The founder of the bankrupt FTX, Sam Bankman-Freed, ran the cryptocurrency exchange as if it were his own personal stooge, allocating large sums of money to expenses unrelated to the company, such as buying vacation homes in the Bahamas, the lawyer helping with its liquidation said.
“We are witnessing one of the most rapid and difficult collapses in US business history,” James Bromley of the firm Sullivan & Cromwell told the US court yesterday.
The emperor was naked
The bankruptcy proceedings “allowed everyone for the first time to see under the covers and realize that the emperor was naked,” he added.
FTX filed for US bankruptcy law on November 11 as its customers began withdrawing funds and executives discovered billions of dollars in “holes”, intensifying the turmoil in crypto markets
The team of lawyers tasked with winding down FTX is trying to locate its assets to repay creditors.
FTX was described by its new chief executive as an unprecedented case of mismanagement and sparked a legal battle between the US and the Bahamas, from where FTX’s young leadership team ran the business.
The total valuation of FTX reached up to $40 billion – $32 billion from its international operations and $8 billion for its US operations based on funds raised from venture capital investors.
Money transfers to hedge fund Alameda Research
According to Bromley, “significant funds” were transferred from the exchange to Bankman-Freed’s cryptocurrency hedge fund Alameda Research and “significant amounts of money were spent on things unrelated to the business.”
Among other things, some $300 million was allocated to purchase Bahamian homes and vacation homes used by FTX senior executives.
Alameda also appeared to have used FTX funds to make multi-billion dollar investments in investment funds such as Sequoia Capital and companies such as Elon Musk’s SpaceX and Boring Company.
Bromley also revealed that the team of lawyers working on the bankruptcy will investigate a transaction last year between FTX and Binance. The rival cryptocurrency exchange, which is run by Changpeng Chao, liquidated its stake in FTX of about $2.1 billion in cash and cryptocurrencies.
The clearing team
FTX is now headed by the new chief restructuring officer John J Ray III. The liquidation includes companies such as Kroll, blockchain research group Chainalysis and a cybersecurity firm whose identity has not been disclosed due to security concerns as it combats hacking attempts on FTX and its assets.
Bromley added that the company is working with the US government and international regulators interested in the FTX crash, including the US Department of Justice and the Securities and Exchange Commission.
The Bahamas has launched two separate criminal investigations into the FTX collapse. Prior this, they [Bahamas] have frozen FTX’s assets and appointed PWC as part of the liquidation team.
The list of the 20 largest creditors to FTX’s operations has been confirmed by the court, with the judge asking lawyers to release the names of the individuals and companies.
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