Bankman-Fried ran FTX as personal fiefdom, court hears

FTX founder Sam Bankman-Fried ran the cryptocurrency exchange as his “personal fiefdom” before its implosion, according to a bankruptcy attorney, with “substantial sums” spent on unrelated items. business, such as vacation homes in the Bahamas. .

“We have witnessed one of the sharpest and most difficult collapses in American corporate history,” James Bromley of Sullivan & Cromwell said in a US court on Tuesday. He added that the bankruptcy proceedings had “enabled everyone for the first time to see under the covers and recognize that the Emperor had no clothes”.

FTX filed for bankruptcy protection in the United States on November 11 as its customers fled and executives discovered billions of dollars in missing funds, exacerbating turmoil in cryptocurrency markets.

The team of lawyers in charge of liquidating FTX tries to identify a complex web of assets in order to pay off creditors. The case was marred by allegations of misconduct and major governance failures, as well as a jurisdictional dispute between the United States and the Bahamas, where FTX’s small inner circle ran the company.

According to the company, FTX’s overall valuation peaked at $40 billion – $32 billion for its international business and $8 billion for its US operations based on funds raised from venture capitalists.

Bromley said the bankruptcy team discovered that “substantial funds” had been transferred from the exchange to Bankman-Fried’s crypto hedge fund, Alameda Research, and “substantial sums had been spent on things unrelated to the company”.

That included about $300 million in Bahamian real estate that was “homes and vacation properties used by senior executives” at FTX, he said.

Hedge fund Alameda also appears to have used FTX funds to make billions of dollars of illiquid investments in funds such as Sequoia Capital and companies like SpaceX and Elon Musk’s Boring Company.

FTX filed for bankruptcy following an “effective run on the bank”, Bromley said, after rival crypto exchange Binance decided to liquidate its FTT tokens, the cryptocurrency issued by FTX. The token lost 80% of its value in two days, falling from a high of $9.6 billion in total market value to just $422 million.

Bromley also revealed that the team of attorneys and investigators working on the bankruptcy will investigate a transaction last year between FTX and Binance. The rival crypto exchange, which is led by Changpeng Zhao, sold a stake in FTX for around $2.1 billion in cash and cryptocurrencies.

FTX is now led by its new CEO and Chief Restructuring Officer, John J Ray III. The bankruptcy team includes investigative firms such as Kroll, blockchain research group Chainalysis and a cybersecurity firm whose identity has not been disclosed for security reasons as it battles hacking attempts on FTX and its assets.

Bromley added that the company was working with the US government and international regulators interested in FTX’s collapse, including the US Department of Justice and the Securities and Exchange Commission.

Prosecutors working with the Department of Justice’s Southern District of New York and the Bahamas’ Financial Crimes Investigation Branch have launched two separate criminal investigations into the FTX implosion.

A list of the 20 biggest creditors of FTX companies has been sealed by the court. However, U.S. Bankruptcy Judge John Dorsey ordered the attorneys to release the names of individuals and entities on the bankruptcy creditors’ committee, which will likely include institutional investors who have acquired stakes in FTX.

Dorsey also approved FTX’s demands to pay the remaining employees and suppliers.

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