What’s next for FTX and SBF? Regulators, lawsuits and more controversy

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What’s next for FTX and SBF? Regulators, lawsuits and an unraveling of the company’s Gordian knot.

The rapid rise and even more rapid fall of crypto exchange FTX and its sister firm Alameda Research, both controlled until this week by Sam Bankman-Fried, have left investors, customers and regulators facing more questions than answers.

FTX collapsed after a bank run and filed for bankruptcy on Nov. 11, the same day that Bankman-Fried resigned. But many details about how the exchange reached that point are only starting to emerge — with legal and regulatory action just beginning to take shape.

Investors filed suit this week against FTX and its celebrity endorsers, including comedian Larry David and NFL quarterback Tom Brady. And in a bankruptcy filing Thursday, newly appointed FTX CEO John J. Ray, who has stewarded some of the biggest bankruptcies ever, laid out in scathing language the exchange’s myriad failures.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said Ray in the filing. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

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Here, Grid breaks down the latest developments in the FTX collapse.

The bankruptcy filing

FTX has filed for Chapter 11 bankruptcy protection, which allows a company to restructure its debts while continuing to operate, rather than liquidating entirely. Such filings are often made by major corporations during times of trouble.

Ray’s initial filing to a federal bankruptcy court in Delaware offers valuable insight into FTX’s questionable inner workings and paints a bleak picture of the company’s current status. Internal documentation is so sparse, Ray said in the filing, that the company does not have a complete list of who worked at FTX and the terms of their employment. Moreover, efforts to locate some employees to confirm their status have been unsuccessful.

There are also large gaps in fundamental accounting data. “Debtors do not yet know the exact amount of cash that the FTX Group held as of the Petition Date,” according to the filing.

It also lays out a complex web of companies controlled by Bankman-Fried and FTX co-founders Gary Wang and Nishad Singh — a Gordian knot that Ray is attempting to untangle.

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FTX did not keep accurate, audited records or security controls, to such an extent that the company used unsecured email accounts to access private keys that allowed access to funds, Ray wrote. In his filing, he also criticized the misuse of corporate funds to purchase Bahamian real estate and the use of software to cover those misuses.

“Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements,” concludes the filing. “Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: ‘F*** regulators they make everything worse’ and suggested the next step for him was to ‘win a jurisdictional battle vs. Delaware.”

But the Delaware bankruptcy proceeding is not the only one in a U.S. court. FTX had its executive offices in the Bahamas. After local authorities froze FTX’s assets there, Bahamian securities regulators appointed a liquidator who filed a Chapter 15 bankruptcy case in federal court in New York, asking the U.S. judicial system to recognize the Bahamian liquidation process. Chapter 15 bankruptcy cases allow mechanisms for resolving debtors and assets involving multiple countries. Ray’s filing asks the Delaware court to transfer the New York case to Delaware.

Regulators are circling

In addition to the investigation and liquidation proceedings underway in the Bahamas, the Department of Justice and the Securities and Exchange Commission have launched their own probes of the FTX mess.

Meanwhile, Treasury Secretary Janet Yellen said in a statement Wednesday that the recent failure of a major cryptocurrency exchange — an allusion to FTX — demonstrates “the need for more effective oversight of cryptocurrency markets.”

That’s due in part to the increased overlap between crypto and traditional financial markets, she added, which “could raise broader financial stability concerns.” The fallout from FTX’s has already sparked a liquidity squeeze across various sectors of the crypto industry, and some of the those who lost money when it collapsed include mainstream financial players such as the venture firm Sequoia Capital. Yellen joins a growing number of lawmakers and regulators, in the U.S. and abroad, calling for a crackdown on crypto.

Members of the House Financial Services Committee and Senate Banking Committee have pointed to the regulatory ambiguity surrounding crypto as one reason FTX was allowed to grow to the size it did without the sort of controls applied to traditional financial entities.

“There is no sugarcoating it. The collapse has been a dumpster fire. Users left out to dry. Ecosystem in limbo,” said Rep. Patrick McHenry (R-N.C.) Wednesday during a House Financial Services Committee hearing. And lawmakers that historically have been supportive of crypto have spoken out.

“It’s obvious that Congress needs to regulate digital assets,” said Sen. Cynthia Lummis (R-Wyo.) during a Senate Banking Committee hearing on Monday, pointing to a comprehensive crypto regulation bill she co-authored with Sen. Kirsten Gillibrand (D-N.Y.). That bill has been seen as the leading prospect for legislative action on crypto, but its future is in jeopardy given Bankman-Fried’s extensive input in shaping the bill.

Customers want their money

As if the blowback wasn’t strong enough already, FTX customers are filing lawsuits against the company and its boosters — including Brady, David and NBA star Stephen Curry.


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“FTX’s fraudulent scheme was designed to take advantage of unsophisticated investors from across the country, who utilize mobile apps to make their investments,” the lawsuit filed in Florida alleges. “As a result, American consumers collectively sustained over $11 billion dollars in damages.”

The lawsuit calls FTX a Ponzi scheme. It argues that while the celebrities involved disclosed their partnerships with FTX, they never disclosed the “nature, scope, and amount of compensation they personally received in exchange for the promotion.”

More suits will likely follow, as the full scope of FTX’s damages are just now beginning to be unraveled.

“Man all the dumb s--- I said, it’s not true, not really,” said Sam Bankman-Fried in a recent Vox article.

Thanks to Lillian Barkley for copy editing this article.

  • Benjamin Powers
    Benjamin Powers

    Technology Reporter

    Benjamin Powers is a technology reporter for Grid where he explores the interconnection of technology and privacy within major stories.