Chaotic collapse of FTX crypto empire triggers more than 1m creditors

A restructuring lawyer has ushered the companies into bankruptcy court

Tue, 15 Nov, 2022 - 15:38

Jeremy Hill

The team of restructuring experts who took control of Sam Bankman-Fried’s failed crypto empire in the US are engaged with “dozens” of regulatory authorities around the world as they rush to secure customer accounts and begin to engage with creditors who are likely to exceed a million people, according to bankruptcy court filings.

The documents, while still sparse in detail, offer the first official glimpse into what has been happening inside FTX and its trading arm, Alameda Research, in the four days since a restructuring lawyer took charge and ushered the companies into bankruptcy court.

John J Ray III, who replaced Mr Bankman-Fried in the early morning hours of November 11, appointed five men, including a former federal judge, as independent directors of FTX, Alameda, and three other main entities.

“Questions arose about Mr Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction,” lawyers for the crypto company wrote in the filings, adding that Mr Bankman-Fried agreed to step aside from the company in the early hours of November 11.

The companies plunged into bankruptcy court hours later after facing “a severe liquidity crisis”, according to the filing.

A team of external advisers that include lawyers and restructuring experts at law firm Sullivan & Cromwell and Alvarez & Marsal began moving customer accounts into so-called cold wallets and responding to a November 11 hack that the company has said led to unauthorised withdrawals, the lawyers wrote.

Creditor recoveries

Mr Ray, who oversaw the $23bn (€22bn) liquidation of energy trading firm Enron, appointed former US district court judge Joseph J Farnan as lead independent director, overseeing FTX Trading. Mr Ray has a reputation for boosting creditor recoveries.

Given the volume of creditors in the case, FTX lawyers are asking US bankruptcy court judge John Dorsey for flexibility on bankruptcy rules that usually require contact via physical addresses.

Instead, they are seeking permission to use customer email addresses. The lawyers said they plan to file a list of FTX’s 50 largest creditors by November 18.

In the last three days, FTX representatives have been in contact with authorities that also include the US Securities and Exchange Commission and the Commodity Futures Trading Commission, according to the filing.

Mwanwhile, Mr Bankman-Fried is seeking commitments from investors to raise fresh cash, The Wall Street Journal reported, citing people familiar with the matter.

The former chief executive and a few remaining employees at FTX have spent the past weekend calling around in search of commitments from investors, the report said.

The Wall Street Journal could not determine if any investors have committed.

The company has been scrambling for funds since earlier this month after larger rival Binance backed out of a deal to buy FTX.