Failed FTX Exchange Could Have A Million Creditors

The aftershocks of the spectacular collapse of the Bahamas-headquartered cryptocurrency exchange FTX last week, have continued into this week.

Last week FTX, which had been among the world’s largest crypto exchanges, collapsed into Chapter 11 bankruptcy protection, after a series of setbacks.

Prior to the bankruptcy, former CEO Sam Bankman-Fried had explored all options and sought additional funding of up to $9bn from outside sources, amid reports the exchange faced $7 billion in total liability.

Chapter 11

That funding failed to materialise, and to make matters worse crypto exchange platform Binance said last Wednesday that it was pulling out of its deal to purchase FTX Trading.

FTX had agreed to sell itself to Binance, after experiencing the cryptocurrency equivalent of a bank run – after panicked traders withdrew $6 billion from the exchange in just 72 hours.

Customers reportedly fled the exchange after becoming concerned over whether FTX had sufficient capital.

Binance said that after it had carried out due diligence on FTX’s balance sheet, it had significant concerns that convinced it to back out of the rescue deal.

Soon after that FTX filed for Chapter 11, and Bankman-Fried stepped down as CEO and was replaced by John J. Ray III.

The collapse of FTX shook the crypto world, and on Monday the chief executive of Singapore-based cryptocurrency exchange tried to reassure jittery investors when he said the platform is in good financial health, and “maintained reserves for every coin held on the platform.”

Liquidity crisis

Now Reuters has reported that FTX’s Chapter 11 filing to a US bankruptcy court, published late on Monday in the United States, revealed that FTX had a “severe liquidity crisis” and the group could have more than 1 million creditors.

FTX’s filing also revealed it was in contact with financial regulators and had appointed five new independent directors at each of its main companies, including its sibling trading firm Alameda Research.

“FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday,” the court filing reportedly states.

“Questions arose about Mr. Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction,” it added.

Reuters, citing a New York Times report on Monday, reported that FTX founder and former chief executive Sam Bankman-Fried had indicated he expanded his business too fast and failed to notice signs of trouble at the exchange.

Bankman-Fried over the weekend also tried to raise cash from investors to repay FTX traders and institutional clients Reuters added, citing a Wall Street Journal report on Tuesday.

Million creditors

And it seems FTX’s bankruptcy case includes more than one hundred thousand creditors, and this number could surpass one million, the filings said.

The numbers were disclosed as FTX requested that multiple FTX group companies file one consolidated list of major creditors, rather than separate ones, Reuters reported.

The filings also confirmed that FTX had responded to a cyber attack on 11 November, after saying on Saturday it had seen “unauthorised transactions” on its platform.

FTX has reportedly been in contact with the US Attorney’s Office, SEC, CFTC, and dozens of federal, state and international regulatory agencies over the past 72 hours.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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