Beleaguered crypto firm FTX files for bankruptcy

Move closes dramatic week that saw digital currency markets shaken further

On Monday, Sam Bankman-Fried, the CEO of the cryptocurrency exchange FTX, took to Twitter to reassure his customers: “FTX is fine,” he wrote. “Assets are fine.”

On Friday, FTX announced that it was filing for bankruptcy, capping an extraordinary week of corporate drama that has upended crypto markets and sent shock waves through the industry. In a statement on Twitter, the company said Bankman-Fried had resigned, with John Ray, a corporate turnaround specialist, taking over as CEO.

The speed of FTX’s downfall has left crypto insiders stunned. Just days ago, Bankman-Fried, 30, was considered one of the smartest figures in the crypto industry, an influential figure in Washington who was lobbying to shape crypto regulations. And FTX was widely viewed as one of the most stable and responsible companies in the freewheeling, loosely regulated crypto industry.

Now the bankruptcy has set up a rush among investors and customers to salvage funds from what remains of FTX. A surge of customers tried to withdraw funds from the platform this week, and the company couldn’t meet the demand. The exchange owes as much as $8 billion, according to people familiar with its finances.

FTX’s collapse has destabilized the crypto industry, which was already reeling from a crash in the spring that drained $1 trillion from the market. The prices of the leading cryptocurrencies, bitcoin and ether, have plummeted. The crypto lender BlockFi, which was closely entangled with FTX, announced Thursday it was suspending operations as a result of FTX’s collapse.

The company’s demise has also set off a reckoning over risky practices that have become pervasive in crypto, an industry that was founded partly as a corrective to the type of high-risk financial engineering that caused the 2008 economic crisis.

The bankruptcy filing marks the start of what will probably be months or even years of legal fallout. The exchange was already the target of investigations by the Securities and Exchange Commission and the Justice Department. Investigators are focused on whether the company improperly used customer funds to prop up Alameda Research, a trading firm that Bankman-Fried also founded.

According to a bare-bones legal filing in the U.S. Bankruptcy Court in Delaware, FTX has assets valued between $10 billion and $50 billion, with the size of its liabilities in the same range. The company has more than 100,000 creditors, the filing said.

Bankman-Fried’s problems started over the weekend, when the CEO of Binance, the largest crypto exchange, suggested that FTX might be on shaky financial footing.

On Tuesday, Bankman-Fried said he had struck a deal to sell FTX to Binance. But after reviewing the company’s financial documents, Binance CEO Changpeng Zhao pulled out of the agreement, leaving Bankman-Fried with limited options.

As it enters the bankruptcy process, FTX will be led by Ray, who has ample experience managing distressed situations.