FTX diverts $200M of customer money for two venture deals

Of the billions of dollars in customer deposits that disappeared from FTX in a flash, $200 million was used to fund investments in two companies, according to the Securities and Exchange Commission, which charged founder Sam Bankman-Fried with “orchestrating a scheme to defraud equity investors,” Report informs via CNBC.

Through its FTX Ventures unit, the crypto firm in March invested $100 million in Dave, a fintech company that had gone public two months earlier through a special purpose acquisition company. At the time, the companies said they would “work together to expand the digital assets ecosystem.”

The other deal the SEC appears to have referenced was a $100 million investment round in September for Mysten Labs, a Web3 company. In total, it was a $300 million funding round that valued Mysten at $2 billion and included participation from Coinbase Ventures, Binance Labs and Andreessen Horowitz’s crypto fund.

While FTX Ventures has done dozens of transactions, according to PitchBook, the Mysten Labs and Dave investments were the only two disclosed investments of $100 million, based on documents published by the Financial Times, which broke down how the company put $5.2 billion to work. FTX Ventures was described as a $2 billion venture fund, in its press release with Dave.

Bankman-Fried, 30, stands accused of committing widespread fraud after FTX, which was valued by private investors at $32 billion earlier this year, sank into bankruptcy in November. A central theme in the charges is how Bankman-Fried diverted funds from FTX to his hedge fund, Alameda Research, which then used that money for risky trades and loans. FTX Ventures was allegedly part of that scheme.

Neither Mysten nor Dave have been linked to any alleged wrongdoing within Bankman-Fried’s empire. But the investments appear to be the first identified examples of customer money being used by FTX and Bankman-Fried for venture funding. As investigators and FTX lawyers attempt to retrace the outflow of FTX funds, these identified investments and others in the $5 billion venture pool will attract heavy scrutiny.

In explicitly linking the two $100 million investments to customer money, the SEC has raised the possibility that they’ll be prospects for clawbacks. If FTX bankruptcy trustees can establish that client money funded Bankman-Fried’s investments, they could pursue recovery of those funds as part of an effort to retrieve customer assets.

Dave CEO Jason Wilk told CNBC that FTX’s investment in Dave is already scheduled to be repaid, with interest, by 2026. FTX’s $100 million investment was through a convertible note, a short-term loan of cash that FTX could convert into shares at a later date. That conversion was never made, leaving Dave with a $101.6 million liability, including interest, to FTX and any successor companies, according to the company’s most recent SEC filings.