Crypto firm files for bankruptcy
Agency seeks protections after bank run
NEW YORK — It took less than a week for FTX to go from the third-largest cryptocurrency exchange in the world to bankruptcy court.
The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, the hedge fund Alameda Research, and dozens of other affiliated companies filed a bankruptcy petition in Delaware on Friday morning. FTX US was also part of the company’s bankruptcy filing.
CEO and founder Sam Bankman-fried has resigned, the company said. Bankman-fried was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats. His net worth has all but evaporated, according to Forbes and Bloomberg, which closely track the net worth of the world’s richest people.
“I was shocked to see things unravel the way they did earlier in the week,” Bankman-fried wrote in a series of posts on Twitter.
FTX’S unraveling is causing ripple effects. Already companies that backed FTX are writing down their investments. Politicians and regulators are ramping up calls for stricter oversight of the crypto industry. And this latest crisis has put pressure on the prices of bitcoin and other digital currencies. The total market value of all digital currencies dropped by about $150 billion in the last week, according to Coinmarketcap.com.
FTX’S failure goes beyond finance. The company had major sports sponsorships as well, including Formula One racing. Mercedes said it would remove FTX from its race cars starting this weekend.
Bankman-fried has other problems as well. On Thursday, a person familiar with the matter said the Department of Justice and the Securities and Exchange Commission were looking into FTX to determine whether any criminal activity or securities offenses were committed. The person could not discuss details of the investigations publicly and spoke to The Associated Press on condition of anonymity.
The investigation is centered on the possibility that FTX may have used customers’ deposits to fund bets at Alameda Research. In traditional markets, brokers are expected to separate client funds from other company assets. Violations can be punished by regulators.
In its bankruptcy filing, FTX listed more than 130 affiliated companies circled around the globe. The company valued its assets between $10 billion to $50 billion, with a similar estimate for its liabilities. The company appointed as its new CEO John Ray III, a long-time bankruptcy litigator who is best known for having to clean up the mess made after the collapse of Enron.
FTX’S bankruptcy is certain to be one of the most complicated bankruptcy cases in years. The company listed more than 100,000 creditors on its filing, and with all of its customers effectively being creditors because they deposited their funds with FTX, it will take months to sort out who is owed what, bankruptcy lawyers said.
“Unlike a case where there’s (securities insurance in the failure of a brokerage) or where the FDIC steps in with a bank failure, these customers are totally exposed,” said Daniel Besikof, a partner at Loeb & Loeb LLP who specializes in bankruptcy law.