FTX founder Sam Bankman-Fried leaves after a trial in New York City on December 22, 2022.
Ed Jones | AFP | beautiful pictures
Of the billions of dollars in customer deposits that disappear from FTX in a flash, $200 million was used to fund investments in the two companies, according to the Securities and Exchange Commission, the agency charge founder Sam Bankman-Fried for “staging a scheme to defraud equity investors.”
Through the unit FTX Ventures, the crypto company in March invest 100 million USD dave, a fintech company that went public two months earlier through a special-purpose acquisition company. At the time, the companies said they would “work together to expand the digital asset ecosystem.”
The other deal the SEC appears to have referenced is a $100 million investment round in September Because Mysten’s Laboratory, a Web3 company. A total of 300 million dollars funding round Valuations Mysten at $2 billion and includes participation from Coinbase Ventures, Binance Labs and Andreessen Horowitz’s crypto fund.
Although FTX Ventures has made dozens of deals, according to PitchBook, Mysten Labs and Dave’s investment are the only two $100 million investments disclosed, based on documents published by the company. Financial Times, disrupted how the company put $5.2 billion to work. FTX Ventures is described as a $2 billion venture capital fund, in a press release with Dave.
Bankman-Fried, 30, charged Fraud is rampant after FTX, valued at $32 billion by private investors earlier this year, sank into bankrupt in November. A key theme in the allegations is how Bankman-Fried transferred money from FTX to its hedge fund, Alameda Research, which then used that money for risky trades and loans. FTX Ventures is reportedly part of that plan.
Neither Mysten nor Dave were involved in any alleged misconduct within Bankman-Fried’s empire. But the investments looks like the first identified examples of client funds being used by FTX and Bankman-Fried for venture funding. As FTX investigators and attorneys attempt to trace the outflow of FTX funds, these and other identified investments in the $5 billion venture fund will attract close scrutiny.
In explicitly linking two $100 million investments to client funds, the SEC raised the possibility that they would have prospects of receiving recoveries. If the FTX bankruptcy trustees can determine that Bankman-Fried investments are funded with customer funds, they can pursue recovery of those funds as part of their efforts. force to recover the customer’s property.
An SEC spokesperson declined to comment.
Dave CEO Jason Wilk told CNBC that FTX’s investment in Dave is scheduled to pay off with interest in 2026. FTX’s $100 million investment through a convertible bond , a short-term cash loan that FTX can convert into shares at a later date. That conversion never materialized, leaving Dave with $101.6 million in debt, including interest, to FTX and any successor companies, according to the company’s most recent SEC filings.
Jason Wilki
Source: Jason Wilk
“The promissory note for FTX is due for payment in March 2026,” the company said in a statement. “There is no provision in the note that triggers any of Dave’s current obligations to repay the debt by the due date.”
Wilk added that, “it is important to state that we have no knowledge of FTX or Alameda’s use of client assets for investment.”
Bankman-Fried’s investment in Mysten Labs is an equity arrangement. Because Mysten is a privately held company, there is no well-defined process in the US bankruptcy code to get those funds back.
Mysten declined to comment. Attorneys at Sullivan & Cromwell, representing FTX, did not respond to requests for comment.
One complaint of the SEC filed a lawsuit against two Bankman-Fried subordinates, Caroline Ellison and Gary Wang, stating that “two $100 million investments were made by FTX’s affiliated investment vehicle, FTX Ventures Ltd. , funded with FTX customer funds that were transferred to Alameda.”
No matter what money is used, FTX investments are ill-timed.
Dave’s stock has plummeted more than 97% since the company went public, mirroring the performance of the broader SPAC basket. In July, Nasdaq Warning Dave that if its share price does not improve, it is in danger of being delisted. The stock is currently trading for 28 cents and the market capitalization is around $100 million.
Alameda Research previously invested $15 million in Dave in August 2021, before Nasdaq went public. Dave was founded in 2016 and offers customers a Free cash advance about their future earnings as part of a banking product suite. Mark Cuba leads a 3 million USD seed round in 2017.
The investment could be profitable for FTX if Dave’s stock price has improved beyond $10 a share, allowing FTX to convert profitably.
FTX’s investment in Mysten comes in the midst of the crypto crisis. Bitcoin and ether has more than halved for the year and many hedge funds and lenders have gone bankrupt.
Mysten CEO Evan Cheng said at the time that the funds will be used in Mysten’s efforts to “build a blockchain that scales to demand and encourages growth”.
Representatives for Ellison and Wang did not respond to requests for comment. A representative for Bankman-Fried declined to comment.
Ellison, 28 years old, and Wang, 29 years old, pleaded guilty in New York last week for federal charges for illegal use of client funds for trading and venture capital, supposedly directed by Bankman-Fried. Both are collaborating with Federal investigation into Bankman-Fried and the collapse of FTX.
CLOCK: Terms of $250 million guarantee agreement for FTX founder Sam Bankman-Fried
