By Collecty Research | Forensic Series: The Giant Client Trap
Reading time: 11 minutes
On November 11, 2022, FTX — once the world's second-largest cryptocurrency exchange, valued at $32 billion — filed for bankruptcy.
Customer deposits totaling $8 billion were missing.
The founder and CEO, Sam Bankman-Fried (SBF), claimed he "didn't know" where the money went. He blamed systems, subordinates, and complexity.
Investigators found the money. SBF had secretly transferred customer funds to his hedge fund, Alameda Research, to cover trading losses. When Alameda's bets failed, the customer money disappeared.
SBF was convicted on 7 counts of fraud and sentenced to 25 years in federal prison in March 2024.
This isn't just a crypto story. It's a case study in how "I don't know" becomes the universal excuse when someone has lost (or stolen) your money.
For B2B suppliers, the lesson is clear: if your client doesn't know where your payment is, they don't know where anyone's money is. Get out before the bankruptcy filing.
The Rise of FTX
The Pitch
Sam Bankman-Fried founded FTX in 2019 as a cryptocurrency derivatives exchange. The pitch:
- Transparent: Clear order books, regulated operations
- Safe: Customer funds segregated from trading operations
- Professional: Targeted institutional investors, not retail gamblers
- Well-capitalized: Backed by top-tier VC firms (Sequoia, Temasek, SoftBank)
By 2021, FTX was valued at $32 billion. SBF personally was worth $26 billion on paper. He appeared on magazine covers, testified before Congress, and donated millions to political campaigns.
FTX's brand was built on trust. Unlike other crypto exchanges that had collapsed or been hacked, FTX was the "safe" choice.
The Reality
Behind the scenes, FTX was a fraud from the start:
- Customer deposits were not segregated
- Funds were secretly transferred to Alameda Research (SBF's trading firm)
- Alameda used customer money for speculative bets
- When bets lost, the losses came out of customer accounts
- FTX created fake accounting entries to hide the missing funds
The Collapse
November 2, 2022: The Leak
CoinDesk published FTX and Alameda's balance sheets, leaked by a whistleblower. The numbers revealed:
- Alameda's largest asset: $3.66 billion in FTT tokens (FTX's own cryptocurrency)
- Alameda owed FTX approximately $8 billion
- Alameda had minimal liquid collateral
The problem: Alameda's balance sheet was propped up by FTT tokens, which FTX had created out of thin air. If FTT collapsed, Alameda was insolvent. If Alameda was insolvent, FTX — which had lent it $8 billion — was also insolvent.
November 6, 2022: The Bank Run Begins
Changpeng Zhao (CZ), CEO of Binance (FTX's largest competitor), announced Binance would sell its FTT holdings. CZ cited "recent revelations" about Alameda's financials.
FTT's price crashed. Customers panicked and began withdrawing funds from FTX.
November 7-8: FTX processed $6 billion in withdrawal requests in 72 hours. The exchange couldn't cover it. Withdrawals were frozen.
November 9, 2022: The Failed Rescue
Binance announced a tentative deal to acquire FTX and cover customer losses. It looked like a rescue.
November 10: After reviewing FTX's financials, Binance backed out. CZ's statement: "Corporate due diligence revealed issues beyond our control or ability to help."
Translation: The hole was too big. FTX was unsalvageable.
November 11, 2022: Bankruptcy
FTX, Alameda Research, and approximately 130 affiliated entities filed for Chapter 11 bankruptcy.
Customers owed: $8+ billion
Creditors: 1 million+
Recovery estimate (initial): 10-20 cents on the dollar
The Fraud Mechanics
Commingling Customer Funds
FTX's terms of service explicitly stated customer deposits were segregated and not used for trading.
This was a lie.
FTX had built a backdoor in its code allowing Alameda Research to borrow unlimited amounts from FTX customer accounts without collateral. Alameda effectively had a negative balance of $8 billion — money it had withdrawn from customer accounts and never repaid.
The "Fiat@FTX" Account
Customers depositing dollars into FTX thought their funds went into segregated bank accounts. Instead, the money went to a bank account controlled by Alameda Research labeled "Fiat@FTX."
Alameda used these deposits for:
- Speculative crypto trading
- Venture capital investments
- Real estate purchases
- Political donations
- Personal loans to executives (including $1 billion to SBF personally)
When Alameda's bets lost money, customer deposits disappeared.
Fake Accounting
To hide the missing $8 billion, FTX manipulated its internal accounting:
- Created fake revenue entries
- Misclassified Alameda's debt as "assets"
- Used FTT tokens (which FTX controlled) to inflate Alameda's balance sheet
- Gave false financial statements to investors, auditors, and lenders
FTX's "auditor" was a tiny firm in the Cayman Islands with 3 employees. They never verified the existence of customer funds.
The "I Didn't Know" Defense
SBF's Trial (October 2023)
SBF's defense strategy:
- He delegated financial oversight to others (CFO, legal team, compliance)
- He didn't understand the complexity of the systems
- Mistakes were made, but no criminal intent
- He acted in good faith and tried to save FTX when it collapsed
The prosecution presented:
- Signal messages showing SBF directing fund transfers
- Code repositories with SBF's commits creating the Alameda backdoor
- Loan agreements personally signed by SBF using customer funds
- Testimony from executives (Caroline Ellison, Gary Wang, Nishad Singh) who cooperated and confirmed SBF orchestrated the fraud
Verdict: Guilty on all 7 counts (wire fraud, conspiracy, money laundering)
Sentence (March 2024): 25 years in federal prison
The jury deliberated 4 hours. They didn't buy "I didn't know."
