FTX Doom attracts dozens of federal, state and international agencies

FTX Doom attracts dozens of federal, state and international agencies

Regulators around the world are in contact with FTX lawyers, who have said between 100,000 and more than a million users could be affected by the exchange's shock bankruptcy.

The firm's flagship firm, FTX Trading Ltd, filed a lawsuit Movement with the U.S. Bankruptcy Court in Delaware on Monday seeking permission to contact its creditors by email.

Law firm Sullivan & Cromwell also sought relief from filing a list of the top 20 creditors for each of the 134 FTX-affiliated companies that filed for Chapter 11 bankruptcy last Friday.

Instead, the motion asks the court to allow him to submit only a single, consolidated list of the top 50 creditors of all FTX companies by Friday.

“…The Debtors [FTX] anticipate that the preparation of separate creditor lists for each individual Debtor would require an inordinate amount of the Debtors’ limited time and resources at this critical time,” lawyers said.

The filing marks one of the first steps in a sprawling and landmark bankruptcy case for the crypto industry.

“As set forth in the debtors’ motions, they are over [100,000] creditors in these Chapter 11 cases. In fact, there could be more than a million creditors in these Chapter 11 cases,” attorneys wrote.

FTX, led by founder Sam Bankman-Fried, was one of the largest crypto exchange brands in the world at the time of its collapse, handling billions of dollars in daily trading volume, second only to Binance.

But Bankman-Fried's FTX, once valued at more than $32 billion, suddenly collapsed last week. Its sister trading firm Alameda Research, once ostensibly a completely separate company, was apparently operating with a precarious balance sheet that was heavily biased toward the exchange's native token FTT.

Binance CEO Changpeng Zhao, who previously led his crypto exchange to invest in FTX, announced that he would soon divest his FTT stake to avoid overexposure. Markets reacted negatively, sending FTT down nearly 90% and triggering a $6 billion bank run on FTX.

FTX users had rushed to withdraw their funds from the Bahamas-based platform, resulting in a suspension of withdrawals. Around the same time, Zhao and Bankman-Fried floated a possible buyout deal to save FTX customers, which would have resulted in Binance absorbing FTX.

The deal ultimately fell through, leading to FTX's bankruptcy and countless customers out of pocket, including hedge funds and crypto projects.

Details of epic mismanagement at FTX later emerged, most notably the use of customer funds to make risky bets in the crypto ecosystem, resulting in a black hole of more than $8 billion. It's a mess that now needs to be cleaned up by restructuring expert John Jay Ray III, who handled disgraced corporate giant Enron after its own bankruptcy.

“Immediately upon appointment, [Ray] began working with FTX’s third-party legal, turnaround, cybersecurity and forensic investigation advisors to safeguard the assets of clients and debtors around the world,” lawyers wrote.

Ray and his team suspended trading and withdrawal functions on FTX and ordered the company's digital assets to be moved to a new cold wallet custodian, in response to a chop with almost half a billion dollars in FTX assets over the weekend.

The Bahamian authorities have already announced a criminal investigation in FTX and froze its local assets. FTX’s recent bankruptcy filing cited “significant interest in these events from regulators around the world.”

FTX representatives have been in contact “with the U.S. Attorney’s Office, the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, and dozens of federal, state, and international regulators over the past 72 hours,” the filing said.

If this disclosure is anything to go by, this whole ordeal is just beginning.

H/T: Kadhim Schubber

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The post FTX Doom attracts dozens of federal, state and international agencies and is not financial advice.