FTX admits 1m people may be out of pocket from collapse
MORE than one million people may have lost money from the collapse of cryptocurrency exchange FTX, bankruptcy filings have revealed.
The digital coin exchange, which a little over a week ago was valued at $32bn (£27bn), imploded last week after experiencing a surge in withdrawals it was unable to fulfil.
In its first filing as part of its Chapter 11 bankruptcy case at a court in Delaware, lawyers for FTX said: “There are over one hundred thousand creditors in these Chapter 11 cases. In fact, there could be more than one million creditors.” FTX, a Bahamas-based cryptocurrency exchange founded by Sam Bankman-fried, has been accused of sharing customer funds with its sister hedge fund, Alameda Research, to prop up its high-risk bets on cryptocurrency. FTX lent as much as $10bn to Alameda, The New York Times reported.
FTX was made up of a web of companies with more than 130 registered entities. The company had grown rapidly to become the world’s second largest digital coin exchange, where customers buy and sell Bitcoin and other cryptocurrencies.
But questions arose about the company’s financial practices, leading to a $5bn flood of withdrawals in a single day. In its bankruptcy filing, FTX’S lawyers wrote: “FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday.
“Questions arose about Mr Bankmanfried’s leadership and the handling of FTX’S complex array of assets and businesses under his direction.”
At 4.30am on Friday, Mr Bankmanfried, known as SBF, agreed to step aside as chief executive. John Jay Ray, a US restructuring expert who previously led failed energy company Enron through its bankruptcy, was appointed to lead the company.
Financial documents prepared for potential investors show FTX had $9bn in liabilities and only $900m in liquid assets, the Financial Times reported. Mr Ray appointed five independent directors to lead FTX’S various businesses.
FTX suffered a cyber attack in the immediate aftermath of filing for bankruptcy, with hundreds of millions of dollars worth of crypto assets taken off the exchange. The company has begun moving remaining assets to “cold wallets”, in effect removing them from the company’s digital exchange and putting them on storage that is not connected to the internet.
The bankruptcy filing confirmed that FTX was facing scrutiny from multiple regulators, including the US Securities and Exchange Commission and “dozens” of US state and international regulators.
It is unclear what value will be recovered for creditors from the complex bankruptcy proceedings. The filing said: “Debtors are committed to maximising value for stakeholders.”
FTX and its sister business Alameda were run from a $40m penthouse in the Bahamas by 30-year-old Mr Bankmanfried and a close circle of friends.