A “substantial amount” of the failed crypto exchange FTX’s assets are either missing or have been stolen, said the exchange’s lawyer in court.
According to the Wall Street Journal, this statement was made by said James Bromley, counsel to FTX’s new management, during a bankruptcy hearing on Tuesday.
Per the report, the new management is on the hunt for all the salvageable assets but is also looking for those responsible for the loss of customer funds.
Per Bromley, the former leadership exhibited an utter lack of professionalism in managing billions of dollars in users’ cryptoassets. He went on to describe the fall of FTX as:
“One of the most abrupt and difficult collapses in the history of corporate America and the history of corporate entities around the world.”
Bromley said that the new management would “cast a wide net” to secure what may be billions of dollars in funds that went through the company, which he described as the “personal fiefdom” of its founder, stating:
“What we have here is a worldwide, international organization, but which was run as a personal fiefdom of Sam Bankman-Fried.”
The counsel said earlier this month, at the first appearance in court after filing for bankruptcy, that,
“FTX was in the control of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals.”
Searching for the funds
The report suggested that the new management is still assessing how much FTX actually lost under Bankman-Fried. The gap size between FTX’s obligations to its users and the available assets it could use to help pay them back is still unknown.
Bromley said the exchange’s individual and institutional customers number in the millions, while the 50 largest creditors alone are owed more than $3 billion, per the court papers.
Some FTX assets are outside the USA, including in the Bahamas, where FTX was officially based.
Therefore, the management decided to form a team of investigators to “lead a global hunt for money that left FTX before it failed.”
FTX’s managers stated that it would take months to go through customer claims from customers and the bad bets at its parent company Alameda Research. Some divisions appear to be solvent, they said, though it could take until January next year to compile a full balance sheet detailing the company’s total assets and liabilities.
The Wall Street Journal stated that,
“The firm has located about $1.4 billion in cash that it says belongs to the business, more than double the figure given in a report to the court last week. Salvageable units could be sold out of bankruptcy.”
The judge said on Tuesday that he would grant a number of requested motions filed by FTX to help the company manage its bankruptcy. This includes redacting the identities of customers with funds frozen on the exchange.
Meanwhile, as reported, FTX, Bankman-Fried’s parents, and the firm’s senior executives bought at least 19 properties worth about $121 million in the Bahamas over the past two years. 15 properties worth about $100 million were bought by FTX Property Holdings in 2021 and 2022, per a Reuters report, citing official property records.
The Bahamian dilemma
As said, some FTX assets are tied up in The Bahamas, where the financial authorities seized the digital assets of FTX’s local operations earlier this month. The managers claimed that this was done through unauthorized access to its corporate network.
The Securities Commission of The Bahamas stated that the crypto assets were transferred to a government-controlled wallet “for safekeeping” in accordance with local laws.
Lawyers representing the liquidators said in court on Tuesday that they disagreed with Bromley’s characterization that the US-based affiliates had control over some customer funds.
“We have some disagreements which we’ll work out over time,” Christopher Shore, US counsel for the Bahamian liquidators, was quoted as saying.
Simone Morgan-Gomez, a partner at Callenders & Co., based in the Bahamas but not involved in the case, commented that,
“A liquidation of this magnitude is likely going to take a few years.”
The filed court papers, said the report, showed a culture of scarce record-keeping at the defunct exchange, as well as disagreements between its US managers and the Bahamian liquidators over who should control the company’s assets and distributions to creditors.
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