The B2B Parallel: When Clients "Don't Know"
Every B2B supplier has heard versions of "I don't know" from clients who can't (or won't) pay:
The Variations
"I don't know why the payment didn't go through."
Translation: We didn't prioritize your invoice. Or we don't have the cash.
"I don't know who handles that department."
Translation: I'm passing the buck. Good luck finding someone who cares.
"I don't know when we'll have cash flow."
Translation: We're in trouble and don't want to admit it.
"I don't know where that invoice is in the system."
Translation: We're disorganized, possibly insolvent.
"I don't know what happened to the approval."
Translation: Internal chaos. No one is accountable.
The Reality
Sometimes "I don't know" is genuine — the person you're speaking to truly doesn't have visibility.
More often, "I don't know" means:
- They know but won't tell you (protecting bad news)
- They're buying time (hoping the problem resolves itself)
- They're hoping you'll go away (squeaky wheel strategy)
- They're incompetent (don't manage finances properly)
In all four cases, you have a problem.
Red Flags Your Client Is Pulling an FTX
FTX: "Customer funds are safe and segregated." (They weren't.)Your client: "Your payment is being processed." (It isn't.) Action: Demand specifics. "What's the payment reference number? When exactly will it clear?"
What Happens When Companies "Lose Track" of Money
FTX Customers
As of 2024, FTX bankruptcy proceedings have recovered approximately $7-8 billion through asset sales and clawbacks. Customers may eventually recover 50-70% of their deposits — but only after years of litigation.
Key lesson: Even when money is eventually recovered, liquidity is destroyed. Customers who needed their funds in 2022 didn't have them. Businesses failed. Opportunities were lost.
Your Situation
If your client "loses track" of your payment:
- You don't get paid on time
- Your cash flow is disrupted
- You may need to borrow to cover the gap
- If they go bankrupt, you become an unsecured creditor
- Recovery (if any) takes years and pennies on the dollar
What B2B Suppliers Should Do
When You Hear "I Don't Know"
Step 1: Escalate immediately
Don't accept "I don't know" from junior staff. Demand to speak with someone who does know.
Step 2: Set a hard deadline
"I need a specific answer by [date and time]. If I don't receive it, I'm escalating to collections."
Step 3: Stop new shipments
If they can't explain where your last payment is, don't send more goods.
Step 4: Engage a collection specialist
Professionals know how to cut through "I don't know" and get answers.
Payment Terms to Protect Yourself
- Deposits for large orders (30-50% upfront)
- Progress payments for long-term projects
- Credit limits per client (never let one client represent >30% of AR)
- Personal guarantees from owners/executives for new clients
- Right to audit clause (verify they actually have the money)
When to Walk Away
If your client:
- Repeatedly can't explain where payments are
- Has complex, opaque corporate structures
- Blames everyone but themselves
- Shows signs of cash flow collapse
- Doesn't take accountability
Stop delivering and escalate to recovery.
You're not being difficult. You're protecting your business from becoming an FTX creditor.
The Bigger Picture
Trust But Verify
FTX's customers trusted the brand. They believed the marketing. They assumed a $32 billion company with celebrity endorsements and venture capital backing was safe.
They were wrong.
Your client might have a great reputation, big-name investors, or industry awards. None of that guarantees they manage money properly.
Verify:
- Check their payment history (do they pay others on time?)
- Monitor their financial health (Dun & Bradstreet, credit reports)
- Watch for red flags (sudden excuses, vague answers, blame-shifting)
"I Don't Know" Is a Confession
SBF's "I didn't know" defense failed because a CEO should know where $8 billion went.
If your client's finance team doesn't know where your $50,000 invoice is, they're admitting they don't track money properly.
That's not an excuse. That's a confession of incompetence — or fraud.
The Bottom Line
FTX lost $8 billion in customer funds. The CEO said he "didn't know" where it went.
The jury didn't buy it. Neither should you.
When your client says "I don't know" where your payment is, that's not an answer. It's a warning.
Get your money. Stop shipping. Escalate to collections.
Because if they don't know where YOUR money is, they don't know where ANYONE's money is.
And when the bankruptcy filing comes, you'll be competing with 1 million other creditors for scraps.
Don't be an FTX customer. Be the supplier who got out first.
Client can't explain where your payment is? Collecty specializes in B2B debt recovery from companies in financial distress. 80%+ success rate. 160+ countries. No win, no fee. Free case assessment →
Sources
- U.S. Department of Justice: "Samuel Bankman-Fried Convicted of Defrauding Customers" (November 2023)
- U.S. District Court, SDNY: United States v. Samuel Bankman-Fried trial transcript
- CoinDesk: "Divisions in Sam Bankman-Fried's Crypto Empire Blur on His Trading Titan Alameda's Balance Sheet" (November 2, 2022)
- Wall Street Journal: "FTX's Balance Sheet Was Bad. Then It Got Worse." (November 2022)
- Financial Times: "The unravelling of Sam Bankman-Fried's crypto empire" (November 2022)
- Bloomberg: "Sam Bankman-Fried Sentenced to 25 Years" (March 2024)
- FTX Bankruptcy Court Filings: Chapter 11 case documents (2022-2024)
- SEC Complaint: Securities and Exchange Commission v. Samuel Bankman-Fried (December 2022)
Sarah Lindberg
International Operations Lead
Sarah coordinates our global partner network across 160+ countries, ensuring seamless cross-border debt recovery.
