Tuesday’s hearing marked a turning point for FTX’s bankruptcy case as its new leaders begin figuring out what assets they can defend and trying to determine whether customers’ money is worth the money. Who may be responsible for the loss of
James Bromley, a lawyer for FTX’s new management, said, “FTX was under the control of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals.” case earlier this month
Mr Bankman-Fried did not respond to a request for comment.
New management is only starting to take stock of how much FTX lost under Mr Bankman-Fried on risky trading bets, and it has assembled a team of investigators to lead a global hunt for the money. Had given up before FTX failed.
Prosecutors in New York and the US Securities and Exchange Commission are probing the firm’s collapse, which opened a new wave of financial stress in the cryptocurrency industry.
Customers’ funds have been frozen on the exchange, and they are losing hope that they will ever get much back. The size of the gap between FTX’s obligations to its customers and the available assets it can use to help pay them is still not known, although Mr Bromley said its individual and institutional customers number in the millions. . Court papers show that the 50 largest creditors alone are owed more than $3 billion.
Mr. Bromley said that FTX, a target of continuing cyberattacks that began at the time of the bankruptcy filing, has also instituted new internal controls to try to protect the company from future hackings.
He said FTX remains in “constant communication” with the US Department of Justice, and the cybercrimes unit of the US Attorney’s Office in Manhattan has also launched an investigation, Mr Bromley said in court. The US Attorney’s Office in Manhattan did not immediately respond. for comment request.
FTX, now controlled by a new chief executive and his appointed directors after Mr Bankman-Fried stepped down, faces the daunting task of using bankruptcy laws to secure client money and other assets. Some FTX assets are outside the US, including the Bahamas, where FTX’s inner circle run their operations.
The exchange’s managers previously hired investigators from the SEC and the Department of Justice to track down FTX-related assets that may have been taken without authorization.
FTX’s lawyers on Tuesday also presented the most serious allegation yet against the platform’s previous leaders, particularly Mr Bankman-Fried, and their lack of professionalism in managing the billions of dollars in cryptocurrency assets of customers.
“We have a worldwide, international organization here, but one that was run as the personal fiefdom of Sam Bankman-Fried,” Mr Bromley said. He described the collapse of FTX as “one of the most sudden and difficult collapses ever”. The History of Corporate America and the History of Corporate Entities Around the World.”
The Wall Street Journal reported that FTX was a chaotic jumble of corporate entities and client assets under the leadership of Mr. Bankman-Fried almost from the firm’s inception.
FTX’s new CEO, John J. Ray III said in court papers last week that corporate funds were used without any internal documentation to buy homes for employees in the Bahamas. According to the new CEO, Mr Bankman-Fried frequently informed his staff about decisions via messaging applications that auto-deleted his statements.
Mr. Ray, who helped resolve the collapse of Enron Corp. and other big corporate failures, will have an array of legal tools available in Chapter 11 to investigate, and potentially return, money made to insiders or other creditors. or transfer of assets leading to the collapse of the firm.
This could include clients who have recently withdrawn funds from the firm, or Mr. Bankman-Fried, who pulled $300 million in cash from FTX’s outside investments last year, the Journal reported.
The failure of FTX sharpens the unflattering spotlight on an industry that had already lost credibility with the investing public after a chain reaction of bankruptcies earlier this year revealed that some firms were stealing customer funds. Wasn’t as careful as they allowed it to be.
Customers of crypto exchanges lack safety nets such as deposit insurance, which kick in when regulated banks and brokerages are subject to them. The task of cleaning up after the FTX and other recent crypto failures has largely fallen to the US bankruptcy courts, which have only recently begun to answer how crypto customers should fare in bankruptcy.
Discontinuation of FTX continues to show the effect of infection. The Journal reported earlier this month that crypto lender BlockFi, with which FTX is financially entangled, is exploring a possible bankruptcy filing. Another large lender, Genesis Global Trading, is scrambling for a rescue following a rush of withdrawals from its lending platform, according to people familiar with the matter. Silvergate Capital Corp, a well-known bank for the crypto market, is being punished by the markets over fears of contagion. Other companies are reducing their reserves and exposure.
FTX managers have said months will be needed to resolve customer claims and bad bets at its affiliated trading firm, Alameda Research, that drove FTX into bankruptcy. The Journal reported Tuesday that Mr. Bankman-Fried apologized for the firm’s downfall to his former colleagues in a two-page letter that did not directly address FTX’s movement of client funds to Alameda.
US Bankruptcy Court Judge John Dorsey in Wilmington, Del., said Tuesday that he would approve several requested motions filed by FTX to help the company manage its bankruptcy, including identifying customers who have deposited funds, for now. involves reducing Exchange.
The firm’s management has said it may need until January to compile a full balance sheet detailing the company’s total assets and liabilities, but some business divisions appear to be solvent. The firm has unearthed about $1.4 billion in cash that it says is related to the business, more than double the figure given in a report to the court last week. Salvageable units can be sold out of bankruptcy.
Its attorneys said Tuesday that FTX has received requests from both the US House of Representatives and the Senate for Mr. Wray to appear before Congress in December.
Some FTX assets are tied up in the Bahamas, where the firm relocated last year as the country sought to become a destination for digital currency firms around the world. Financial authorities in the Bahamas earlier this month seized digital assets of FTX’s local operations, which its managers say were done through unauthorized access to its corporate network.
The Securities Commission of the Bahamas, the lead local authority investigating the FTX collapse, has confirmed the asset transfer, but said the coins were moved to a government-controlled wallet “for safekeeping” and in accordance with local laws.
Court-appointed liquidators in the Bahamas have said the local subsidiary controls private keys needed to move crypto in and out of the entire FTX complex, once estimated to be around $16 billion in assets.
Lawyers representing the liquidators said in court on Tuesday they did not necessarily agree with Mr Bromley’s characterization that the US-based affiliate in the bankruptcy, unlike FTX’s Bahamas subsidiary, had control over some client funds.
“We have some disagreements, which we will resolve over time,” said Christopher Shore, US counsel for the Bahamian liquidators.
Simone Morgan-Gomez, a partner at Callenders & Co. based in the Bahamas who is not involved in the bankruptcy case, said the Bahamian liquidator would need to establish which creditors have any joint accounts under the company name. I have the right to claim the money. ,
Court papers filed in Delaware indicate a culture of poor record-keeping at FTX and disagreements between its American managers and Bahamian liquidators over who should control the firm’s assets and distribution to creditors.
“A liquidation of this magnitude is likely to take a few years,” Ms Morgan-Gomez said.