During FTX’s first Chapter 11 hearing in Delaware on Tuesday, restructuring attorney James Bromley said a “significant amount” of the crypto exchange’s assets have disappeared or been stolen.
FTX, formerly one of the most trusted brands in the cryptocurrency space, filed for bankruptcy earlier this month. Its CEO and founder, Sam Bankman-Fried, has resigned, marking the downfall of the multi-billion dollar crypto empire. The rapid collapse of FTX and Bankman-Fried shook investor confidence in the industry and triggered a liquidity crisis in other crypto companies.
Attorney James Bromley called the collapse of FTX “one of the sharpest and most severe corporate failures in the history of Corporate America.” He described the FTX network as an international organization “effectively run as Sam Bankman-Fried’s personal fiefdom.”
Delving into the ruins of FTX and more than 130 of its subsidiaries, Bromley said Bankman-Fried’s “mismanagement and unreliable accounting” had left lawyers with an incomplete picture of the companies’ finances. Bromley did not specify how much money was stolen or missing, but noted that FTX has been hit by cyber attacks since bankruptcy proceedings began on November 11.
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Ahead of the hearing, FTX lawyers filed documents that showed the company and its affiliates had a combined $1.2 billion in cash — nearly double the amount estimated in a previous court filing. The updated figure underscores what new FTX Chief Executive John J. Ray III described last week as “a complete lack of centralized cash control under Bankman-Fried.”
In a statement last week, John J. Ray III said the new management team could only roughly estimate the amount of cash on hand at $564 million.
Liquidity crisis and Binance “help”.
On November 2, Coinbase published a report that revealed that Sam Bankman-Fried’s crypto exchange was facing a liquidity crisis. In response to the article, Binance CEO Changpeng Zhao announced that the company would sell about $529 million worth of FTT (the FTX token), prompting the token to drop more than 70% to around $6.
It was later announced that Binance was buying FTX, and the owners had signed a “letter of intent” — which effectively meant that the deal was non-binding. Later, Zhao, having read the financial documents of FTX, changed his mind about rescuing the competitor.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). We have decided to liquidate any remaining FTT on our books before continuing to advise on what has faith in the world. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
It’s been a chaotic month for the crypto industry, as the failure of FTX has spread contagion, causing several other companies to experience financial trouble.
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One of those firms, a crypto brokerage called Genesis, suspended withdrawals last week, citing an abnormal volume of requests that exceeded its current liquidity. Bloomberg reported Monday that Genesis is trying to raise an additional $1 billion in cash for its lending unit, and that the company is warning potential investors that it may have to file for bankruptcy.
According to the Wall Street Journal, another prominent crypto lender, BlockFi, has stopped withdrawing funds as FTX has collapsed and appears to be planning its own bankruptcy. In response to a request for comment, a representative of BlockFi referred to the company’s previous statement on the CNN Business blog, repeating that “multiple scenarios” are being considered.
“We are currently working to determine the best path forward for our customers,” BlockFi said.
Source: CNN Business