Sam Bankman-Fried Ran FTX as ‘Personal Fiefdom’, Lost Assets: Lawyers

FTX was run as a “personal case” by former CEO Sam Bankman-Fried, lawyers for the collapsing crypto exchange said in its first bankruptcy hearing as they detailed ongoing challenges such as hacking and missing assets.

In the biggest crypto blowup to date, FTX filed for protection in the United States after traders withdrew $6 billion (roughly Rs. 49,072 crore) from the platform in three days and rival exchange Binance left the rescue agreement. The collapse left an estimated 1 million creditors facing losses totaling billions of dollars.

A lawyer for FTX said at a bankruptcy hearing on Tuesday that the company now intends to sell healthy business units, but it has been hit by cyberattacks and has “substantial” missing assets.

FTX said on Saturday it had launched a strategic review of its global assets and was preparing for the sale or restructuring of other businesses. FTX said on Tuesday it is receiving interest from potential buyers and will make plans to restructure or sell them.

The hearing was held in US Bankruptcy court in Wilmington, Delaware and was broadcast live to approximately 1,500 viewers on YouTube and Zoom.

The lawyer also said the company was run as a “personal entity” by Bankman-Fried with $300 million (roughly Rs. 6,705 crore) used for real estate such as homes and vacation spots for senior employees. FTX, led since the bankruptcy filing by new CEO John Ray, accused Bankman-Fried of working with Bahamian regulators to “undermine” the US bankruptcy case and shift assets offshore.

Bankman-Fried did not immediately respond to an email seeking comment.

Earlier Reuters reported that Bankman-Fried’s FTX, his parents and top officials of the failed cryptocurrency exchange bought at least 19 properties worth about $121 million (roughly Rs. 989 crore) in the Bahamas. two years ago, official property records show.

The lawyers also said that an investigation should take place into Binance’s sale of FTX in July 2021. Binance bought a stake in FTX in 2019.

Separately, a recent filing on Monday by Ed Mosley of Alvarez & Marsal, an advisory firm to FTX, showed FTX’s outstanding balance of $1.24 billion (about Rs. 10,144 crore) as of Sunday was “much higher” than previously thought. .

It includes about $400 million (approx. Rs. 3,272 crore) in accounts related to Alameda Research, a crypto trading firm owned by Bankman-Fried, and $172 million (approx. Rs. 1,407 crore) in FTX’s Japanese arm.

Reuters reported that Bankman-Fried secretly used $10 billion (approx. Rs. 81,800 crore) of clients’ money to support his trading business, and that at least $1 billion (approx. Rs. 8,181 crore) of those deposits had disappeared.

The disclosure debate

At the hearing, FTX representatives argued that customer names should be kept secret, as revealing 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 hinder future sales efforts or allow competitors to illegally encroach on its user base.

The judge said those names can remain undisclosed until a future court hearing.

FTX’s lawyers also described a poor deal with court-appointed brokers who oversaw the liquidation of FTX’s Bahamas subsidiary, FTX Digital Markets.

The two sides have reached an initial agreement to consolidate their US-based bankruptcy proceedings before Judge John Dorsey, to avoid conflicting rulings by two different US judges. But the two sides signaled they still have broad disagreements over how to coordinate the recovery and preservation of assets held by FTX affiliates.

Bankman-Fried, FTX and Bahamas liquidators did not immediately respond to requests for comment.

Fear of Infection

FTX’s fall from grace has sent shockwaves through the crypto world, sending bitcoin to its lowest level in nearly two years and sparking fears of contagion among some firms already reeling from this year’s crypto market collapse.

The largest US lender Genesis said on Monday it was trying to stave off bankruptcy, days after the collapse of FTX forced it to freeze customer purchases.

“Our goal is to resolve this situation amicably without the need for extortion,” a Genesis spokesman said in an emailed statement to Reuters, adding that it is continuing to hold talks with creditors.

A report by Bloomberg News, citing sources, said that Genesis was struggling to find new financing for the loan division.

The Wall Street Journal reported, citing sources, that Genesis had approached Binance for investment but the crypto exchange decided against it, fearing a conflict of interest. Genesis also approached private equity firm Apollo Global Management for financing, the WSJ said.

Apollo did not immediately respond to a Reuters request for comment on the WSJ report, while Binance declined to comment.

Crypto exchange Gemini, which runs a crypto lending product in partnership with Genesis, tweeted on Monday that it continues to work with the company to enable its users to redeem money from its yield-generating program “Hola”.

Gemini said on its website last week that there was no impact on its other products and services after Genesis temporarily suspended the withdrawal.

Since the introduction of FTX, some crypto players have moved to limited exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.

Overall daily trading volumes on DEXs jumped to their highest level since May 10 November, as FTX was included, according to data from market tracker DeFi Llama, but have since made gains.

© Thomson Reuters 2022

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