FTX invested $200 million of client funds in two crypto projects

FTX invested $200 million of client funds in two crypto projects

Author: Robert Strickland

FTX invested $200 million of client funds in two crypto projects
The Securities and Exchange Commission has named two specific companies to which users' assets have been directed, increasing the chances of recovering those funds

FTX conducted two $200 million in venture capital deals in 2022 from customer funds, CNBC reported, citing the SEC. Through FTX Ventures, former exchange chief Sam Bankman-Fried sent $100 million to fintech startup Dave in March and $100 million to Web3 developers Mysten Labs in September.

FTX Ventures, which describes itself as a $2 billion venture capital fund, has conducted dozens of transactions, but only those two were linked by the SEC to the use of client funds, the article said. The commission's identification of the specific companies into which FTX users' assets were funneled increased the likelihood that those funds could be recovered.

If the FTX bankruptcy trustees can prove that it was customer money that was used for the Bankman-Fried investments, they will be able to pursue the return of those funds.

Neither Mysten Labs nor Dave were involved in any wrongdoing related to the FTX exchange, reporters report. Dave CEO Jason Wilk said the company was not aware that FTX or Alameda was using customer assets for investments.

Wilk said the company plans to repay the FTX investment, which was made through convertible bonds, by 2026, returning $101.6 million including interest.

The repayment situation for Mysten Labs' investment is still unclear. The investment in the company was an equity transaction, and the U.S. bankruptcy code does not have a well-defined process for recovering such assets, the report said.

On Dec. 22, 2022, in a lawsuit against FTX co-founder Gary Wang and former Alameda Research head Caroline Allison, the SEC uncovered a scheme to embezzle client funds and manipulate FTX. The regulator alleged that the exchange's management spent money on expensive office space and real estate in the Bahamas, and funneled billions of dollars of customer funds into speculative venture capital investments.

Wang and Ellison are cooperating with the SEC investigation and have pleaded guilty to conspiracy and fraud, Bankman-Fried is under house arrest pending a court hearing scheduled for Jan. 3.

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