Embattled and bankrupt, cryptocurrency exchange FTX said it owes its top 50 creditors more than $3 billion. The largest single lender is out around $226 million, according to a court filing.
As FTX and founder Sam Bankman-Fried continue the fall from grace, contagion is spreading. Almost immediately following the fallout, Solana DeFi lost almost $700 million in value, while digital-asset brokerage Genesis is now warning of possible bankruptcy.
A ‘complete failure’
As lawsuits and investigations pile on, corporate restructuring expert John J. Ray III has his hands full as the firm’s new CEO.
“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,” Ray wrote in a court filing last week. “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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The nature of Ray’s comments are particularly grave considering his experience with some of the major corporate disasters of his time, including overseeing the Enron liquidation after its 2001 collapse.
“That quote already has become the most notable quote and most retweeted quote in the history of bankruptcy law,” said David Tawil, a former bankruptcy attorney and current president and co-founder of ProChain Capital, a crypto-asset fund. “It seems that the books and records of FTX were in absolute shambles.”
Investors, customers owed billions
Tawil said investors did “very little homework” before giving money over to FTX and Alameda, Bankman-Fried’s trading fund that is implicated in the FTX disaster. He said investors likely relied solely on summary materials and Bankman-Fried’s word before handing over large sums. Affected investors stretch beyond the venture-capital space, as well. The Ontario Teachers’ Pension Plan wrote off a $95 million loss from its holding in FTX.
“Shame on them because they obviously did not do the research that they were supposed to do on the venture FTX to make sure that the books and records were in line, that the assets were where they’re supposed to be, that the risk controls were in place,” Tawil said.
Still, Tawil drew a stark contrast between FTX’s major investors and the customers and depositors who used the exchange platform to hold and trade cryptocurrency.
“They were told in their documents that their Bitcoin and Ether and other cryptocurrencies would be segregated and would not be siphoned off and used for other matters,” Tawil said. “So I think those folks did everything that they did. The onus there falls on regulators and lawmakers to make sure the likes of something like a centralized exchange, like FTX, does what in fact it says it’s going to do in their customer agreements.”
According to court filings, FTX may owe more than one million people money, though customers are “losing hope” they’ll ever be made whole, the Wall Street Journal reported.
Watch the full interview above for Tawil’s take on the “hard lessons” learned here and where it is safest to store cryptocurrency.
