Beleaguered cryptocurrency platform FTX filed for bankruptcy protection Friday—a swift demise for a company hailed as a trusted platform just a week ago.
In a statement, the company said Chief Executive Sam Bankman-Fried resigned from his position but would remain at the company to assist with an orderly transition. FTX said that it would begin a process to review and monetise assets for stakeholders.
John J. Ray III has been named the new CEO of FTX Group, the company said. The bankruptcy filing includes FTX Trading, the company presiding over the global trading website FTX.com, Alameda Research, a trading firm founded by Bankman-Fried, and the company over FTX US, the platform for US users.
The company said in a statement on Friday, shared via a tweet, that FTX and its affiliated crypto trading fund Alameda Research and approximately 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware.
The week-long saga that began with a run on FTX and an abandoned takeover deal by rival Binance has hit an already struggling bitcoin and other tokens.
FTX was scrambling to raise about $9.4 billion from investors and rivals, Reuters reported citing sources, as the exchange sought to save itself after customer withdrawals. The predicament marks a rapid reversal for Bankman-Fried, the 30-year-old crypto executive, whose wealth was estimated by Forbes at around $17 billion just two months ago.
Reports emerged that FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange’s implosion, a person familiar with the matter said.
Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Bankman-Fried described as a poor judgment call, one of the people said.
All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda.
Alameda took out additional loans from other financial firms, according to people familiar with the matter. As of Monday, Alameda owed $1.5 billion in loans to counterparties outside of FTX, the people said.
FTX paused customer withdrawals earlier this week after it was hit with roughly $5 billion worth of withdrawal requests on Sunday, according to a Thursday morning tweet from Bankman-Fried. The crisis forced FTX to scramble for an emergency investment.
FTX struck a deal to sell itself to its giant rival Binance on Tuesday, but Binance walked away from the deal the next day, saying FTX’s problems were “beyond our control or ability to help.”
The Securities and Exchange Commission and Justice Department are investigating FTX following its sudden implosion this week, a person familiar with the matter said.
On Thursday the Securities Commission of the Bahamas said that it froze the assets of FTX Digital Markets Ltd, the Bahamian subsidiary of FTX. The commission said that it appointed a provisional liquidator and that no assets held by the firm can be transferred without the provisional liquidator’s approval, the commission said.
The failure of FTX to fill withdrawal requests shocked crypto investors and badly tarnished the reputation of Bankman-Fried, who had embraced regulation of digital currencies and branded himself as a crypto entrepreneur driven by ethics and philanthropy.
The revelation of the loans suggests that the root of FTX’s downfall lay in its relationship with Alameda, a firm known for aggressive trading strategies funded by borrowed money. Some crypto traders have voiced wariness of the affiliation, worrying that it posed a conflict of interest for an exchange to be attached to a trading business.
Bankman-Fried founded and is the majority owner of both firms. He was CEO of Alameda until last year, when he stepped back from the role to focus on FTX.
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