Defunct cryptocurrency exchange FTX and its founder Sam Bankman-Fried (SBF) donated millions to charities. The Wall Street Journal (WSJ) reported on January 8 that now the firm’s new management is trying to get the donations back.
John. J. Ray, who currently heads the management of FTX, said that it is difficult to determine the total assets and liabilities of the firm and even how many bank accounts it has.
Federal prosecutors and regulators allege that SBF, FTX and its affiliates, including defunct hedge fund Alameda Research, stole user funds and spent billions of dollars on risky bets. FTX and its branches filed for bankruptcy in November 2022.
SBF pleaded “not guilty” to multiple counts of fraud earlier this week, and his criminal trial has been set for October 2023. A spokesperson for SBF told the WSJ that the charitable donations were made with trading revenue, not user funds.
The Future Fund, the charity division of the FTX, has transferred more than 160 million dollars to more than 110 non-profit organizations by September 2022. According to an earlier version of the Future Fund’s now-defunct website, donations went to biotech startups and university researchers. Non-profit organizations that develop Covid-19 vaccines and pandemic preparedness, programs that provide online resources and mentoring to STEM students in rural India and China, and solar panels.
Even as the cryptocurrency bear market is in full swing until 2022, the Future fund has pledged $3.6 million to AVECRIS to develop a genetic vaccine platform. He also pledged $5 million to the Atlas Scholarship to support scholarships and a summer program for high school students.
The largest donation was to biotech startup HelixNano, which received $10 million to conduct trials of a Covid-19 vaccine.
In a press release dated December 19, 2022, FTX stated that it has been approached by many parties who want to return funds received from FTX and its affiliates.
For example, the Alignment Research Center, a nonprofit focused on machine learning, recently announced that it will return a $1.25 million grant it received from the FTX Foundation. He said the funds “belong morally (if not legally) to FTX customers or creditors.”
Similarly, on December 20, ProPublica, a nonprofit investigative media outlet, reported that SBF would return $1.6 million it received from its family foundation, Building a Stronger Future.
The problem is that many of the charities have already spent all or at least part of the money they received from FTX and its affiliates. For example, the Good Food Institute, a nonprofit think tank that focuses on plant- and cell-based meat alternatives, spent all of the funds it received from two FTX grants, the WSJ reported.
In addition, Stanford Medicine, which received about $4.5 million, spent some funds. A spokesperson told the WSJ that it is holding the remaining funds pending legal clarity.
In a Dec. 3 interview with the WSJ, SBF told the WSJ that while most of his charitable donations were sincere, some were made to gain public favor. He said:
“When I promised to donate $2,000 to some brand charity as part of some promotion for FTX’s business, it was as much PR as anything.”
Bankruptcy experts told the WSJ that whether charities repay FTX grants depends on whether the exchange is solvent at the time of the grant. In addition, companies that receive funds from the FTX Fund can provide additional protection.
However, if a court declares FTX a Ponzi scheme, the bankruptcy expert said the firms may have to return the funds, as prosecutors have argued.
SBF was also one of the top political donors in the United States, giving nearly $80 million over 18 months. Ray is also trying to return all political donations.
A day after SBF’s arrest, U.S. Attorney for the Southern District of New York Damian Williams said Alameda Research was donating millions to political parties to “gain bipartisan influence” using “dirty money” stolen from users.
Court documents show that FTX spent more than $7 million on meals in the Bahamas and more than $15 million on luxury hotels in the nine months before the bankruptcy.
Reuters reports that on January 7, US trustee Andrew Vara objected to FTX’s plans to sell LedgerX and its Japanese and European units. Vara called for a full and independent investigation before the sale of the companies, as the firms may contain information related to FTX’s bankruptcy and fraud.