FTX creditors could number over a million as regulators seek answers

  • FTX in contact with federal, state and international regulators
  • Bahamian regulator appoints interim liquidators
  • Former FTX CEO Bankman-Fried tried to raise money -WSJ

Nov 15 (Reuters) – Collapsed crypto exchange FTX described a “severe liquidity crunch” in U.S. bankruptcy filings, which said the group could have more than a million creditors, as regulators opened investigations and the crypto pain spread with the Wall Street Journal reporting BlockFi was planning layoffs and a possible bankruptcy filing.

FTX’s filing Monday evening with a US bankruptcy court said it was in contact with dozens of global regulators and had appointed five new independent directors at each of its major companies, including its sister trading company Alameda Research. .

The exchange, which had been one of the largest in the world, filed for bankruptcy protection on Friday in one of the most publicized crypto explosions after traders withdrew $6 billion from the platform. in three days and rival exchange Binance scrapped a bailout deal.

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“FTX faced a severe liquidity crisis which necessitated the filing of these emergency filings last Friday,” the court filing said.

FTX’s bankruptcy filing includes more than 100,000 creditors, and that number could exceed 1 million, according to the documents. The numbers were leaked because FTX requested that several FTX Group companies file a consolidated list of major creditors, rather than separate lists.

The documents also confirmed that FTX responded to a cyberattack on Nov. 11, after it said on Saturday it saw “unauthorized transactions” on its platform.

FTX has engaged Alvarez & Marsal as a financial advisor and said it has been in contact with the US Attorney’s Office, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and dozens of regulators federal, state and international. in the last 72 hours.

The fallout has so far been limited to crypto exchanges and traders, but also features in mainstream policy discussions.

Michael Barr, the Federal Reserve’s top cop on Wall Street, said Tuesday he was concerned about non-banking sector risks for which the U.S. central bank and other regulators have low visibility.

“That obviously includes crypto activity, but more broadly the risks in parts of the financial system where we don’t have good visibility, we don’t have good transparency, we don’t have good data. create risks that accrue to the financial system we regulate,” he told the Senate Banking Committee.

Crypto industry peers and partners have been quick to distance themselves from FTX and tout their strong finances, although some, including US cryptocurrency broker Genesis Trading, have revealed they have exposure to FTX. , either by holding tokens on the exchange or by owning FTX’s native token. , FTT.

FTT plunged around 94% in the past week, while bitcoin lost 22%.

Representations of cryptocurrencies are seen in front of the FTX logo displayed in this illustration taken November 10, 2022. REUTERS/Dado Ruvic/Illustration

Crypto lender BlockFi, which previously admitted to having significant exposure to FTX, plans to lay off workers while preparing to file for bankruptcy, The Wall Street Journal reported. The newspaper reported that BlockFi recently worked with Kenric Kattner, a bankruptcy partner at Haynes & Boone, citing people familiar with the situation. BlockFi and Kattner did not immediately respond to a request for comment.

Separately, bankrupt crypto lender Voyager Digital no longer plans to sell to FTX, Bloomberg reported, while Canadian crypto exchange Bitvo said it had terminated its deal to be bought by FTX.

FTX founder and former chief executive Sam Bankman-Fried said his primary goal was “to do good for customers,” in a tweet on Tuesday.

“I’m contributing the best I can. Meeting in person with regulators and working with teams to do what we can for customers,” he said on Twitter.

Bloomberg reported that US and Bahamian authorities had talked about bringing Bankman-Fried to the United States for questioning.

Bankman-Fried tried to raise funds from investors over the weekend to pay back FTX clients even after the company filed for bankruptcy protection and he resigned as CEO, a reported the Wall Street Journal.

Bankman-Fried said he had grown his business too quickly and hadn’t noticed any red flags in the stock market, in an interview with The New York Times published Monday evening.

REGULATORY VERIFICATION

The sudden collapse of FTX, once considered a mainstay of the crypto industry with a valuation of $32 billion in January, has sparked investigations from financial regulators and other watchdogs around the world. .

The Bahamas Securities Commission, in a statement dated Monday, said two PwC partners had been approved by the Supreme Court as joint provisional liquidators of FTX.

Several global regulators have withdrawn licenses from local FTX units and are reviewing the company, and investigations by the US Department of Justice, SEC and CFTC are also underway, a source with knowledge of the investigations told Reuters.

Some have argued that regulators should have acted sooner.

Ken Griffin, founder and CEO of hedge fund Citadel, told the Bloomberg New Economy Forum in Singapore: “FTX is one of those absolute parodies in the history of financial markets. People will collectively lose billions of dollars and this undermines confidence in all financial markets. .”

Additional reporting by Anshuman Daga in Singapore Writing by Vidya Ranganathan, Alun John and John McCrank Editing by Megan Davies, Jane Merriman and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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