FTX goes bankrupt in stunning reversal for crypto exchange

FTX founder Sam Bankman-Fried at the Crypto Bahamas conference in Nassau on April 27, 2022. The downfall of his crypto empire means assets owned by the mogul have become worthless. PHOTO: NYTIMES
Crisis befell FTX in November after prices for the exchange’s native crypto token plummeted and users raced to withdraw their assets. PHOTO: REUTERS

LONDON - Crypto exchange FTX is to start US bankruptcy proceedings and chief executive Sam Bankman-Fried is to step down, after a 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 of dollars in funds to stave off collapse after a wave of withdrawals.

The company said in a statement on Friday, shared via a tweet, that FTX and its affiliated crypto trading fund Alameda Research and approximately 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware.

“I’m really sorry, again, that we ended up here,” said Mr Bankman-Fried, in a series of tweets after the commencement of the bankruptcy filing.

In his tweets, Mr 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”. Mr John J. Ray III has been appointed to take over as CEO from Mr Bankman-Fried, who will assist with an orderly transition.

The week-long saga that began with a run on FTX and an abandoned takeover deal by rival Binance has hit an already struggling Bitcoin and other tokens.

FTX was scrambling to raise about US$9.4 billion (S$12.92 billion) from investors and rivals, Reuters reported citing sources, as the exchange sought to save itself after customer withdrawals.

Singapore global investment company Temasek is estimated to have invested US$205 million in FTX, with its investment hitting a value of US$320 million at its peak in January 2022.

Some investors, including Sequoia and SoftBank, had already marked down their FTX investments to zero.

As FTX’s troubles mounted, regulators around the world stepped in. FTX is under investigation by the United States’ Securities and Exchange Commission, 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 Nov 9, the regulator said on Friday.

That is on top of the Bahamas freezing FTX.com’s assets, and the general counsel of FTX.US telling staff he is working with advisers to preserve what they can of the exchange.

The predicament marks a rapid reversal for Mr Bankman-Fried, the 30-year-old FTX founder.

The downfall of his crypto empire means assets owned by the mogul once likened to Mr John Pierpont Morgan have become worthless. At the peak, he was worth US$26 billion, and he was still worth almost US$16 billion at the start of the week.

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The Bloomberg Billionaires Index now values FTX’s US business – of which Mr Bankman-Fried owns about 70 per cent – at US$1 because of a potential trading halt, from US$8 billion in a January fund-raising round.

Mr Bankman-Fried’s stake in Robinhood Markets valued at more than US$500 million was also removed from his wealth calculation after Reuters reported it was held through his trading house, Alameda Research, and may have been used as collateral for loans.

His empire crumbled this week after a liquidity crunch at one of FTX’s affiliates. Its US exchange, FTX.US, said on Thursday that customers should close out any positions they want to and that trading may be halted in a few days.

It is possible Mr Bankman-Fried owns assets not tracked by the Bloomberg index. Alameda made about US$1 billion in profits last year and FTX made hundreds of millions more.

Bitcoin dropped after FTX’s announcement, falling as much as 8 per cent to US$16,376. The world’s largest cryptocurrency fell to a two-year low of US$15,632 on Wednesday before regaining some ground in a cross-asset rally after US inflation data.

FTX’s token FTT plunged 34 per cent on Friday to US$2.43, facing an 89 per cent weekly loss. BLOOMBERG, REUTERS

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