Crypto giant FTX files for bankruptcy after $32B collapse
FTX filed for Chapter 11 bankruptcy proceedings on Thursday, following a spectacular financial collapse
The Bahamas based crypto exchange was the world’s fourth largest and recently valued as high as $32 billion
CEO Sam Bankman-Fried resigned amid allegations that he mishandled customer funds
Following a run on the crypto exchange, FTX was forced to freeze customer withdrawals before Binance stepped in with an offer to bail out the firm
However, Binance backed out of the deal after reportedly finding a massive $8 billion hole in the company’s books
SEC is probing reports that FTX misappropriated customer deposits to pay for risky hedge fund bets
John J. Ray III, the Chicago-based lawyer who oversaw the liquidation of Enron after that company’s 2001 collapse, takes over as CEO, to guide FTX through bankruptcy
FTX, the troubled cryptocurrency exchange, has filed for bankruptcy after a stunning financial implosion exposed concerns about its handling of customer funds.
The Bahamas-based company, recently valued as high as $32 billion, announced Friday morning that it will file for Chapter 11 bankruptcy proceedings in federal court in Delaware.
Embattled FTX founder and CEO Sam Bankman-Fried has resigned his role and will remain in an advisory role to assist in an ‘orderly transition’, the company said.
Bankman-Fried, the crypto wunderkind known by his initials SBF, is reportedly under investigation by the US Securities and Exchange Commission for potential securities law violations.
FTX said that John J. Ray III, the Chicago-based lawyer who oversaw the liquidation of former energy giant Enron after that company’s 2001 collapse, will take over as CEO to lead the company through bankruptcy.
The collapse of FTX follows an week of backlash, begining with a crisis of confidence after Changpeng ‘CZ’ Zhao, the CEO of the world’s largest crypto exchange Binance, ordered a sell-off of FTX’s in-house token.
Panicked FTX customers attempted to withdraw $6 billion of funds in 72 hours, and the company was unable to cover its obligations with depositors due to a ‘liquidity crunch’.
According to the Wall Street Journal, FTX may have been using customer deposits to fund risky bets by its affiliated hedge fund, Alameda Research, which has been described as a legally dubious move, that is sure to draw regulatory scrutiny.
Following a run on the crypto exchange, FTX was forced to freeze customer withdrawals. Binance stepped in with an offer to bail out the firm. However, Binance backed out of the deal after reportedly finding a massive $8 billion hole in the company’s books.
Bankman-Fried scrambled to find other financial backers to rescue FTX, but as reports mounted about federal probes into his handling of customer funds, he found no takers.
The 30-year-old Bankman-Fried, once seen as the ‘poster boy’ of crypto, had an estimated net worth of $15.2 billion on Monday, but by the end of the week, his fortune was all but wiped out.
Now, the company that shot to mainstream prominence with a Super Bowl ad featuring actor Larry David expressing skepticism about cryptocurrency faces liquidation as it enters bankruptcy.
‘The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,’ new FTX CEO Ray said in a statement.
The new CEO has promised to conduct the bankruptcy proceedings with ‘diligence, thoroughness and transparency.’
Chapter 11 bankruptcy allows a company to come up with a plan to reorganize itself and keep its business alive while it works to pay back its creditors.
Media outlets have reported that the Securities and Exchange Commission and Justice Department are now investigating FTX.
The fallout from the crisis has also cascaded into Bankman-Fried’s philanthropic group, Future Fund and by late Thursday, the fund’s team announced it was resigning.