FTX Tapped Into Customer Accounts to Fund Risky Bets

Crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange’s implosion.

FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said.

All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda.

Alameda took out additional loans from other financial firms, according to people familiar with the matter. As of Monday, Alameda owed $1.5 billion in loans to counterparties outside of FTX, the people said.

An FTX spokesman declined to comment.

FTX paused customer withdrawals earlier this week after it was hit with roughly $5 billion worth of withdrawal requests on Sunday, according to a Thursday morning tweet from Mr. Bankman-Fried. The crisis forced FTX to scramble for an emergency investment.

FTX struck a deal to sell itself to its giant rival Binance on Tuesday, but Binance walked away from the deal the next day, saying FTX’s problems were “beyond our control or ability to help.”

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