The secrets of the fallen cryptocurrency exchange FTX began to be revealed on Nov. 22 during the company's first hearing in bankruptcy court.
According to lawyers in charge of the restructuring of the Sam Bankman-Fried empire, of which FTX was one of the jewels, "substantial" assets of the platform have either been stolen or have disappeared.
"Unfortunately, the FTX debtors were not particularly well run, and that is an understatement," James Bromley, co-head of the restructuring practice at law firm Sullivan & Cromwell, told a Delaware bankruptcy court. "We have probably witnessed one of the most abrupt and difficult corporate collapses in the history of corporate America."
Assets had been stolen from FTX on Nov. 11, the day it filed for bankruptcy. Part of these funds had been invested in the cryptocurrency market, in particular in ether, the second largest digital currency.
On Nov. 20 the assets began to be transferred to bitcoin. Blockchain technology makes it possible to follow the movements of these funds, but for the moment it is difficult to identify the hacker or hackers.
"Exchanges should be aware that certain funds transferred from FTX Global and related debtors without authorization on 11/11/22 are being transferred to them through intermediate wallets," the firm warned on Nov. 20. "Exchanges should take all measures to secure these funds to be returned to the bankruptcy estate."
Names of the Creditors Will Remain Secret
Bromley went on to deliver a scathing critique of the Bankman-Fried regime at FTX. The downfall of FTX was "unprecedented," the lawyer said.
On Nov. 17, John Ray, the new CEO of FTX in charge of restructuring, had already strongly criticized Bankman-Fried's FTX, described as a wild west.
"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.
"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."
Ray isn't a rookie: he was the liquidator of Enron, the broker whose collapse remains one of the biggest financial fiascos of modern times.
You can read the FTX collapse timeline here.
The court hearing also helped make the protection of FTX's assets and their recovery the top priority of the restructuring team. The new team is also putting in place controls for greater transparency.
Bromley also confirmed that FTX would ask Judge John Dorsey, who is in charge of the case, to approve the sale of assets. FTX said on Nov. 19 it would launch a strategic review of its assets. All scenarios are possible, including asset sales.
Judge Dorsey also accepted a request from the lawyers for the FTX creditors, who want their names kept secret for the time being.
The exchange recently revealed that its top 50 creditors are seeking $3 billion in claims. The insolvent company released the amount of the claims of each of the top creditors but did not name them or disclose any information about their headquarters.
The exchange founded by former billionaire Bankman-Fried owes about $1.45 billion to its top 10 creditors. Again, none of the creditors was named, but the one with the largest claim is $226 million, followed by $203 million and $174 million. The fourth and fifth claims were for $159 million and $130 million.
Black Friday Sale
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