In a recent revelation, FTX, the once-prominent cryptocurrency exchange, has come under intense scrutiny for its financial dealings, particularly concerning the use of customer funds. The spotlight is on the exchange’s decision to utilize over a billion dollars in customer deposits to repurchase its shares from Binance, a leading competitor in the crypto space.
The details emerged during a court hearing where Peter Easton, an esteemed accounting professor from the University of Notre Dame, testified about the financial transactions between Alameda Research, FTX, and Binance. Easton, who was appointed by the U.S. Department of Justice (DOJ) to trace the flow of billions of dollars, revealed that FTX had indeed used customer deposits for various investments. These funds were not only used for the Binance share buyback but were also reinvested into businesses, real estate, political contributions, and charitable donations.
Binance’s CEO, Changpeng Zhao, confirmed in a 2022 post that the company had received over $2.1 billion in Binance USD (BUSD) stablecoins and FTX’s FTT tokens as part of the repurchase agreement. This transaction has raised eyebrows, especially given the significant amount that originated from FTX customer funds.
The relationship between FTX and Binance dates back to 2019 when Binance invested an undisclosed sum in FTX as part of a strategic partnership. At that time, FTX was processing a daily trade volume of $500 million, a figure that later soared to over $50 billion at its peak. However, relations between the two giants have been turbulent, with disagreements even spilling over onto public platforms like social media.
The revelations have raised concerns about the security and management of customer funds in the crypto industry. The fact that such a significant amount was used without apparent disclosure to the customers has led to debates about the need for stricter regulations and transparency in the sector.
Legal experts suggest that the FTX estate might have avenues to “claw back” funds from Binance under both U.S. bankruptcy law and state civil law. The laws provide mechanisms for retrieving money if it was sent out with an intent to defraud creditors or if a transaction was made during insolvency and can be proven to be a poor business decision.