Regulators start clean-up as bankruptcy filings reveal chaos at Sam Bankman-Fried’s FTX crypto exchange

The group could have more than one million creditors

Sam Bankman-Fried, founder and chief executive officer of FTX Cryptocurrency Derivatives Exchange. Photograph: Ting Shen/Bloomberg

Akriti Sharma and Daniel Leussin

November 16 2022 02:30 AM

Collapsed crypto exchange FTX outlined a “severe liquidity crisis” in US bankruptcy filings, which said the group could have more than one million creditors, as regulators opened investigations and lawmakers called for clearer rules on how the industry operates.

FTX’s filing to a US bankruptcy court, published late on Monday in the US, said it was in contact with financial regulators and had appointed five new independent directors at each of its main companies, including its sibling trading firm Alameda Research.

The exchange, which had been among the world’s largest, filed for bankruptcy protection on Friday in one of the highest-profile crypto blowups after panicked traders withdrew $6bn (€6bn) from the platform in just 72 hours and rival exchange Binance abandoned a rescue deal.

“FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday,” the court filing stated.

“Questions arose about Mr Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction.”

FTX founder and former chief executive, Sam Bankman -Fried, said he expanded his business too fast and failed to notice signs of trouble at the exchange, whose downfall sent shock waves through the crypto industry, T he New York Times reported late on Monday.

There are more than 100,000 creditors involved in the bankruptcy case, although this number could surpass one million, the filings said, as FTX requested that multiple FTX group companies file one consolidated list of major creditors, rather than separate ones.

The filings also confirmed that FTX had responded to a cyber attack on November 11, after saying on Saturday it had seen “unauthorised transactions” on its platform.

FTX has engaged Alvarez & Marsal as financial advisor, and the firm said it has been in contact with the US Attorney’s Office, SEC, CFTC, and dozens of federal, state and international regulatory agencies over the past 72 hours.

The sudden collapse of Bahamas-headquartered FTX, once a rising star of the crypto industry with a $32bn valuation as of January, has sparked investigations by financial regulators and other supervisory bodies around the world.

The Securities Commission of The Bahamas, in a statement also dated Monday, said two PwC partners had been approved by the Supreme Court as joint provisional liquidators for FTX.

The Commission said it had moved to use its regulatory powers to protect the interests of clients and creditors of FTX Digital Markets (a local unit of the exchange) “given the magnitude, urgency, and international implications of the unfolding events”.

It said it would engage with other supervisory authorities. Several global regulators have moved to remove licences form local FTX units, and are looking into the company.

Investigations by the US Justice Department, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are also under way, a source with knowledge of the investigations told Reuters.

French central bank Governor Francois Villeroy de Galhau in a speech in Tokyo called for a global regulatory response to financial uncertainty caused by the crypto market.

Crypto industry peers and partners have been quick to distance themselves from FTX and demonstrate their sound financials, though several have disclosed they are exposed to FTX, having held tokens on the exchange or by owning FTX’s native token, FTT , which plunged around 94pc last week.

Bitcoin has lost 19pc this month and other tokens, such as those affiliated with the Solana blockchain once lauded by Mr Bankman-Fried, have suffered too.

“One has to ask why prices are not already lower than they are,” said crypto liquidity provider B2C2 in a note to customers, adding that “credit concerns now trump every other risk, and participants are focusing on moving assets off exchanges".