This article is an excerpt from the Shortform book guide to "Going Infinite" by Michael Lewis. Shortform has the world's best summaries and analyses of books you should be reading.
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How much money went missing from FTX? Has the mystery been solved?
In Going Infinite, financial journalist Michael Lewis provides a rare glimpse into the inner workings of Sam Bankman-Fried’s astounding rise and fall. Lewis shares what’s known about billions of dollars that went missing, including what Bankman-Fried told him about it.
Read more to learn about the mysterious case of FTX’s missing money.
FTX’s Missing Money
When FTX customers started withdrawing their assets, many of them ran into a brick wall. Lewis shares the story of FTX’s missing money in the context of the company’s collapse.
Because FTT (FTX’s own cryptocurrency that functioned as equity in FTX) functioned as stock in FTX, its sharp drop in value led FTX users to withdraw money from FTX in droves. According to Lewis, on the night of Sunday, November 6, 2022, FTX users were withdrawing $100 million from FTX per hour, totaling $2 billion over the course of the day. Then, on Monday, November 7, FTX users tried to withdraw another $4 billion. Lewis relates that, by Tuesday morning, FTX had already issued $5 billion in withdrawals, with several billion more dollars in “pending” withdrawals.
But, Lewis points out that withdrawals shouldn’t have caused a catastrophe. Though they cut into FTX’s short-term trading volume, that should have been short-lived once customers realized FTX was stable and redeposited their money. In reality, the opposite occurred: After processing $5 billion in withdrawals, FTX ceased allowing withdrawals because it lacked the money to pay the remaining $8.8 billion customers were asking for. In other words, customers who had collectively deposited a total of nearly $9 billion at FTX were told their money was gone.
As Lewis relates, it became obvious that FTX lacked the money to process further withdrawals by Tuesday, when it simply stopped processing further withdrawal requests. One week afterward, FTX’s employees had overwhelmingly fled its Bahamas headquarters, fearing legal retribution from Bahamas authorities. However, Lewis notes that FTX’s Chief Operating Officer, Constance Wang, stayed in the Bahamas with one goal—to find what happened to the missing $8.8 billion so that she could act as a witness in the case against Bankman-Fried.
(Shortform note: Although Lewis writes that Wang agreed to serve as a witness for the US Department of Justice’s case against Bankman-Fried, other experts point out that Wang appeared on the possible witness list for the prosecution and the defense. Consequently, it’s unclear which side she will testify for, if she’s called to the witness stand at all.)
Lewis says that Wang found a tentative answer when scouring financial documents for Alameda Research (which shared the same headquarters as FTX). According to these documents, over $8.8 billion was listed under Alameda Research’s liabilities as “customer deposits,” even though, as a private trading firm, it shouldn’t have had any customer deposits. In other words, the documents suggested that FTX had been using customer deposits in Bankman-Fried’s private trading fund for Alameda Research. But, puzzlingly, the same documents showed only $3 billion in liquid assets for Alameda Research, meaning $6 billion remained unaccounted for. Hence, these documents just produced another question: What happened to that $6 billion?
(Shortform note: Lewis doesn’t clarify that FTX’s act of sending customer funds to another company without customer consent is generally considered illegal, according to experts. Moreover, financial regulations require trading platforms like FTX to have at least as much money available as its customers have deposited, so FTX also violated these regulations.)
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Like what you just read? Read the rest of the world's best book summary and analysis of Michael Lewis's "Going Infinite" at Shortform.
Here's what you'll find in our full Going Infinite summary:
- How Sam Bankman-Fried created an empire—and then destroyed it
- A look at Bankman-Fried's life before he became a crypto mogul
- How effective altruism led Bankman-Fried to his career in finance
