No coming back. Attorney for FTX confirms attempts to restart disgraced crypto exchange have been abandoned
The chance of a return for a disgraced crypto exchange that was at the centre of a high profile legal case, seem to be over.
Reuters cited an attorney for FTX as saying on Wednesday that it has abandoned efforts to restart its crypto exchange, instead opting to liquidate all assets and return funds to customers.
FTX was at the centre of the high profile fraud trial of former crypto billionaire and founder and CEO Sam Bankman-Fried, who in November 2023 was found guilty of all charges for his role in the collapse of FTX and Alameda Research.
No coming back
FTX had collapsed into Chapter 11 bankruptcy protection in November 2022, when a multi-billion dollar hole was found in its balance sheet – amid reports of financial impropriety.
The collapse was triggered after management had failed to secure rescue bid and additional funding.
Bankman-Fried stepped down as CEO and was replaced by turnaround specialist John J. Ray III, who heavily criticised the management practices of Bankman-Fried.
He alleged that Bankman-Fried had failed to put into place “basic, widely accepted” security controls to guard its crypto assets, such as the use of “cold” wallets rather than those directly linked to the internet, or the use of multi-factor authentication.
Reuters reported that FTX has been negotiating for months with potential bidders and investors, but none were willing to put in enough money to rebuild the FTX exchange, FTX attorney Andy Dietderich was quoted as saying at a bankruptcy court hearing in Delaware this week.
The failed negotiations underscored the fact that FTX was never what it appeared to be, and founder Sam Bankman-Fried never built the underlying technology or administration necessary to run the company as a viable business, Dietderich was quoted as saying.
“FTX was an irresponsible sham created by a convicted felon,” Dietderich was quoted as saying. “The costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in a dumpster were simply too high.”
According to Reuters, FTX will instead focus on liquidating its assets to repay customers whose cryptocurrency deposits were locked when the company filed for bankruptcy in November 2022.
FTX has recovered over $7 billion in assets to repay customers, and it has reached agreements with various government regulators who have agreed to wait until customers are fully repaid before attempting to collect on about $9 billion in claims, Dietderich reportedly said.
FTX now expects to pay all customers in full, although it will calculate their repayment based on cryptocurrency prices from November 2022, when the crypto market was suffering a prolonged slump.
However Reuters noted that dozens of FTX customers have complained that they are being shortchanged by the use of November 2022 prices.
This is because the price of bitcoin has risen to about $43,300 from its November 2022 price of $16,872, for example.
However US Bankruptcy Judge John Dorsey has apparently overruled those customer complaints and approved FTX’s use of 2022 prices during Wednesday’s hearing, saying US bankruptcy law is “very clear” that debts must be repaid based on their value at the date when a company filed for bankruptcy.
“I have no wiggle room on that,” Dorsey reportedly said. “The Bankruptcy Code says what it says, and I am obligated to follow it.”
Sam Bankman-Fried faces as much as 110 years in prison if Judge Lewis Kaplan gives him maximum sentences and consecutive terms.
The disgraced former crypto billionaire is set to learn how long he will spend in prison at a sentencing hearing on 28 March 2024.