By KEN SWEET AP Business Writer
NEW YORK (AP) — It took less than a week for FTX to go from the third-largest cryptocurrency exchange in the world to bankruptcy court.
The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, the hedge fund Alameda Research, and dozens of other affiliated companies filed a bankruptcy petition in Delaware on Friday morning. FTX US, which originally was not expected to be included in any financial rescue, was also part of the company's bankruptcy filing.
CEO and founder Sam Bankman-Fried has resigned, the company said. Bankman-Fried was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats. His net worth has all but evaporated, according to Forbes and Bloomberg, which closely track the net worth of the world's richest people.
"I was shocked to see things unravel the way they did earlier in the week," Bankman-Fried wrote in a series of posts on Twitter.
FTX's unraveling is causing ripple effects. Already companies that backed FTX are writing down their investments. Politicians and regulators are ramping up calls for stricter oversight of the crypto industry. And this latest crisis has put pressure on the prices of bitcoin and other digital currencies. The total market value of all digital currencies dropped by about $150 billion in the last week, according to CoinMarketCap.com.
FTX's failure goes beyond finance. The company had major sports sponsorships as well, including Formula One racing and a sponsorship deal with Major League Baseball. Miami-Dade County decided Friday to terminate its relationship with FTX, meaning the venue where the Miami Heat play will no longer be known as FTX Arena. Mercedes said it would remove FTX from its race cars starting this weekend.
FTX and Bankman-Fried, as well as his brother, were also early investors in Semafor, the high-profile news startup run by former BuzzFeed editor-in-chief and New York Times columnist Ben Smith.
Bankman-Fried has other problems as well. On Thursday, a person familiar with the matter said the Department of Justice and the Securities and Exchange Commission were looking into FTX to determine whether any criminal activity or securities offences were committed. The person could not discuss details of the investigations publicly and spoke to The Associated Press on condition of anonymity.
The investigation is centered on the possibility that FTX may have used customers' deposits to fund bets at Alameda Research. In traditional markets, brokers are expected to separate client funds from other company assets. Violations can be punished by regulators. Financial company MF Global effectively failed for a similar practice roughly a decade ago when it intermingled client assets with its own bets.
In its bankruptcy filing, FTX listed more than 130 affiliated companies circled around the globe. The company valued its assets between $10 billion to $50 billion, with a similar estimate for its liabilities. The company appointed as its new CEO John Ray III, a long-time bankruptcy litigator who is best known for having to clean up the mess made after the collapse of Enron.
FTX's bankruptcy is certainly to be one of the most complicated bankruptcy cases in years. The company listed more than 100,000 creditors on its filing, and with all of its customers effectively being creditors because they deposited their funds with FTX, it will take months to sort out who is owed what, bankruptcy lawyers said. Cryptocurrencies have no protections under law, and politicians on both sides of the aisle issued statements opposing any Lehman Brothers-like bailout for crypto investors.
"Unlike a case where there's (securities insurance in the failure of a brokerage) or where the FDIC steps in with a bank failure, these customers are totally exposed," said Daniel Besikof, a partner at Loeb & Loeb LLP who specializes in bankruptcy law.
FTX had agreed earlier this week to sell itself to bigger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Customers fled the exchange after becoming concerned about whether FTX had sufficient capital.
The crypto world had hoped that Binance, the world's largest crypto exchange, might be able to rescue FTX and its depositors. However, after Binance took a look at FTX's books, it concluded that the smaller exchange's problems were too big to solve and backed out of the deal.
FTX is the latest in a series of cascading disasters that have shaken the crypto sector, now under intense pressure from collapsing prices and circling financial regulators. Its failure is already being felt throughout the crypto universe.
On Thursday, the venture capital fund Sequoia Capital said Thursday it is writing down its total investment of nearly $215 million in FTX.
The cryptocurrency lender BlockFi announced on Twitter late Thursday that it is "not able to do business as usual" and pausing client withdrawals as a result of FTX's implosion.
In a letter posted to its Twitter profile late Thursday, BlockFi — which was bailed out by Bankman-Fried's FTX early last summer — said it was "shocked and dismayed by the news regarding FTX and Alameda."
The company ended by saying any future communications about its status "will be less frequent that what our clients and other stakeholders are used to."
Bitcoin tumbled immediately after the letter was posted and is trading below $17,000. The original cryptocurrency, bitcoin had been hovering around $20,000 for months before FTX's problems became public this week, sending it down briefly to around $15,500.
Shares of the publicly traded cryptocurrency exchange Coinbase and the online trading platform Robinhood each rose nearly 12%.
