilty plea to eight counts of fraud and conspiracy. Meanwhile, two of Bankman-former Fried’s associates have pleaded guilty and accused him of involvement in the crimes.
Just plain horrible
Separately on Monday, FTX CEO John Ray III testified about the company’s cybersecurity infrastructure, which he described as “very loose” and “vulnerable.” Ray III replaced Bankman-Fried as CEO after the firm filed for bankruptcy.
According to him, “virtually unthinkable…in a controlled environment,” because “literally one of the founders could come into this environment, download half a billion dollars’ worth of wallets onto a thumb drive and walk off with them, and there’d be no accounting for that whatsoever.”
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He called the first two days as CEO of FTX “pure hell” as he tried to secure customer passwords and wallets. In November, Ray succeeded Bankman-Fried as CEO. Ray testified in court that he made roughly $690,000 in fees (not including expenses) in the weeks between November 11, when he took over the company, and the end of the year.
The details that Ray provided in his testimony corroborated his earlier claims that he had inherited a company in shambles. In November, Ray, who oversaw the dissolution of Enron, said that he had never seen a “complete failure of corporate controls” and the absence of trustworthy financial statements in his entire career.
The US Trustee, acting for the Department of Justice in bankruptcy cases, had requested that the court appoint appoint appoint appoint an independent, court-appointed examiner to oversee FTX’s bankruptcy proceedings.
FTX’s attorneys argued against hiring an examiner, pointing out that doing so would be redundant, wasteful, and expensive for the company’s creditors.
The US Trustee argued that “too important to be left to an internal investigation” because of the seriousness of the allegations of fraud and misconduct.
The examiner issue has not yet been decided by Judge John Dorsey.
