Lawyers say FTX was run as a “personal fiefdom”, faced hacking, loss of assets

Lawyers say FTX was run as a “personal fiefdom”, faced hacking, loss of assets

NEW YORK/LONDON, Nov. 22 (Reuters) – FTX has been run as a “personal fiefdom” of former CEO Sam Bankman-Fried, lawyers for the collapsed cryptocurrency exchange said at its first bankruptcy hearing, detailing ongoing issues such as hacks and significant missing assets.

In the biggest crypto explosion to date, FTX filed for protection in the United States after traders withdrew $6 billion from the platform in three days and rival exchange Binance pulled out of a bailout deal. As a result of the collapse, about 1 million creditors faced losses totaling billions of dollars. read more

A lawyer for FTX said Tuesday at a bankruptcy hearing that the company now intends to sell off healthy business units but has been cyber-attacked and lost “essential” assets.

On Saturday, FTX said it had begun a strategic review of its global assets and was preparing to sell or reorganize certain businesses. FTX said on Tuesday that it is receiving interest from potential buyers for its assets and will go through the process of reorganizing or selling them.

The hearing took place in US Bankruptcy Court in Wilmington, Delaware, and was streamed live by about 1,500 viewers on YouTube and Zoom.

The lawyer also said the firm was run as Bankman-Fried’s “personal fiefdom” and $300 million was spent on real estate such as homes and vacation properties for senior employees. FTX, led after filing for bankruptcy by new CEO John Ray, accused Bankman-Fried of working with Bahamian regulators to “undermine” the US bankruptcy case and move assets overseas.

Bankman-Fried did not immediately respond to an email asking for comment.

Reuters previously reported that Bankman-Fried’s FTX, his parents and top executives from the bankrupt cryptocurrency exchange bought at least 19 properties in the Bahamas worth nearly $121 million over the past two years, official property records show. read more

Lawyers also stated that an investigation into the sale of Binance FTX in July 2021 needs to be carried out. Binance bought a stake in FTX in 2019.

Separately late Monday, Ed Mosley of Alvarez & Marsal, the consulting firm that advises FTX, revealed that FTX’s $1.24 billion cash balance as of Sunday was “substantially higher” than previously thought.

It includes about $400 million in accounts linked to Alameda Research, a cryptocurrency trading firm owned by Bankman-Fried, and $172 million in FTX Japan.

Reuters reported that Bankman-Fried secretly used $10 billion worth of customer funds to support his trading business, and that at least $1 billion of those deposits disappeared.


At the hearing, FTX representatives argued that the names of clients should be kept secret, as their disclosure could destabilize the crypto market and make clients vulnerable to hacking. FTX also argued that its customer list is a valuable asset and disclosure could hinder future sales or allow competitors to poach its user base.

The judge said those names may remain undisclosed until a future court hearing.

FTX lawyers also described an uneasy truce with court-appointed liquidators overseeing the closure of FTX’s Bahamas arm, FTX Digital Markets.

Both parties reached an initial agreement to coordinate their US bankruptcy proceedings before Judge John Dorsey, avoiding the possibility of conflicting decisions from two different US bankruptcy judges. But both sides said they still have broader disagreements over how to coordinate the recovery and preservation of assets owned by various FTX affiliates.

Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.


The fall of FTX sent shivers through the crypto world, driving Bitcoin to its lowest level in about two years and raising contagion fears among other firms that have already recovered from the crypto market crash this year.

Major U.S. crypto lender Genesis said on Monday it was trying to stave off bankruptcy, days after the FTX crash forced it to suspend customer buyouts.

“Our goal is to resolve the current situation by consensus without having to file for bankruptcy,” a Genesis spokesperson said in an emailed statement to Reuters, adding that the company continues to negotiate with creditors.

A Bloomberg News report, citing sources, said that Genesis is struggling to raise fresh cash for its lending arm.

The Wall Street Journal reported, citing sources, that Genesis approached Binance for an investment, but the cryptocurrency exchange turned it down for fear of a conflict of interest. Genesis has also turned to private equity firm Apollo Global Management (APO.N) for financial assistance, the WSJ reported.

Apollo did not immediately respond to a Reuters request for comment on the WSJ report, and Binance declined to comment.

Cryptocurrency exchange Gemini, which is launching a crypto-lending product in partnership with Genesis, tweeted on Monday that it continues to work with the company to enable its users to redeem funds from its revenue-generating “Earn” program.

Last week, Gemini said in a blog post that after Genesis suspended withdrawals, it did not affect its other products and services.

After the FTX crash, some crypto players are moving to decentralized exchanges known as “DEXs,” where investors trade peer-to-peer on a blockchain.

According to data from DeFi market tracker Llama, total daily trading volumes on the DEX jumped to their highest level since May on Nov.

Reporting by Dietrich Knaut in New York and Tom Wilson in London; additional reporting by Manya Saini, Rishab Jaiswal, Jubi Babu and Lavanya Sushil Ahire from Bangalore; Edited by Megan Davis, Alexander Smith and Nick Zeminsky.

Our Standards: Thomson Reuters Trust Principles.

Tom Hulse

Thomson Reuters

An award-winning reporter with over twenty years of experience in international news, specializing in high-stakes court battles on everything from public policy to corporate deals.

Written by khirou

Leave a Reply

Your email address will not be published. Required fields are marked *

World Cup 2022: Live broadcast, how to watch in 4K, schedule, start time, TV channel for Germany, Spain, Belgium

World Cup 2022: Live broadcast, how to watch in 4K, schedule, start time, TV channel for Germany, Spain, Belgium

Asetek SimSports® Introduces Direct Drive Wheelbases and Formula Wheels for Complete Sim Racing Immersion

Taiwan’s No. 1 cable operator Homeplus partners with Ubitus to bring cloud gaming service to its subscribers