FTX founder and CEO Sam Bankan-Fried is under SEC investigation relating to the liquidity crisis and handling of customer funds

As the Binance-FTX deal unfolds, it appears situations are getting worse by the minutes for the once high-flying crypto exchange startup. About an hour ago, Binance is reportedly leaning toward backing out of the entire FTX takeover deal after learning how about the company’s financials. Now, FTX founder and CEO Sam Bankan-Fried appears to be in much deeper trouble.

Bloomberg reported that US regulators are investigating whether FTX.com “properly handled customer funds”, as well as its relationship with other subsidiaries of Sam Bankman-Fried’s crypto empire. The ongoing investigations are being conducted by the SEC and the CFTC that relate to the liquidity crisis at the trading platform which led to the sudden and unexpected collapse of the company.

That’s not all. CoinMetrics’ Head of R&D also noted in a post on Twitter that the circular fund flows between FTX and Alameda were clear to anyone who bothered to look.

curiously this tweet, let's name it "Exhibit A" for obvious reasons, has not been deleted yet https://t.co/gfmnaGRBkv

— zerohedge (@zerohedge) November 9, 2022

The news even gets more confusing after Bloomberg reported that the SEC’s inquiry began months ago as a probe into FTX US and its crypto-lending activities. However, for some reason, the SEC was unable to dig deeper into the ongoing fraud within the company.

The demise of FTX started over the weekend after Binance CEO CZ tweeted that his exchange would reduce its exposure to FTX and slowly withdraw billions of its holdings in FTX’s native token, FTT, “due to recent revelations that have come to light.”

A few hours later, investors panicked and started to take their tokens off FTX just as Binance dumps its FTT. According to data from Nansen, mass withdrawals from FTX have accelerated, as investors’ weekly stablecoin outflows from FTX reached a whopping $451 million.

The earlier speculations that FTX is on the verge of insolvency turned out to be true although FTX CEO Sam Bankman-Fried denied the rumor when he said early Monday morning that “FTX is fine. Assets are fine.”

According to a report from CoinDesk, Alameda holds $14.6 billion in assets plus $8 billion in liabilities as of June 30. That’s not all. CoinDesk also found that Alameda’s largest asset was about $3.66 billion of “unlocked FTT” and $2.16 billion of “FTT collateral.” This implies that the $5.82 billion in total FTT that Alameda owns is equal to 193% of the total known market cap of FTT, which is about $3 billion, according to data from CoinMarketCap.

“It’s probably the most dramatic deal I’ve ever seen in the history of the crypto industry,” said Nic Carter, a partner at Castle Island Ventures, which focuses on blockchain investments. “It consolidates basically the two largest offshore exchanges into one entity, an absolute coup for CZ and Binance — and really a disaster for FTX.”

FTX was founded in 2019 by 29-year-old MIT graduate Sam Bankman-Fried and his co-founder Gary Wang. The Bahamas-based crypto exchange FTX offers derivatives products like futures and options as well as spot trading. Once an unknown startup, FTX has become a key player in the crypto space, rivaling the likes of Coinbase and Binance.