- FTX in contact with federal, state and international regulators
- More than a hundred thousand creditors involved in the bankruptcy case, perhaps more than a million
- Bahamas regulator appoints provisional liquidators
- French cen. Bank Governor Urges Global Regulatory Response
- WSJ says former CEO Bankman-Fried was trying to raise money
Nov 15 (Reuters) – Collapsed crypto exchange FTX outlined a “serious liquidity crisis” in US bankruptcy filings, which said the group could have more than 1 million creditors as regulators opened investigations and lawmakers called for clearer rules on how the industry works.
FTX’s filing with a US bankruptcy court, published late Monday in the United States, said it was in contact with financial regulators and appointed five new independent directors at each of its major companies, including its sister company Alameda Research.
The exchange, which was one of the world’s largest, filed for bankruptcy protection on Friday in one of the most high-profile crypto blowouts after panicked traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a bailout deal.
“FTX faced a severe liquidity crisis last Friday that necessitated the filing of these cases on an emergency basis,” the court said.
“Questions arose about Mr. Bankman-Fried’s leadership and handling of FTX’s complex array of assets and businesses under his leadership.”
FTX founder and former CEO Sam Bankman-Fried said he was expanding his company too quickly and not seeing any signs of trouble with the stock market, the New York Times reported late Monday.
Bankman-Fried also tried to raise money from investors this weekend to pay back FTX traders and institutional clients, even after the company sought bankruptcy protection and he stepped down as CEO, the Wall Street Journal reported Tuesday.
FTX’s bankruptcy case involves more than 100,000 creditors, and the number could exceed one million, the filings said. The numbers were released when FTX requested that multiple FTX group companies file one consolidated list of major creditors, rather than separate ones.
The documents also confirmed that FTX had responded to a cyberattack on Nov. 11, after saying on Saturday it had seen “unauthorized transactions” on its platform.
FTX has engaged Alvarez & Marsal as its financial advisor, and the company said it has been in contact with the US Attorney’s Office, SEC, CFTC and dozens of federal, state and international regulatory agencies over the past 72 hours.
Canadian crypto exchange Bitvo said on Tuesday it had ended its deal to be bought by FTX, a deal set to close in the third quarter of this year.
The sudden collapse of Bahamas-based FTX, once a rising star of the crypto industry with a valuation of $32 billion as of January, has sparked investigations by financial regulators and other regulatory bodies around the world.
The Securities Commission of the Bahamas said in a statement Monday that two PwC partners had been approved by the Supreme Court as joint interim liquidators for FTX.
The Commission said it had used its regulatory powers to protect the interests of customers and creditors of FTX Digital Markets (a local unit of the exchange) “given the magnitude, urgency and international implications of the unfolding events”.
Several global regulators have revoked the licenses of local FTX units and are investigating the company, and investigations by the US Department of Justice, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are also underway, a source with knowledge of the investigations told Reuters.
Colleagues and partners in the crypto industry have been quick to distance themselves from FTX and show they are financially sound, although some, including US cryptocurrency broker Genesis Trading, have revealed that they have been exposed to FTX, either through tokens on the exchange either by owning FTX’s native token FTT.
FTT fell about 94% last week, while Bitcoin lost 22%.
“You have to wonder why prices aren’t already lower than they are. The answer may simply be that the magnitude of this collapse is such that credit concerns now trump any other risk, and participants are focusing on moving assets from exchanges, on short-term cost of price risk management,” crypto liquidity provider B2C2 said in a note to clients.
The impact has so far been limited to crypto exchanges and merchants, but also features in mainstream policy discussions.
French central bank governor Francois Villeroy de Galhau called for a global regulatory response to the financial uncertainty caused by the crypto market in a speech in Tokyo.
“Let me emphasize that this uncertainty is why we need to regulate crypto-assets internationally strongly and quickly,” he said.
On Monday, officials from the US Federal Reserve and the legislature called for crypto finance to come under increased scrutiny.
However, some believe 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 these absolute mockeries in the history of financial markets. People will lose billions of dollars together and that undermines confidence in all financial markets . .”
He said the magnitude of US investor losses “really gets to the heart of what investor protection is all about.”
Additional reporting by Anshuman Daga in Singapore; Written by Vidya Ranganathan and Alun John; Edited by Sam Holmes, Louise Heavens and Jane Merriman
Our Standards: The Thomson Reuters Principles of Trust.