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Reporters Matt Ott and Michael Balsamo in Washington contributed.
Comments
Maximilianotto 1 year, 5 months ago
Albany condos and penthouse ranging $7-30 m now available. West Bay Street FTX Headquarters land $4,5 m.
Maximilianotto 1 year, 5 months ago
Bernie Madoff 150 years Allen Stanford 110 years Samuel Bankman Fried how many years ?
LastManStanding 1 year, 5 months ago
The cynical side of me says zero because he has connections and is part of the right tribe to ever avoid taking responsibility for criminal actions.
ThisIsOurs 1 year, 5 months ago
From a Nassau guardian story: "When we think about regulation for a crypto business it’s different, it’s not like a bank, it’s not like a mutual fund or an insurance company,” said Edwards.
“We have to be honest and accept that that there are some things that may not be as tightly managed and regulated as, in hindsight, as we would want them to be
This is our response to every PREDICTABLE crisis, *who could have known?*. Everybody knew those guys didnt come here because they thought the Bahamas had a great regulatory structure. Everybody. Everybody knew crypto vakuation has very little linkage to any equally valued underlying asset. We've been here before in 2008 with derivatives. Everybody knew. Everybody knew Nicole was a cat-1 storm and cat-1 storms are predicted to exact minimal damage and up to 5ft surges. Everybody knew.
"In hindsight, who could have possibly known?
LastManStanding 1 year, 5 months ago
Wait until you find out what fiat currency is linked to lol. Cryptocurrency is a commodity like any other, it is simply an item. The FTX collapse had nothing to do with cryptocurrency and everything to do with complete mismanagement of client funds and a bank run that exposed it. Many banks have collapsed from the same exact scheme, I don't get why so many people are trashing crypto when this collapse has nothing to do with crypto at all.
ThisIsOurs 1 year, 5 months ago
The collapse has everything to do with crypto and crypto speculators. This exact same scenario happened in the derivatives market in 2008. Greedy investors investing in securities that had no link to actual assets. Banks are required to keep a certain level of deposits with central banks to back customer deposits. Could any bank in the world pay every single customer off at once, no, theyd all crumble. Added to that deposits are insured up to a certain limit which covers the majority of deposits
I wholeheartedly agree that the enormity of this problem stems from Sam. Based on his language he appears to have been conducting trades. Probably doing the thing that earned him his initial millions, off on his own daytrading
LastManStanding 1 year, 5 months ago
I think that the problem is people viewing crypto as a stock instead of an actual currency (or collection of currencies, more precisely). Changing BSD into Bitcoin, Etherum, Monero, etc. is no different than changing into USD, GBP, or EUR. The world of crypto used to be relegated to those who knew about Silk Road and other dark web marketplaces that primarily used Bitcoin for payment, but get rich quick stories of some dude who mined 100 Bitcoin on his GPU over a decade ago made everyone think it was the next gold rush, and along came the crapcoins to scam fools who thought they could replicate the stumbled upon success of others. I laugh when people say that crypto is a "scam" simply because each coin is simply a currency, there is nothing inherently good or bad about it. You exchange fiat into crypto the same way that you do USD or EUR. Crypto is a lot more volatile than traditional investments like stocks, bonds, or real estate, but it was never designed to necessarily be an investment in the first place. The idea of regulating crypto runs counter to the entire purpose of it as a matter of fact, which was decentralization of currency away from central banks. Besides, financial games can be played with fiat as well, see Black Wednesday in the UK for an example.
The demonization of "crypto" as a whole (and the tech behind it in particular) is still baffling to me. It is a gamble to invest into, as we all are seeing right now, but so are traditional investments. Plenty people have killed themselves over housings busts and stock market crashes. BSD would collapse over night if we ever lost peg to the USD (granted, there is an extremely slim, but nonzero, chance of that happening atm). Basic rules for gambling apply to any investment whether it be crypto, stocks, real estate etc. : don't gamble more than you can afford to lose.
ThisIsOurs 1 year, 5 months ago
I completely agree, the problem is caused by the speculators, they drive up the price to ridiculous levels that nowhere close to reflect any asset held by the conpany. And they can do the same with regular securities... i.e derivatives market crash.The difficulty is though that literally all the buzz about crypto is based off of those ridiculous prices. Noone would be talking about it if it were 1 to 1 with some backing asset. Noone but a few tech geeks would care
temptedbythefruitofanother 1 year, 5 months ago
Does this mean there won't be a White Ball at Albany this year?
Baha10 1 year, 5 months ago
Hilarious Question 😂… for our very own well “known” Ponzi Development!
