FTX used $200 million in client funds for two venture investments

According to the Securities and Exchange Commission, of the billions of dollars in customer deposits that quickly disappeared from FTX, $200 million was used to fund investments in two companies, founder Sam Bankman Fried said. He was accused of organizing a scheme to defraud stock. Investor. ”

Through FTX Ventures Unit, Crypto Firm Invested $100 Million In March Dave, a fintech company that went public two months ago through a special purpose acquisition company. At the time, the two companies said they would “work together to expand the ecosystem of digital assets.”

Another deal that the SEC may have referenced was a $100 million investment round by Web3 company Mysten Labs in September. With a total funding round of $300 million, Misten is valued at his $2 billion, coin base Ventures, Binance Labs, Andreessen Horowitz Crypto Fund.

FTX Ventures has made dozens of deals, but its investments in Mysten Labs and Dave are the only two investments disclosed as $100 million, according to documents published by the Financial Times, according to PitchBook. and analyzes how the company managed its $5.2 billion. FTX Ventures is described as a $2 billion venture fund in his press release with Dave.

Bankman-Fried, 30, is accused of conducting widespread fraud after FTX, valued at $32 billion by private investors earlier this year, filed for bankruptcy in November. A central theme of the charges is how Bankman-Fried diverted money from his FTX to his hedge fund, Alameda Research, which was then used for risky trading and loans. Used. FTX Ventures is said to have been part of that plan.

Neither Mysten nor Dave were involved in any alleged wrongdoing within Bankman-Fried’s empire.But the investment it looks like that First identified example of customer money being used by FTX and Bankman-Fried for venture funding. These identified investments, and others in her $5 billion venture pool, are subject to intense scrutiny as investigators and her FTX lawyers attempt to trace the outflow of her FTX funds. Become.

By explicitly tying the two $100 million investments to client funds, the SEC raised the possibility that they could be clawback prospects. If FTX’s bankruptcy trustee can establish that a client’s funds were used for her Bankman-Fried investments, they may seek recovery of those funds as part of an effort to recover the client’s assets. .

An SEC spokeswoman declined to comment..

Dave CEO Jason Wilk told CNBC that FTX’s investment in Dave is already due to be repaid with interest by 2026. FTX’s $100 million investment was made through convertible bonds. .date. According to the company’s latest SEC filings, that conversion never took place, leaving Dave with $101.6 million in debt (including interest) to FTX and its successor.

“Notes issued to FTX are expected to be repaid in March 2026,” the company said in a statement. “The terms contained in the note do not create any present obligation for Dave to repay before the maturity date.”

Wilk added, “It’s important to state that we were unaware that FTX or Alameda were using client assets to make investments.”

Bankman-Fried’s investment in Mysten Labs was a stock deal. Because Mysten is a privately held company, US bankruptcy law does not have a clearly defined process for recovering these funds.

Misten declined to comment. Attorneys for Sullivan & Cromwell, who represent FTX, did not respond to a request for comment.

The SEC complaint filed against two Bankman-Fried lieutenants, Caroline Ellison and Gary Wang, alleges “two $100 million investments made by FTX Ventures Ltd., an affiliated investment company of FTX. was FTX customer funds diverted to Alameda.” “

Regardless of what funds are being used, FTX’s investment was badly timed.

Dave’s stock has plunged more than 97% since the company went public, reflecting the performance of the SPAC’s broader basket. The Nasdaq warned Dave in July that it risked delisting if the stock didn’t improve. The stock currently trades at 28 cents and has a market capitalization of approximately $100 million.

Alameda Research invested $15 million in Dave in August 2021, prior to the Nasdaq listing. Dave He was founded in 2016 and offers customers free cash advances on future income as part of a suite of banking products. Mark Cuban said he led a $3 million seed round in 2017.

If Dave’s stock price improved by more than $10 per share and FTX was able to turn a profit, this investment could have been profitable for FTX.

FTX’s investment in Mysten came in the midst of a cryptocurrency meltdown. Bitcoin When ether has fallen by more than half over the year, and numerous hedge funds and lenders have gone bankrupt.

The funds were to be used for Mysten’s efforts to “build a blockchain that scales with demand and drives growth,” Mysten CEO Evan Cheng said at the time.

Representatives for Ellison and Wang did not respond to requests for comment.A representative for Bankman-Fried declined to comment.

Ellison, 28, and Wang, 29, pleaded guilty last week in New York to misusing client funds for transactions and venture investments allegedly orchestrated by Bankman-Fried. Both are cooperating with Bankman-Fried and his federal investigation into the collapse of FTX.

look: Terms of FTX founder Sam Bankman-Fried’s $250 million bail deal