FTX Files for Bankruptcy As CEO Bankman-Fried Steps Down

FTX has filed for bankruptcy in the U.S. following the financial crisis that has erased the company’s fortune, forcing it to seek bailout from rival exchange Binance.

The company’s CEO, Sam Bankman-Fried, also stepped down and has been replaced by John J. Ray III.

1) Hi all:

Today, I filed FTX, FTX US, and Alameda for voluntary Chapter 11 proceedings in the US.

— SBF (@SBF_FTX) November 11, 2022

The chapter 11 bankruptcy filing was made at a federal court in Delaware and includes Bankman-Fried’s proprietary trading arm Alameda Research, as well as approximately 130 affiliated companies. But it excludes the following subsidiaries: LedgerX LLC, FTX Digital Markets Ltd., FTX Australia Pty Ltd., and FTX Express Pay Ltd.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” said the new FTX chief, Ray.

“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency,” he added.

Ray explained that stakeholders should understand that events have been fast-moving and the new team is engaged only recently and that they should review the materials filed on the docket of the proceedings over the coming days for more information.

FTX has been in the news for days over the downturn that has wiped its entire $32 billion market capitalization off, sending crypto market into a massive plunge.

Bankman-Fried said earlier this week that FTX will need more than $9 billion to meet withdrawal requests. The company’s liquidity dried up unexpectedly, triggering rush by customers to withdraw funds.

FTX’s earlier attempt to get Binance to its rescue failed after the world’s biggest exchange pulled out of a proposed acquisition deal, citing worse-than-expected financial situation of FTX.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com, Binance CEO Changpeng Zhao said in a statement.

He added that in the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.

Zhao warns that more companies will fail in the coming weeks as FTX’ woes deepen crypto winter.  Bankman-Fried, whose has lost more than 94% of his $16 billion wealth, admitted on Thursday that he messed up.

1) I'm sorry. That's the biggest thing.

I fucked up, and should have done better.

— SBF (@SBF_FTX) November 10, 2022

Bloomberg reported that he is being investigated by SEC for possible violation of securities laws. The investigation is part of broader probe launched by SEC, DOJ, and Commodity Futures Trading Commission (CFTC), to determine whether customer funds on FTX were being mishandled by the management.

How FTX came to this end remains unclear and surprising.

CNBC reported that Anthony Scaramucci, the founder of SkyBridge Capital and short-time Trump communications director, flew to the Bahamas this week to help Bankman-Fried as an investor and friend.

According to the report, Sacaramucci said it appeared beyond the point of simple liquidity rescue when he got there. He said he didn’t see evidence of this mishandling when he and other investors first screened FTX as a potential business partner.

“Duped I guess is the right word, but I am very disappointed because I do like Sam. I don’t know what happened because I was not an insider at FTX,” Scaramucci said on CNBC’s Squawk Box Friday morning.