FTX's terms-of-service forbid trading with customer funds
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Annelise Capossela/Axios
The alleged crypto transfers from FTX to Alameda Research were explicitly forbidden under the cryptocurrency's exchange‘s terms of service.
Why it matters: The arrangement effectively lit the fuse on the stunning collapse that led FTX to file for bankruptcy on Friday. The fact that the platform promised to users it would not use customer funds, or put them at risk, could raise the stakes for executives who did just that.
- There's already a civil bankruptcy case, but this raises the probability that there will be a criminal fraud case, too.
- Semafor reported Saturday that "U.S. enforcement agencies are investigating FTX, including the U.S. attorney’s office in Manhattan."
For the record: FTX.com's terms of service make it clear that the company promised users it would not do what it is recently alleged to have done.
- "You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading."
- The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
Between the lines: Alameda Research CEO Caroline Ellison said on a video call Wednesday that FTX had sent customer funds to Alameda, according to the WSJ.
- Sam Bankman-Fried told the Financial Times that FTX had "accidentally" sent $8 billion to Alameda.
What they're saying: Many members of FTX and Alameda senior leadership were members of the Effective Altruism movement. One of that movement's leaders, William MacAskill, tweeted a thread about the terms of service this week.
- "If there was deception and misuse of funds, I am outraged," he said.
Catch up quick: FTX was one of the biggest cryptocurrency exchanges in the world until last week when it shut down customer withdrawals on Tuesday. It filed for bankruptcy on Friday.
How it works: A responsible cryptocurrency exchange shouldn't really be able to run into a liquidity crunch. Every asset in anyone's account should be sitting in the exchange's various crypto wallets and bank accounts.
Background: FTX is a part of a family of companies that began with the trading firm, Alameda Research.
- Reuters reported that there may be between one and two billion dollars' worth of assets that simply can't be accounted for.
- Bankman Fried and FTX U.S. General Counsel Ryne Miller did not immediately respond to requests for comment.
