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Crypto firm FTX files for US bankruptcy proceedings, CEO exits

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Crypto exchange FTX filed for US bankruptcy proceedings on Friday and Sam Bankman-Fried stepped down as CEO, after a rapid liquidity crisis at the cryptocurrency group that has prompted intervention from regulators around the world.

The distressed crypto trading platform had been struggling to raise billions in funds to stave off collapse after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal. The company said in a statement shared on Twitter on Friday that FTX, its affiliated crypto trading fund Alameda Research and approximately 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware.

FTX had raised $400 million from investors in January,increasing the valuation of the company to $32 billion. It attracted money from investors such as Singapore state investorTemasek and the Ontario Teachers’ Pension Plan. John J. Ray III has been appointed to take over as CEO from Bankman-Fried, the statement said.

The week’s turmoil hit already-struggling cryptocurrency markets, sending bitcoin to two-year lows. Bitcoin dropped after FTX’s announcement, down 3.9% on Friday at $16 816 by 1603 GMT.

Shares of cryptocurrency and blockchain-related firms also dropped on the news.

FTX’s token FTT plunged 30% on Friday to $2.57, facing an 88% weekly loss. FTX’s collapse also led to the spectacular fall in thefortune of its founder Bankman-Fried, whose net worth was estimated as high as $26.5 billion by Forbes a year ago.

“I’m really sorry, again, that we ended up here,” said Bankman-Fried in a series of tweets after the commencement of the bankruptcy filing. In his tweets, Bankman-Fried said the bankruptcy filing “doesn’t necessarily have to mean the end for the companies” and that he was “optimistic” the group’s new CEO would “help provide whatever is best”.

In its bankruptcy petition, FTX Trading said it has $10 billion to $50 billion in assets, $10 billion to $50 billion in liabilities, and more than 100 000 creditors. “The shock was that this guy was the face of the crypto industry and it turned out that the emperor had no clothes,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York. “The next question is how wide of a contagion effect this is going to have on other exchanges and where the next potential losses can occur,” said John Griffin, CEO and founder of Integra FEC, which provides consulting to government agencies and law firms investigating financial frauds.

“So to what extent when you have a major entity like this that goes down, all the assets tied to that FTX exchange go down.” FTX was scrambling to raise about $9.4 billion from investors and rivals, Reuters reported citing sources, as the exchange sought to save itself after customer withdrawals.

“The Chapter 11 filing is a necessary step to allow the company to assess the situation and develop plans to move forward for the benefit of stakeholders,” Ray said in a Slack memo to FTX staff seen by Reuters.

“I realise that the recent news of the situation has been troubling and stressful, but I also know that the bankruptcy filing will be the beginning of a path forward.” Some investors, including Sequoia and SoftBank, had already marked FTX investments to zero.

SkyBridge Capital is working to buy back its FTX stake, the alternative investment firm’s founder Anthony Scaramucci said in an interview with CNBC on Friday. The reverberation went beyond the financial markets where the exchange has a significant presence, with the Mercedes Formula One team suspending its partnership agreement ahead of the season’s penultimate race in Brazil.

REGULATORY SCRUTINY

As FTX’s troubles mounted, regulators around the world stepped in. FTX is under investigation by the U.S. Securities and Exchange Commission, the US Justice Department, and Commodity Futures Trading Commission, according to a source familiar with the investigations. Cyprus’ Securities and Exchange Commission asked FTX EU to suspend its operations on Wednesday, the regulator said on Friday.

Bankman-Fried did not respond to requests for comment by Reuters. “Once Binance walked away from buying FTX after only 24 hours of due diligence the writing was on the wall for FTX,”said Antoni Trenchev, co-founder of crypto lender Nexo. “Now we enter the next phase of the fallout, where we witness the second order effects and discover which entities were exposed to FTX and Alameda.”

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