FTX could have more than one million creditors

Court filing provides first insight into collapse of cryptocurrency exchange FTX

FTX logo on smartphone screen                                 
A court filing has revealed FTX may have more than one million creditors – Photo: Shutterstock
                                

FTX made a filing with the US federal court database system PACER that has provided the first genuine insight into the bankrupt cryptocurrency exchange’s condition. 

Once one of the world’s largest cryptocurrency exchanges, FTX collapsed last week after experiencing a substantial liquidity crisis.

The rush of investors attempting to withdraw their funds was precipitated by reports that raised questions about the relationship between FTX and the trading firm Alameda Research, both of which were founded by Sam Bankman-Fried. 

Describing the events of the past week as “unprecedented”, the filing stated: “FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday.

“Questions arose about Mr Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction.”

Bankman-Fried stepped down as CEO on 11 November 2022. The company filed for bankruptcy on the same day and appointed John J Ray III as its new CEO. Ray previously led the energy giant Enron through its bankruptcy in the mid 2000s.

FTX could have over one million creditors

Monday’s filing included 100 dockets for its multiple related entities, including Alameda Research, Clifton Bay Investments and West Realm Shires. Instead of filing individual motions for each entity, FTX filed to jointly administer the group as one. 

Furthermore, the company asked if it could create a top 50 creditors list for the overall umbrella rather than creating lists of the top 20 creditors for each entity. 

When justifying its request, FTX revealed that “there could be more than one million creditors” in its Chapter 11 bankruptcy cases. 

Given the number of creditors, the firm asked for permission to email them its bankruptcy notice rather than serve them with notices at their homes.

The filing also referenced Friday’s hack, during which hundreds of millions of dollars worth of cryptocurrency was drained from FTX wallets.

It said on Friday 11 November, FTX removed trading and withdrew functionality on its exchanges and moved “as many digital assets as possible to a new cold wallet custodian while simultaneously responding to a cyberattack”.

Recognising the “substantial interest in these events among regulatory authorities around the world”, the filing revealed that FTX’s legal team had been in contact with the “US Attorney’s Office, the US Securities and Exchange Commission, the Commodity Futures Trading Commission, and dozens of Federal, state and international regulatory agencies.”

Visa cuts ties with FTX

Until last week a popular and pervasive brand, celebrities and corporations have rushed to distance themselves from FTX in the wake of its collapse. 

Payments giant Visa recently confirmed that it would end its debit card partnership with FTX.

The project was hailed as an example of the growing acceptance of digital assets in the financial mainstream and was set to be expanded to 40 new countries as part of a “long-term global partnership” announced only last month. 

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