FTX founder Sam Bankman-Fried ran the cryptocurrency exchange as his “personal fiefdom” before it imploded, according to a bankruptcy lawyer, with “substantial amounts of money” spent on non-business items. such as vacation homes in the Bahamas. .
“We have witnessed one of the most abrupt and difficult collapses in the history of American business,” James Bromley of Sullivan & Cromwell told a US court on Tuesday. He added that the bankruptcy proceedings had “allowed everyone, for the first time, to look under the covers and recognize that the emperor had no clothes.”
FTX filed for US bankruptcy protection on November 11 as its clients fled and executives discovered billions of dollars in missing funds, exacerbating turmoil in cryptocurrency markets.
The team of lawyers tasked with liquidating FTX is trying to identify a complex web of assets to pay off creditors. The case has been marred by allegations of misconduct and gross government failures, as well as a jurisdictional dispute between the US and the Bahamas, where FTX’s small inner circle ran the business.
According to the company, FTX’s overall valuation peaked at $40 billion: $32 billion for its international business and $8 billion for its US operations.
Bromley said the bankruptcy team found that “substantial funds” were transferred from the exchange to Bankman-Fried’s crypto hedge fund, Alameda Research, and “substantial amounts of money were spent on non-business things.”
This included about $300 million in real estate in the Bahamas that was “homes and vacation properties used by senior executives” at FTX, he said.
The Alameda hedge fund also appeared to have used FTX funds to make billions of dollars in illiquid venture investments in funds like Sequoia Capital and companies like SpaceX and Elon Musk’s Boring Company.
FTX filed for bankruptcy protection following an “effective run on the bank,” Bromley said, after rival crypto exchange Binance moved to liquidate its FTT tokens, the cryptocurrency issued by FTX. The token lost 80 percent of its value in two days, going from a peak of $9.6 billion in total market value to just $422 million.
Bromley also revealed that the team of lawyers and investigators working on the bankruptcy would investigate a transaction last year between FTX and Binance. The rival crypto exchange, led by Changpeng Zhao, has sold an equity stake in FTX for around $2.1 billion in cash and cryptocurrencies.
FTX is now led by its new CEO and Head of Turnaround, John J Ray III. The bankruptcy team includes research firms such as Kroll, blockchain research group Chainalysis, and a cybersecurity firm whose identity has not been released due to security concerns as it fights hack attempts on FTX and its assets.
Bromley added that the company was working with the US government and international regulators interested in the FTX collapse, including the US Department of Justice and the Securities and Exchange Commission.
Prosecutors working with the Justice Department’s Southern District of New York and the Bahamas Financial Crimes Investigative Branch have launched two separate criminal investigations into the FTX implosion.
The court sealed a list of the 20 largest creditors in FTX’s business. However, US bankruptcy judge John Dorsey ordered lawyers to make public the names of the individuals and entities on the bankruptcy creditors’ committee, which likely includes institutional investors who bought stakes in FTX.
Dorsey also approved FTX’s requests to pay the remaining employees and vendors.