FTX was run as a “personal fiefdom” of former CEO Sam Bankman-Fried, attorneys for the collapsed crypto exchange said in its first bankruptcy hearing as they detailed ongoing challenges such as hacks and substantial missing assets.
FTX filed for protection in the United States after traders withdrew over $6 billion from the platform in three days and after rival exchange platform Binance pulled out of a proposed rescue deal. The collapse has left an estimated 1 million creditors facing losses totaling billions of dollars.
One of FTX’s attorneys at the bankruptcy hearing on Tuesday said that the company now plans to sell off healthy business units to settle creditors, but has been put on hold because they have been the subject of cyberattacks and had “substantial” assets missing.
FTX said on Saturday it has launched a strategic review of its global assets and is preparing for the sale or reorganization of some businesses. FTX said on Tuesday it was receiving interest from potential buyers for its assets and would conduct a process to reorganize or sell them.
The hearing was held at the US Bankruptcy Court in Wilmington, Delaware, and was live-streamed by around 1,500 viewers on YouTube and Zoom.
An attorney also said the firm had been run as a “personal fiefdom” of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior staff. FTX’s new CEO John Ray has accused Bankman-Fried of working with Bahamian regulators to “undermine” the US bankruptcy case and shift assets overseas.
Bankman-Fried did not immediately reply to an email seeking comment.
Reuters earlier reported that Bankman-Fried’s FTX, his parents, and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official property records show.
Attorneys also said an investigation must take place into Binance’s sale of FTX in July 2021. Binance bought a stake in FTX in 2019.
Separately a filing late on Monday by Ed Mosley of Alvarez & Marsal, a consultancy firm advising FTX, showed FTX’s cash balance of $1.24 billion as of Sunday was “substantially higher” than previously thought.
It includes around $400 million at accounts related to Alameda Research, the crypto trading firm owned by Bankman-Fried, and $172 million at FTX’s Japan arm.
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Reuters has reported Bankman-Fried secretly used $10 billion in customer funds to support his trading business, and that at least $1 billion of those deposits had vanished.
Disclosure debate
At the hearing, FTX representatives argued that the names of customers should be kept secret, as disclosing them could destabilize the crypto market and open customers up to hacks. FTX also argued its customer list is a valuable asset and that disclosing it could impair future sale efforts or allow rivals to poach its user base.
A judge said those names can remain undisclosed until a future court hearing.
FTX lawyers also described an uneasy truce with court-appointed liquidators overseeing the wind-down of FTX’s Bahamas unit, FTX Digital Markets.
The two sides reached an initial agreement to coordinate their US-based insolvency proceedings before Judge John Dorsey, avoiding the possibility of conflicting rulings from two different US bankruptcy judges. But both sides signaled they still have broader disagreements over how to coordinate the recovery and preservation of assets held by various FTX affiliates.
Bankman-Fried, FTX, and the Bahamas liquidators did not immediately respond to requests for comment.
Since the implosion of FTX, some crypto players have switched to decentralized exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.
Overall daily trading volumes on DEXs leaped to their highest level since May on November 10, as FTX imploded, according to data from market tracker DeFi Llama, but have since pared gains.
