Cryptocurrency giant FTX files for bankruptcy and its CEO resigns in a shocking drop

New York ( Business) — FTX Group announced this friday which filed for bankruptcy in the US and its CEO resigned, marking a stunning downfall for one of the most powerful players in the cryptocurrency industry.

FTX said that Sam Bankman-Fried, the 30-year-old founder, will remain to help with an orderly transition. In his place, he will take the helm from John J. Ray III, the lawyer who oversaw the Enron liquidation.

Several employees are expected to stay on to run the company through the bankruptcy process.

“I’m so sorry, again, that we ended up here,” Bankman-Fried wrote. in a twitter thread this Friday. “I hope things can find a way to pick up.”

The bankruptcy proceedings include FTX US, FTX’s cryptocurrency hedge fund Alameda, and about 130 other sister companies.

Ray said the bankruptcy protection will give FTX the opportunity to “evaluate its situation and develop a process to maximize recoveries for interested parties.”

In its bankruptcy filing, FTX says it has between $10 billion and $50 billion in estimated assets and liabilities.

Bankruptcy serves two immediate functions, says Eric Snyder, bankruptcy attorney at Wilk Auslander. On the one hand, it prevents further withdrawals from the exchange, and on the other, it creates a central place to review all claims.

“One of the unknowns is where they are going to get the funds to operate the bankruptcy,” he said. “Right now we don’t have an answer to that.”

The FTX implosion, unthinkable just a few days ago, shakes the cryptocurrency industry to its core. It has been sparked by a bank-like crisis, after serious questions were raised last week about the health of FTX’s balance sheet.

Regulators are trying to figure out what went wrong, and some lawmakers are demanding that action be taken.

Securities regulators in the Bahamas, where FTX.com is based, on Thursday froze some of the exchange’s assets. FTX’s business in Japan was put into “shutdown mode,” meaning users can only close their positions, after it was ordered by that country’s regulators to suspend trading.

Both the Justice Department and the Securities and Exchange Commission (SEC) are investigating FTX, The Wall Street Journal reported. The Justice Department declined to comment, and the SEC said it does not comment on the existence or non-existence of investigations.

Bankman-Fried has been one of the faces of the cryptocurrency industry, amassing a fortune that once totaled $25 billion and has since faded. He was considered the knight-errant of the cryptocurrency world, stepping in to rescue struggling companies. Backed by elite investors such as BlackRock and Sequoia Capital, FTX quickly became one of the largest cryptocurrency exchanges in the world.

FTX spent heavily to land endorsement deals with the likes of Gisele, Tom Brady, and Steph Curry. The logo and company name can be seen on the home of the NBA’s Miami Heat and even on the logos of MLB umpires.

The FTX implosion was preceded by a decision to lend billions of dollars of the assets of the
customers to finance Alameda’s risky bets, The Wall Street Journal reported Thursday. Alameda now owes FTX US$10 billion that the stock market had serious problems collecting, according to the newspaper.

It’s unknown what’s next for Bankman-Fried, which has retained Paul Weiss attorney Martin Flumenbaum, a corporate defense attorney known for representing junk bond trader Michael Milken.

“FTX’s bankruptcy underscores cryptocurrency’s structural challenges around transparency and mismanagement of risk that have, time and time again, caused investors to lose,” said Monsur Hussain, a senior director at Fitch Ratings.