Sam Bankman-Fried FTX founder
(Sam Bankman-Fried FTX founder)

Embattled crypto exchange FTX files for US bankruptcy protection

“It shows that no one is too big to fail,” Pascal Gauthier, CEO of crypto wallet firm Ledger told CNBC. “FTX seemed untouchable.”

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Sam Bankman-Fried or ‘SBF’, the founder of FTX, one of the world’s largest crypto exchanges, admitted he “f*cked up” on Thursday (Nov. 10) as his embattled firm was scrambling to raise funds and stave off a collapse that raises questions about the sector’s sustainability.

On Friday (Nov. 11) FTX filed for Chapter 11 bankruptcy in the U.S., according to a company statement posted on Twitter. Bankman-Fried has also stepped down as CEO and has been replaced by John J. Ray III, though the former head is remaining in the Bahama-based exchange firm to help with the orderly transition.

“In the short term we have some long days and hard work ahead of us,” Ray-who previously oversaw the Enron Corporation bankruptcy-told employees in a message verified by crypto publication CoinDesk. He called the bankruptcy filing “the beginning of a path forward.”

Alameda Research, FTX’s sister crypto trading firm and approximately 130 additional affiliated companies are part of the voluntary proceedings. Companies filing for chapter 11 bankruptcy are able to continue their day-to-day operations.

The announcement came after a liquidity crisis that prompted rival exchange Binance to rip up its nonbinding agreement to buy FTX. The Justice Department and the Securities and Exchange Commission reportedly started an investigation into FTX’s dealings shortly after the Binance merger cancelation was confirmed.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of [FTX],” Binance said in a tweet.

The crisis also comes as cryptocurrencies have come under intense pressure this year, in which more than $1trillion has been wiped off the market, causing a string of collapses including major token Terra Luna, crypto lender Celcius and digital hedge fund Three Arrows Capital.

A collapse of FTX, valued at $32bn in January and previously regarded as one of the most stable firms in the sector, could spark contagion across the cryptocurrency industry, which has long struggled to convince regulators, investors and ordinary customers that it is trustworthy. White House Press Secretary Karine Jean-Pierre on Thursday (Nov. 10) told reporters no cryptocurrency oversight can lead to more risks for ordinary Americans.

Although the White House will not comment on the work of regulatory agencies, it is aware of and will monitor the latest developments in the crypto industry, she added. Most recent news underscore the concerns the government has about cryptocurrencies and show that regulation is needed, she said.

UPDATE 08/01/2023 20:21

Sam Bankman-Fried was arrested in the Bahamas, where he lived and where FTX is headquartered, on Dec. 12, 2022. He faces eight criminal charges, ranging from fraud to conspiracy to commit money laundering, in connection with the collapse of his once-dominant exchange. He was extradited to the United States on Dec. 21, 2022 and was released after his parents, both law professors at Stanford University, signed a $250 million recognizance bond pledging their California home as collateral. Two other friends with significant assets also signed, according to news reports. Earlier this week, the former crypto king pleaded not guilty on all charges and will stand trial on October 2 this year.

UPDATE 11/01/2023 19:45

FTX has recovered over $5 billion worth of liquid assets, including cash and digital assets, Sullivan & Cromwell bankruptcy attorney Adam Landis stated during a hearing Wednesday.

The $5 billion figure doesn’t include any illiquid cryptocurrency assets, Landis told the court. “[It] just does not ascribe any value to holdings of dozens of illiquid cryptocurrency tokens, where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token,” said Landis on FTX’s behalf.

The total amount FTX owes its creditors after its collapse is still uncertain. In early bankruptcy filings, the firm’s management ticked the box indicating a figure between $1 billion and $10 billion.