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FTX Lawyer Says this Case is 'Unprecedented' in First Bankruptcy Hearing

At Tuesday's bankruptcy hearing for collapsed crypto exchange FTX, lawyers said that regulators from FTX's headquarters in the Bahamas have agreed to consolidate proceedings in Delaware. This is the first bankruptcy hearing for FTX.

November 22, 2022
9 minutes
minute read

At Tuesday's bankruptcy hearing for collapsed crypto exchange FTX, lawyers said that regulators from FTX's headquarters in the Bahamas have agreed to consolidate proceedings in Delaware. This is the first bankruptcy hearing for FTX.

FTX's lawyers have filed an emergency motion to secure the company's move to the United States. The hearing on Tuesday was the first step in resolving the largest cryptocurrency bankruptcy on record. FTX's new leadership brought in the lawyers to handle the restructuring.

"We are dealing with a different kind of animal," said FTX counsel James Bromley. "Unfortunately, the FTX debtors were not particularly well run, and that is an understatement."

According to an FTX attorney, the organization was effectively run as a personal fiefdom of Sam Bankman-Fried.

FTX lawyers have confirmed that the Southern District of New York's Cyber Crimes unit has begun an investigation into the matter. FTX lawyers have also made reference to cyberattacks, suggesting that there were multiple attacks beyond the $477 million hack that occurred shortly after the company entered bankruptcy on Nov. 11. In that attack, hackers extracted ether out of FTX wallets.

The central challenge for the new team is to bring order to the chaos left behind by FTX and John Ray III, Bromley told the court. After introducing his fellow counsel, Bromley explained what FTX has been doing to understand the complex web of data and finances left behind by FTX.

Bankman-Fried has exerted a level of control over the business that is unprecedented, according to Bromley. The company has employed bankruptcy experts and attorneys as part of the restructuring process, and Bromley says he has never seen anything like it.

FTX was valued by private investors at $32 billion earlier this year, and Bankman-Fried was positioning himself as an industry savior during the crypto winter.

Bromley stated that the FTX situation is the latest and largest failure in this space. He explained that there was a run on the bank, both with respect to the international exchange and the U.S. exchange. At the same time, there was a leadership crisis. The FTX companies were controlled by a very small group of people, led by Mr. Sam-Bankman-Fried. During the run on the bank, Mr. Fried’s leadership frayed, and that led to resignations.

FTX has just begun to implement "standard" risk and data management practices, according to CEO Sam Bankman-Fried. As part of the process, lawyers had to approve roughly $1 million in salary expenses for existing FTX employees.

Bromley said that the process is designed to get as much as possible for creditors.

"It is essential that we first maximize the value of the assets we have, whether that means selling assets, selling businesses or restructuring businesses," he said. "All of that is on the table."

Bromley said that they will be contacting the company soon with an offer to sell some of the businesses that they believe are self-sufficient and strong enough to attract interest from other buyers.

Bromley said that the efforts to recover and protect assets encompass not just crypto assets and currency, but also "information." The company has also brought on independent directors for the first time.

Bromley said that a substantial amount of assets have either been stolen or are missing. Additionally, he said that it appears that substantial funds have been transferred from other silos to Alameda.

The FTX crisis revolves around the FTT token and the Alameda entities. Lawyers have looked into the history of FTX and its affiliated companies, and they believe that the FTT token was created in April 2019 and the Alameda entities were founded in November 2017.

Bromley said that investments were made in the crypto and technology venture space, but that almost $300 million was also spent on real estate in the Bahamas. He said that this number is higher than what was previously reported, and that most of these purchases were for home and vacation properties for senior executives.

Since October 2022, many employees have left the company. The main FTX parent company had 330 employees around the world, with 127 in the U.S. Including the Australian businesses and FTX Digital Markets, the global headcount was 520.

According to FTX attorneys, the current headcount is estimated to be around 260.

At Coinbase, we're committed to protecting our customers from bad actors in the crypto space. That's why we've created a new video series called "Watch."In each episode of "Watch," we'll take a close look at a different aspect of the crypto world, from scams and fraud to new technologies and trends. We'll also offer tips on how to stay safe and secure in the crypto space.We hope you'll join us on this journey to a safer, more secure crypto world.

John Liu
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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