ThisIsOurs 1 year, 5 months ago
It is odd tgough that the sane lawyers show up for these million dollar scams for want of a better word
Carnival, is our turn to get the 200,000 "facilitation" money
Bahamar, "y'all cant fake the construction work better?"
Nygard, "we got our contract back, this stuff in the needle Ive injected in my arm, in front of the parliamentary members, feels really good"
Oban, dont mind the noise in the market, I just signed someone else's signature on a legal document in front of the PM"
Pleaseant and Obie, "empty warehouse"
FTX, "this is the start of the digital industry"
Anna Nicole, "where you get that watch from, any shingles left?"
But Im convinced now that the clear and most present danger to our country, starting with Kwasi, then sanddollar, then the cashless craze, is people who have no clue about technology acting like they know and making billion dollar decisions on our behalf. It might rival a Dorian both could sink us in a few hours.
ThisIsOurs 1 year, 5 months ago
reuters:
FTX founder Bankman-Fried secretly moved $10 billion in funds to trading firm Alameda. Bankman-Fried showed spreadsheets to colleagues that revealed shift in funds to Alameda. Spreadsheets indicated between $1 billion and $2 billion in client money is unaccounted for. Executives set up book-keeping "back door" that thwarted red flags Whereabouts of missing funds is unknown
Someone has to explain this to me. The customers gave SBF "real" money. That real money had to be deposited somewhere. Meaning a bank account. Someone "could" write software to adjust digital balances but noone should be able to move real money from an independent bank without someone knowing. The regulator did require clients' money to be deposited in a business bank account right? The financial team did have to reconcile statements every month right?
Again this happened Sunday, the securities commission didnt act until Thursday...
John 1 year, 5 months ago
The Barefoot Bandit stole boats and planes and dodged bullets. And the song says he was offered Kalik and Cinch salad after he was captured. Maybe he was satisfied with a few hours of fame. But what exactly did Bankman-Fried ( and apparently this bank man and he brother and others want? What was their goal and motive? Obviously to amass or capture such a huge fortune in such a short period, they had to have some idea of what they were doing? Or did they purely ‘luck out?’ Did they become too greedy or were they on board a run-away train that they could no longer control? And the cost of cleaning up this huge , and tragic financial shipwreck that has disaster light and causalities all around the world. Was the law enforced that said Bahamians were not allowed to trade on this exchange ( or not yet) and:or are some Bahamians on the casualty list? What is the expected rate of recovery? An estimated 8-10 Billion hard, cold cash to try to make things right. Who won the power ball? They may be willing to invest a cool Billion to help clean up the mess. My lil pay check can’t even pay for the paper shredder.
ThisIsOurs 1 year, 5 months ago
Id be surprised, extremely surprised, if it turns out that he's a straight up crook who was just after money. People like that have a strong desire to adorn themselves in their wealth, he didnt do that.
I think for him this was about proving himself. A tinge of narcissism, he's smarter knows more understands the market better and he'll win over everyone else. I think that's what he was after. Of course I dont know him personally but with his wealth Id think if he was cruel, mean to his employees or a megalomaniac we'd have heard about it. He didnt exhibit the characteristics of someone who just loved money. I see someone who wanted to win. The question I have is why did he cross ethical boundaries, was it a character flaw, i.e., he has no ethical boundaries, or did he see the need to firm up his balance sheet before anyone else did and gambled his clients money to do it.
But who knows. I suppose we'll find out soon enough
TalRussell 1 year, 5 months ago
Sources wanna know. if the Bahamian Liquidator Brian Simms, was aware that special interests individuals and locally based employees, since bankruptcy, mysteriously gained backdoor access to withdraw in the many millions of dollars from their Bahamian crypto FTX Bahamian accounts -- Yes?
newcitizen 1 year, 5 months ago
Tal, the reason that FTX accounts based in the Bahamas were still accessible is pretty straight forward. All those brides paid to officials here who rolled out the red carpet for FTX and not give any thought to regulation, well they still needed to get their money out as the bribes were likely cryptocurrency in FTX accounts. Bankman-Fired is only under supervision to make sure he doesn't flee, he'll be arrested when the officials have their bride money safe.
TalRussell 1 year, 5 months ago
@Comrade NewCitizen, not sure of how some were given passcodes said gain access via some mysterious backdoor enabling them to withdraw what I'm now told, could exceed a combined $70+++ million from FTX;s Bahamian accounts.
And, becoming as mysterious as this FTX saga has been going on for like 7+ days and still not a peep from the RedPart'ys Pintard, nor a single House-elected Red MP, nor Red Upper Chamber's seated Red member -- Yes?
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