In a sudden and stunning collapse, FTX, the second-largest cryptocurrency exchange in the world, run by 30-year-old Sam Bankman-Fried along with more than 130 FTX-affiliated companies, filed for Chapter 11 bankruptcy protection in Delaware on Friday.[1] Separately, the Securities Commission of the Bahamas appointed a Bahamas-based interim liquidator for the controlling FTX company and froze its assets along with those of its affiliates.[2]
In connection with the filing, John Jay Ray III, a veteran restructuring professional who was involved in the liquidation of Enron, has assumed the position of CEO of FTX following Bankman-Fried’s recent resignation.[3]
To date, none of the debtor companies have filed lists of assets and liabilities or applied to the bankruptcy court for a substantive “day one” appeal; However, in their petitions, the FTX companies claim that their assets and liabilities each exceed $10 billion.[4] However, multiple reports indicate that the day before filing for bankruptcy, FTX reportedly had just $900 million in easy-to-sell assets compared to about $9 billion in liabilities.[5]
In addition to the company’s significant financial woes, approximately $662 million in unauthorized withdrawals from company accounts reportedly took place the day after the company filed for bankruptcy. Company officials and government officials are investigating these transactions.[6] Additionally, the Kraken exchange has reportedly identified an account on its platform linked to the “FTX hack” and is sharing relevant information with law enforcement to aid the investigation.[7]
Significant additional FTX client funds may be missing and several government agencies are reportedly investigating the exchange, including the Bahamas Financial Crimes Investigation Branch, the US Department of Justice (DOJ), the US Securities and Exchange Commission (SEC) and the US Commodities Futures Trading Commission.[8]
The bankruptcy filings are likely to result in numerous investigations and claims being brought by debtors and other estate agents as they attempt to recover funds for distribution to creditors. Likely bankruptcy claims include alleged preferential and recovery claims for fraudulent transfer, claims against insiders and affiliates, and allegations of fraud or other alleged wrongdoing by directors, officers and other professionals who worked for the debtors.
As part of the insolvency proceedings supervised by the court, the court sets certain dates and deadlines. A deadline is set for filing claims against the debtors, about which creditors and other interested parties should be informed. Many other actions will take place during the process that may affect the rights of various parties, including investors, employees, interest groups, government agencies and other creditors (secured and unsecured).
Because of the potential impact of bankruptcy, it is important to seek the advice of a knowledgeable attorney if you think your rights may be affected.
