Lawyers for the collapsed cryptocurrency exchange FTX on Tuesday painted a grim picture of the firm’s funds and the fate of the billions of dollars in assets that customers lost.
“A considerable amount of assets have either been stolen or are missing,” said James Bromley, a partner on the law firm Sullivan & Cromwell who’s representing FTX, at a bankruptcy hearing in federal court in Delaware.
FTX filed for bankruptcy this month after a run on deposits left the corporate owing $8 billion. The firm’s failure has sparked investigations by the Securities and Exchange Commission and the Justice Department, focused on whether FTX misappropriated customer funds when it lent billions of dollars to Alameda Research, a crypto hedge fund. Each firms were owned by Sam Bankman-Fried, a onetime crypto billionaire who gave up control of the businesses on the time of the bankruptcy filing.
The stunning collapse has left amateur investors and major firms scrambling to get better billions of dollars in cryptocurrencies that they deposited on the FTX platform. In the approaching months, the bankruptcy process will determine how much of that cash could be retrieved.
But greater than every week into the legal process, Mr. Bankman-Fried’s poor management of FTX has left lawyers with limited information concerning the firm’s funds, Mr. Bromley said on the hearing.
The Aftermath of FTX’s Downfall
The sudden collapse of the crypto exchange has left the industry stunned.
- A Spectacular Rise and Fall: Who’s Sam Bankman-Fried and the way did he turn out to be the face of crypto? The Each day charted the spectacular rise and fall of the person behind FTX.
- A Symbiotic Relationship: Mr. Bankman-Fried’s built FTX partly to assist the trading business of Alameda Research, his first company. The ties between the 2 entities are actually coming under scrutiny.
- Wall Street Seeks to Profit: Brokers are offering FTX customers pennies on the dollar for the bankruptcy rights to their funds trapped on the platform.
- A Company in Disarray: The brand new chief executive of FTX, who helped manage Enron after its collapse, said that he had never seen “such a whole failure of corporate control.”
He said that the corporate had faced “cyberattacks” and that assets were still missing. He gave the impression to be referring to an apparent hack on the day the corporate filed for bankruptcy, which got here to light when crypto researchers noticed the unauthorized movement of a whole lot of hundreds of thousands of dollars in FTX assets.
On the hearing, Mr. Bromley presented an in depth account of FTX’s corporate history and its abrupt collapse this month. Mr. Bankman-Fried had established a company empire that was run as his “personal fiefdom,” Mr. Bromley said.
But in the long run, he said, “the emperor had no clothes.”
Over the past two weeks, FTX has faced intense scrutiny over the way it spent its money before the collapse. One business entity involved within the bankruptcy, Mr. Bromley said, bought almost $300 million price of real estate within the Bahamas, where FTX was based, including homes and vacation properties utilized by senior FTX executives.
Mr. Bromley also offered recent details concerning the final hours before Mr. Bankman-Fried gave up control of the firm on Nov. 11. Mr. Bankman-Fried didn’t make the choice until early that morning, Mr. Bromley said, after consulting together with his lawyers on the law firm Paul Weiss and together with his father, Joe Bankman, a professor at Stanford Law School.
In his account of the chaos at FTX, Mr. Bromley echoed criticisms of Mr. Bankman-Fried’s management that were articulated last week in a surprising court filing by John Jay Ray III, who took over from Mr. Bankman-Fried as FTX’s chief executive.
A veteran of managing corporate collapses, Mr. Ray previously oversaw the unwinding of the energy trading firm Enron. But within the filing last week, he wrote that the mess at FTX was the worst he had seen in his profession.
In a letter to employees on Tuesday, Mr. Bankman-Fried apologized for the corporate’s collapse. He said that he regretted filing for bankruptcy, and that he had reluctantly given in to pressure to achieve this.
“Potential interest in billions of dollars of funding got here in roughly eight minutes after I signed the Chapter 11 docs,” he said within the letter, which was obtained by The Recent York Times. “Between those funds, the billions of dollars of collateral the corporate still held, and the interest we’d received from other parties, I feel that we probably could have returned large value to customers and saved the business.”
In court filings, FTX’s recent management has sought to distance itself from Mr. Bankman-Fried, emphasizing that he doesn’t speak for the corporate. Much of the hearing on Tuesday focused on a series of legal issues which have come up within the early stages of the bankruptcy.
Over the weekend, FTX disclosed a redacted list of its top 50 creditors, revealing that those entities or individuals were owed a complete of about $3.1 billion. But the corporate kept the names of the creditors confidential.
A key issue on the hearing was whether FTX would must publicly disclose more detailed details about its creditors, a bunch that likely includes a whole lot of hundreds of strange individuals who deposited money within the exchange. Lawyers for FTX and a number of the creditors argued that revealing that information would endanger users’ privacy.
Judge John Dorsey of the U.S. Bankruptcy Court ruled that the knowledge could stay private, at the least for now. “Everyone on this room knows the web is wrought with potential dangers,” he said. “It’s necessary that we protect those individuals who wish to take part in this case.”
The hearing attracted an unusual level of attention for a bankruptcy proceeding, with greater than 500 people logging right into a Zoom broadcast. During a recess, one person on the decision began blasting the Justin Bieber song “Sorry.”
“I heard we had some entertainment while we were on break,” Judge Dorsey said as he returned to the courtroom.