FTX was run as a ‘personal fiefdom’ of former CEO, lawyers say | Economy and Business News

FTX was run as a “personal fiefdom” by former CEO Sam Bankman-Fried, lawyers for the collapsed crypto exchange said at its first bankruptcy hearing, while detailing ongoing challenges such as hacks and substantial missing assets.

In the highest-profile crypto explosion to date, FTX filed for protection in the United States after traders withdrew $6 billion from the platform in three days and rival exchange Binance abandoned a bailout deal. The collapse has left some 1 million creditors facing losses totaling billions of dollars.

An FTX attorney said at a bankruptcy hearing on Tuesday that the company now intends to sell healthy business units, but has been the target of cyberattacks and is missing “substantial” assets. FTX said on Saturday that it has launched a strategic review of its global assets and is preparing to sell or reorganize some businesses.

The hearing was held at the US Bankruptcy Court in Wilmington, Delaware, and was streamed live to approximately 1,500 viewers on YouTube and Zoom.

A lawyer also said the company had been run as a “personal fiefdom” by Bankman-Fried, with $300 million spent on real estate such as homes and vacation properties for senior staff. FTX, led since the bankruptcy filing by new CEO John Ray, accused Bankman-Fried of working with Bahamian regulators to “undermine” the US bankruptcy case and move assets offshore.

Bankman-Fried did not immediately respond to an email seeking comment.

The Reuters news agency previously reported that Bankman-Fried’s FTX, his parents and top executives at the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, records show. property officers.

The lawyers also said that an investigation should be conducted into Binance’s July 2021 sale of FTX. Binance bought a stake in FTX in 2019.

Separately, a presentation filed Monday night by Ed Mosley of Alvarez & Marsal, a consulting firm that advises FTX, showed that FTX’s cash balance of $1.24 billion as of Sunday was “substantially higher” than what was previously thought.

It includes approximately $400 million in accounts related to Alameda Research, the crypto trading firm owned by Bankman-Fried, and $172 million in the Japanese arm of FTX.

Reuters has reported that Bankman-Fried secretly used $10 billion in client funds to prop up its trading business and that at least $1 billion of those deposits had vanished.

disclosure discussion

At the hearing, FTX representatives argued that client names should be kept secret as revealing them could destabilize the cryptocurrency market and expose clients to hackers. FTX also argued that its customer list is a valuable asset, and revealing it could hurt future sales efforts or allow rivals to loot its user base.

A judge said those names can remain secret until a future court hearing.

FTX lawyers also described an uneasy truce with court-appointed liquidators overseeing the shutdown of FTX’s Bahamas unit, FTX Digital Markets.

The two parties reached an initial agreement to coordinate their US insolvency proceedings before Judge John Dorsey, avoiding the possibility of conflicting decisions from two different US bankruptcy judges. But both sides say they still have broader disagreements over how to coordinate the recovery and preservation of assets held by various FTX affiliates.

Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.

Fears of contagion

FTX’s fall from grace has sent chills through the cryptocurrency world, sending Bitcoin to its lowest level in roughly two years and sparking contagion fears among other companies already reeling from the cryptocurrency market collapse this week. year.

Top US crypto lender Genesis said Monday it was trying to avoid bankruptcy, days after FTX’s collapse forced it to suspend customer refunds.

“Our goal is to resolve the current situation in a consensual manner without the need to file for bankruptcy,” a Genesis spokesman said in an emailed statement to Reuters, adding that it continues to have talks with creditors.

A Bloomberg News report, citing sources, had said Genesis was struggling to raise new cash for its lending unit.

The Wall Street Journal reported, citing sources, that Genesis had approached Binance for an investment, but the cryptocurrency exchange decided against it for fear of a conflict of interest. Genesis has also approached private equity firm Apollo Global Management for capital assistance, the WSJ said.

Apollo did not immediately respond to a Reuters request for comment on the WSJ report, while Binance declined to comment.

Gemini cryptocurrency exchange, which runs a cryptocurrency lending product in partnership with Genesis, tweeted on Monday that it was continuing to work with the company to allow its users to redeem funds from its “Earn” program that generates returns.

Gemini said on its blog last week that there was no effect on its other products and services after Genesis stopped the withdrawals.

Since the FTX implosion, some crypto players are turning to decentralized exchanges known as “DEXs,” where investors trade peer-to-peer on the blockchain.

Overall daily trading volumes on DEXs jumped to their highest level since May on Nov. 10, when FTX imploded, according to data from DeFi market tracker Llama, but have since pared gains.

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