In the most high-profile crypto blowout to date, FTX filed for protection in the United States after traders took $6 billion off the platform in three days and rival exchange Binance abandoned a bailout deal. The collapse leaves an estimated 1 million creditors with losses totaling billions of dollars.
An FTX attorney said during a bankruptcy hearing on Tuesday that the company now plans to sell sound business units but has been subject to cyberattacks and is missing “significant” assets.
FTX said on Saturday it has launched a strategic review of its global assets and is preparing to sell or reorganize some companies. FTX said Tuesday it received interest from potential buyers in its assets and would go through a process to reorganize or sell them.
Related: ‘Wave’ of lawsuits over FTX expected, but investors will face legal hurdles | The Spectacular Fall of FTX: Considerations on Crypto Custody and Insurance
The hearing took place at U.S. Bankruptcy Court in Wilmington, Delaware and was streamed live to approximately 1,500 viewers on YouTube and Zoom.
An attorney also said the company was being run as a “personal fiefdom” of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior staff. FTX, led since its bankruptcy filing by new CEO John Ray, has accused Bankman-Fried of collaborating with Bahamian regulators to “undermine” the US bankruptcy case and move assets abroad.
Bankman-Fried did not immediately respond to an email requesting comment.
Reuters previously reported that Bankman-Fried’s FTX, his parents and senior executives of the failed cryptocurrency exchange have bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official ownership records show.
Lawyers also said there should be an investigation into Binance’s sale of FTX in July 2021. Binance purchased a stake in FTX in 2019.
Separately, a filing late Monday by Ed Mosley of Alvarez & Marsal, a consulting firm that advises FTX, showed that FTX’s cash balance of $1.24 billion on Sunday was “significantly higher” than previously thought.
It includes about $400 million in accounts related to Alameda Research, the crypto trading company owned by Bankman-Fried, and $172 million at FTX’s Japanese arm.
Reuters has reported that Bankman-Fried secretly used $10 billion in client funds to support its trading business, and that at least $1 billion of those deposits had gone missing.
REVELATION DEBATE
At the hearing, FTX representatives argued that customer names should be kept secret because disclosing them could destabilize the crypto market and open customers up to hacks. FTX also argued that its customer list is a valuable asset, and disclosing it could hurt future sales efforts or allow rivals to swindle its user base.
A judge said those names could remain secret until a future court hearing.
FTX attorneys also described an uneasy truce with court-appointed liquidators overseeing the liquidation of FTX’s Bahamas unit, FTX Digital Markets.
The two sides reached an initial agreement to coordinate their US-based insolvency proceedings before Judge John Dorsey, avoiding the possibility of conflicting rulings from two different US bankruptcy judges. But both sides indicated they still have broader disagreements over how to coordinate the recovery and preservation of assets from different FTX affiliates.
Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.
CONTAMINATION FEAR
FTX’s fall from grace has sent the crypto world shuddering, sending bitcoin to its lowest level in about two years and sparking fears of contagion among other companies already reeling from the collapse of the crypto market this year.
Major US crypto lender Genesis said Monday it was trying to stave off bankruptcy, days after FTX’s collapse forced the company to suspend customer redemptions.
“Our goal is to resolve the current situation by mutual consent without the need for a bankruptcy filing,” a Genesis spokesperson said in an emailed statement to Reuters, adding that it continues to hold talks with creditors.
A Bloomberg News report, citing sources, had said Genesis was struggling to raise fresh money for its lending unit.
The Wall Street Journal reported, citing sources, that Genesis had approached Binance looking for an investment, but the crypto exchange decided not to do so, fearing a conflict of interest. Genesis also approached private equity firm Apollo Global Management APO.N for capital support, the WSJ said.
Apollo did not immediately respond to a request from Reuters for comment on the WSJ report, while Binance declined to comment.
Crypto exchange Gemini, which operates a crypto lending product in partnership with Genesis, tweeted Monday that it continued to work with the company to allow its users to redeem funds from its revenue-generating “Earn” program.
Gemini said on its blog last week that there was no impact on its other products and services after Genesis paused shooting.
Since the implosion of FTX, some crypto players are moving to decentralized exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.
Total daily trading volumes on DEXs rose to their highest level since May on Nov. 10, when FTX imploded, according to data from market tracker DeFi Llama, but gains have since declined.
