Bankrupt cryptocurrency exchange FTX was run as the “personal fiefdom” of founder Sam Bankman-Fried, with one of the company’s units spending $300m on real estate in the Bahamas for the use of its executives, a court heard on Tuesday.
The hearing in Delaware’s bankruptcy court is the first since FTX declared insolvency earlier this month.
A “substantial amount” of FTX Group’s assets “have either been stolen or are missing”, James Bromley, co-head of the restructuring practice at law firm Sullivan & Cromwell, told judge John Dorsey.
“FTX was in the control of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals,” said Bromley.
News of the Bahamas property spree follows a report from Reuters that Bankman-Fried’s FTX, his parents and senior executives of the cryptocurrency exchange bought at least 19 properties worth nearly $121m in the Bahamas over the past two years, according to official property records.
Bromley told the court Congress had requested – “some would say demanded” – that FTX’s new chief executive John Ray III appear before lawmakers in December. Any hearing is likely to be politically charged. FTX was a major donor to Democratic politicians.
“Will Joe Biden and Democrats who cashed Bankman-Fried’s checks give that money to the people SBF [Sam Bankman-Fried] screwed?” the Republican senator Ted Cruz wrote on Twitter as the hearing took place.
Bromley said FTX was in “constant communication” with the justice department and the US attorney’s office in New York, which has opened a criminal investigation.
The failed cryptocurrency platform’s 50 biggest customers are owed nearly $3.1bn after its sudden collapse, according to court documents. The court was told FTX’s customers were largely based offshore in the Cayman and Virgin Islands, which accounted for a third of customers between them. The next two biggest customer bases were China and the UK.
The firm has so far located approximately $1.4bn in cash that it says belongs to the business, more than double the figure reported to the court last week.
Dorsey agreed to redact the names of customers with funds frozen on the exchange for now, but said he would revisit that decision.
Ray, who has overseen some of the biggest bankruptcies ever, including the collapse of the energy giant Enron, has described FTX’s failure as “unprecedented”. Its failure has shaken the entire cryptocurrency market.
“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,” he said in court documents filed last week.
A lawsuit has been filed against Bankman-Fried, the company and the celebrities, including Larry David, Naomi Osaka, Gisele Bündchen and Tom Brady, who promoted it. Prosecutors and regulators have also begun investigations into the company.
The next hearing on FTX’s bankruptcy will take place on 16 December.
