According to the Securities and Exchange Commission, which accused founder Sam Bankman-Fried of “orchestrating a scheme to defraud equity investors,” of the billions in deposit accounts that vanished from FTX in an instant, $200 million has been used to fund investments in two companies.
The cryptocurrency corporation acquired $100 million in Dave through its FTX Ventures division in March. Dave was a fintech business that had gotten involved two months prior via a special purpose acquisition firm. The businesses pledged to “work together to expand the digital assets ecosystem” at the time.
The other transaction the SEC seems to have been referring to is a $100 million funding round for Web3 firm Mysten Labs in September. The $300 million fundraising round comprised Coinbase Ventures, Binance Labs, and Andreessen Horowitz’s cryptocurrency fund, and valued Mysten at $2 billion.
FTX Ventures has reportedly engaged in many deals, however, the Financial Times filings that detailed how the company invested its $5.2 billion show that the only two acknowledged investments of $100 million were in Mysten Labs and Dave. In a news release, FTX Ventures was referred to as a $2 billion venture capital fund with Dave.
Following FTX’s bankruptcy in November, which was initially assessed at $32 billion by private investors, Bankman-Fried, 30, is alleged to have committed extensive fraud. How Bankman-Fried transferred cash from FTX to his hedge fund, Alameda Research, and utilized those monies for dangerous trades and loans, is a major topic in the accusations. That plan allegedly included FTX Ventures.
In Bankman-empire, Fried’s neither Mysten nor Dave have been implicated in any alleged misconduct. The transactions, however, seem to be the first known instances of FTX and Bankman-Fried using client funds for venture capital. These particular investments and others in the $5 billion venture pool will come under close examination as investigators and FTX lawyers try to trace the disappearance of FTX assets.
The SEC has opened the door for potential clawbacks by directly tying the two $100 million investments to client funds. Bankman-investments Fried’s may have been financed by client money, according to FTX bankruptcy trustees, who may seek the restoration of those resources in an attempt to reclaim client assets.
A SEC representative declined to comment.
According to Jason Wilk, CEO of Dave, FTX’s investment in the company is already planned to be recovered by 2026, plus interest. A convertible note, a brief financial loan that FTX may later turn into shares, was how FTX made its $100 million investment. According to the company’s most current SEC filings, the conversion was never completed, leaving Dave liable to FTX and any succeeding corporations for $101.6 million, including interest.
“The note issued to FTX is due for repayment in March 2026. No terms contained in the note trigger any current obligation by Dave to repay prior to the maturity date,”
The company addressed this in a statement.
“It is important to state we had no knowledge of FTX or Alameda using customer assets to make investments,”
Jason Wilk stated.
The investment Bankman-Fried made in Mysten Labs was an equity transaction. Due to the fact that Mysten is a privately held corporation, there is no definite procedure in the US bankruptcy legislation for recovering those funds.
Mysten chooses not to respond. Requests for comment from Sullivan & Cromwell’s attorneys, who are representing FTX, went unanswered.
“Two $100 million investments made by FTX’s affiliated investment vehicle, FTX Ventures Ltd., were funded with FTX customer funds that had been diverted to Alameda,”
According to an SEC complaint issued against two of Bankman-lieutenants, Fried’s Caroline Ellison and Gary Wang.
Whatever the source of funding, FTX’s investments were poorly timed.
Because the company went public, shares of Dave have fallen by nearly 97%, reflecting the performance of a larger group of SPACs. The Nasdaq issued a warning to Dave in July that the company faced being removed from the list if its share price didn’t rise. The stock currently has a market cap of about $100 million and trades for 28 cents.
Before Dave’s Nasdaq offering, Alameda Research invested $15 million in the company in August 2021. In addition to a variety of financial products, Dave, which was formed in 2016, gives consumers a free cash advance on their upcoming earnings. In 2017, Mark Cuban sponsored a $3 million seed round.
If Dave’s share price had risen above $10 a share, FTX would have been capable of converting at a profit, making the investment profitable.
The time of FTX’s investment in Mysten coincided with a crypto market collapse. In addition to multiple collapsed hedge funds and lenders, the value of bitcoin and ether had dropped by more than half for the year.
According to Mysten CEO Evan Cheng at the time, the money would be used to “build a blockchain that scales with demand and incentivizes growth.”
Requests for information from Ellison and Wang’s representatives went unanswered. A Bankman-Fried spokesman declined to comment.
Ellison, 28, and Wang, 29, entered guilty pleas last week in New York to federal charges relating to the unauthorized use of client cash for trading and venture investments, allegedly under Bankman-direction. Fried’s Both have aided in the Bankman-Fried and FTX collapse federal probes.
Information from CNBC